- This blog was kindly authored for HEPI by Mark Jeynes, Partner and Head of Education & Training Practice, CIL Management Consultants. LinkedIn: https://www.linkedin.com/company/cil_2/.
In this blog, we highlight the important role that Alternative Providers of Higher Education (‘Alternative Providers’ or ‘APs’) can play as partners to traditional universities.
Alternative Providers are described by HESA as higher education providers who do not receive recurrent funding from the Office for Students (previously HEFCE) or another public body and who are not further education colleges. In order to be able to deliver higher education level provision, Alternative Providers have to rely on an existing provider with Degree Awarding Powers to authenticate their provision and courses. This is in the form of a validation or franchise agreement.
The Alternative Provider (‘AP’) market is fragmented. There are currently c.340 APs registered with the Office for Students, of which c.40 had a student intake of >250 in the 2021/22 academic year.
Our analysis of data from HESA indicates that in 2021/22, there were 68,000 undergraduate course starts at Alternative Providers. These figures represent the majority of starts at APs, albeit we note a slight undercount as 30 APs (out of c.350) do not report student demographics to HESA. The number of undergraduate course starts at APs has experienced significant growth since the 2017/18 academic year (35,000 starts).
Attractive Characteristics of APs for Other Market Participants
The AP model of higher education presents several attractive characteristics to other market participants:
- Traditional universities: Given the financial challenges faced by many HEIs, universities are increasingly looking to alternative revenue streams to bolster their finances. APs, via their ‘franchise’ model, can provide an attractive source of income without placing additional strain on university resources.
- Regulators: The Office for Students has highlighted ‘widening participation’ as one of its key objectives. Universities must now publish Access and Participation Plans, detailing how they will improve equality of opportunity for under-represented groups to access, succeed in and progress from higher education. APs, with their established traction across non-traditional student cohorts, are well-placed to support traditional universities in the recruitment of these often hard-to-reach students.
In terms of helping universities with widening participation and access, a typical AP student may be mature (aged 25+ years), living in an urban area and often lacking formal academic qualifications.
The propositions offered by APs enable them to target students with this profile, which traditional universities often struggle to reach:
- Flexible admissions criteria: APs consider candidates holistically – e.g., professional / life experience can be taken into account, rather than pure academic attainment. In contrast, traditional universities tend to focus on UCAS points.
- Flexible timetables: Many target students, given their age, have other commitments such as full-time work or childcare. APs offer weekend and evening classes, providing scope for students to manage other commitments alongside their studies.
- Local study: Given their other commitments, most target students are not likely to consider moving to a campus university. APs’ urban locations, enabling students to live at home, are therefore key.
- Tailored learning environment: Compared to traditional universities, APs are used to handling students with non-traditional academic backgrounds. They typically have more robust support structures (e.g., small class sizes and an emphasis on academic and pastoral support) to enable these learners to thrive.
Many APs achieve attractive margins, with some of the larger platforms – QA Higher Education, Global Banking School, London School of Science and Technology, UK College of Business and Computing and Regent College – delivering EBITDA margins in the c.25% range. APs are able to operate profitably due in large part to smaller, more ‘targeted’ cost bases. For example, their campuses tend to be smaller and operated more efficiently, with classes scheduled throughout the day, in the evenings (during weekdays) and at weekends.
Scale APs can recruit students through multiple channels (agents, digital marketing, personal referrals and school partnerships) and at manageable costs. Most students undertake four-year courses (a foundation year, followed by a three-year undergraduate degree programme). This reflects the fact that a typical AP student may have left school without completing A Levels (or equivalent) and may not have completed any post-secondary education for 10+ years, hence the need to complete a foundation year. With APs generating £30-35k in revenue per student, LTV/CAC dynamics are attractive.
Traditional universities looking to partner with an AP should feel confident that in many cases, APs’ business models support robust economics and thereby financial sustainability.
APs have multiple growth levers, which can be leveraged for the benefit of their university partners:
- Maximising earnings at existing sites: Careful management of capacity at existing sites through the use of flexible timetabling models, the introduction of blended courses incorporating face-to-face and virtual teaching and investment in student acquisition (e.g., agent relationships and digital marketing), can meaningfully improve site-level performance.
- New site roll-out: Once operators have developed a proven model for acquiring students and delivering quality tuition, the model can be replicated across new sites. Several major regions in the UK appear to be relatively underserved by APs, suggesting meaningful white space for growth.
Potential ‘watch outs’
Whilst overall market conditions appear supportive of further growth across the AP space, traditional universities looking to partner with an AP must be aware of potential risks.
The key risk for universities is poor academic attainment by AP students. Under the franchise model, teaching is essentially ‘outsourced’ to APs, meaning the academic attainment of AP students is included within a university’s B3 scores, just as if these students were ‘taught’ in-house. Given increasing scrutiny around academic attainment and potentially harsher penalties for missing attainment thresholds, the risk profile of franchise arrangements may be perceived as less attractive by some traditional universities.