How Your University Could Go Bust

Bankruptcy is the "game over" screen of capitalism, and it's something we're pretty used to. We've all heard of small business ventures that fail: your mate's bubble tea cafe didn't work out as well as she thought it would, the guy from school's ringtone business has suffered in recent years. Occasionally, a really big company like BHS or Woolworths goes under and that's shit for the people who lose their jobs, but if you're a customer, the worst-case scenario is probably that you can't return the slippers your aunt got you for Christmas.

We expect institutions that are more embedded in our lives – high-street banks, basic utilities, places of education – to be "too big to fail". You need to know that your money is safe, that you can turn on the tap and water will come out, and that your degree still means something.

For years, it's been a given that no university will go bankrupt. But recent reforms mean that university finances are looking more wobbly than ever. At the same time, private providers could soon be allowed to set up shop as universities. Critics warn that anyone from Samsung to Del Boy could start handing out degrees – and have access student loans.

The idea, according to the government, is that this will force current universities (which are pretty much all public-funded) to raise their game and do more to attract students from poorer backgrounds. By creating a private marketplace for university education, the government is acknowledging that some universities will go bust. It's part of the plan to let bad universities fail.

"The government has taken away the safety net in a number of ways," explains Nick Hillman, director of the Higher Education Policy Institute. Firstly, since 2012, universities have gradually been told they can recruit as many students as they like. This has created huge competition between universities desperate to soak up as many students as possible and bring in an extra £9k per head, per year. "To put it brutally, home students are now profitable, which for years they weren't," says Alison Wolf, professor of public sector management at King's College London and a crossbench peer.

While some universities have succeeded in cramming more students into their lecture halls, others are losing out and struggling financially. Meanwhile, university bosses are investing (or some argue, gambling) huge sums of money in new student accommodation and facilities, in the hope they can attract more students and expand. A lot of money is at stake. Only last week Michael Arthur, the provost of UCL, which has borrowed record amounts to fund its expansion, warned staff that the institution was in a "barely financially sustainable position" and that it only has enough cash to last the next 42 days. All this is happening at a time when the number of 18 year-olds in the UK is falling each year.

Now the universities minister wants to ramp things up further. The proposed Higher Education and Research Bill will, if introduced, create a new, and controversial, system designed to measure which universities are excelling at teaching. Those that pass will be given permission to raise fees in line with inflation. Those that don't will suffer negative publicity that's likely to put future students off applying altogether – which means they'll lose even more cash.

This bill would also make it much easier for people to create new universities, known as "alternative providers". Some of these could be run by non-profits or local further education colleges, but others could be run by for-profit commercial organisations. They could charge any fees they want – but their students would only get government loans of up to £6,000. The bill would allow these providers to offer degrees from day one and to gain university status in six years – a process which has previously taken decades.

Last time the government tried to encourage private higher education colleges, the experiment was considered a disaster by many, with the National Audit Office reporting worryingly high dropout rates and abuse of the student loan system.

The idea that for-profit private universities will drive up academic standards is based more on "faith and hope" than fact, says Professor Wolf. They'll be driven by short-term profit, not stability for students, she adds. Government analysis found huge volatility among alternative providers (which includes private colleges and universities). Around 12 percent of them have ceased to trade over the last five years.

The government has said that universities (both public and private) that are accessing student loans must have a student protection plan, outlining how undergrads would be able to carry on studying if their university gets into trouble. But the details are hazy.

Even if a student is able to complete their course, what happens if the degree they end up with is worthless because nobody has heard of the university they once attended? There's a real danger that students entering such private universities will end up buying "counterfeit degrees", says professor Alan Smithers, director of the centre for education and employment research at the University of Buckingham. "They'll get [a degree] and then they'll find it doesn't buy anything when it comes to employment."

The government has stated explicitly that it will not step in to prevent a university going bankrupt. But most experts argue that this is only really the case for private universities, and that in practice, traditional public-funded universities wouldn't be allowed to simply disappear. "There's always shades of grey between letting a university go bust. There are takeovers, there are mergers, there is restructuring, there are a bunch of others things you can do," says Nick Hillman.

But even if the university stays afloat, the outcome for staff and students might not be a whole lot better. With a merger some courses would almost certainly be phased out, potentially forcing students to transfer elsewhere. A private takeover could change the shape of a uni even more significantly – Carl Lygo believes it's possible that chunks of UK higher education could be bought up by Chinese and Russian private investors whose emphasis would be on profit.

It's not hard to work out which universities are most at risk of being forced into an emergency merger or private takeover. "If you're a university which doesn't have very high prestige, in an area where there are lots of other universities, it's quite likely you're going to find it pretty tough," says Professor Wolf. These, however, are often the universities that often do the most to recruit and teach students from less privileged backgrounds.

The government's reforms are supposed to be about giving students more choice and getting more students from poorer backgrounds into university. But many are doubtful that students are actually going to benefit from any of this. Professor Wolf believes that there are no clear protections for students in the bill. Her warning is clear: "If I was a student I would be very concerned about what is happening."

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