The Business of private education

By Samantha Joseph

Why is the education industry so attractive as a business? Colleges make up the bulk of private higher education institutions, mainly because of the perception by potential students of cheaper fees and lax entry requirements. Twinning and franchised programmes play a significant role in attracting students with the promise of overseas certification – but are these to their benefit? ______________________________________________________________________

One of the main questions when observing the Malaysian private education industry is how do these institutions survive? With a pool of less than a million students, and 535 institutions – including branch campuses of local institutions and public universities – simple division reveals that each institution would be host to approximately 1,748 students.

This is farcical, as the Malaysia Higher Education Statistics 2011 reports that public institutions of higher education had a total enrolment of 508,258 students, and private higher education institutions with university status held a 202,714 total of the enrolment pie.

The private colleges, all 424 of them, hosted 100,637 enrolments; averaging that out would mean that each college had less than 300 students in 2011. Earlier this year, the Higher Education Minister Mohamed Khaled Nordin said that ‘some private institutions had fewer than 500 students, making them unsustainable’.

This statement would mean that nearly all the colleges would be considered ‘unsustainable’ under this definition. Yet their market base is not to be scoffed at; of the 1.2million students reported to be studying in Malaysia, 400,000 of them are pursuing a diploma.

As President and Vice Chancellor of University Tun Abdul Razak (Unirazak) Professor Zabid Abdul Rashid points out, capex for most of these institutions are very low, especially for those who do not have dedicated infrastructure and operate out of commercial shoplots. With the expense for infrastructure removed, all that is left is to provide educators and create a programme.

“In many cases, colleges started as tuition centres for foreign institutions to offer offshore programmes,” he says.

“You just need to provide the minimum infrastructure, minimum staffing, and yet earn good returns. In terms of return of investment and yield, it was better than a fixed deposit or housing at the time.”

Keeping this in mind, many of the smaller colleges offer subjects that do not require laboratories or extensive libraries, usually focusing on subjects like business, management, languages and ICT.

In some cases, programmes are franchised out, either from private universities or public universities. According to the Malaysian Qualifications Agency (MQA), a normal process of accreditation is still applicable to all franchised programmes conducted by private higher education institutions.

Others offer partnerships with overseas institutions that will result in an added certification upon completion of the diploma or degree. An example is Windfield International College’s Diploma in Business Management that yields a diploma from Windfield International College, an advance diploma from the Institute of Financial Accountants (I.F.A), UK; a diploma from the International Association of Accountants Executive (I.A.A.E), UK; and a certification from the Association of Business Practioners (A.B.P), UK.

An extension of one to one-and-a-half years to the diploma will yield a bachelor’s degree awarded by one of several overseas institutions – and prices vary according to the institution chosen.

Logan, a representative of Windfield International College, says that the added certification is an extra advantage for their students, as the international endorsement will give them leverage once they graduate.

“These are all professional bodies in the UK who have approved the Windfield Business Management Diploma programme,” he says. “With these added diplomas, they can go on to pursue their degrees at any of our listed universities, or any other university that they qualify for.”

As things go, getting four for the price of one looks like a pretty good deal. But the question is whether students will be able to apply these certifications in the working world. While the IFA and the ABP are internet-searchable, the IAAE is a little more difficult to track down. Superficially, the IFA and the IAAE seem to be similar organisations. Several certifications for the price of one is an attractive marketing tactic that make students feel as if they have gotten more than their money’s worth.

While twinning with overseas institutions looks impressive, it is questionable whether these partnerships add value to a student’s academic experience. According to industry practitioners, some of these institutions may not be as remarkable as first impressions would make them seem.

“When I look at the twinning institutions, those institutions are not that great,” an industry insider says. “They’re all second-rate and third-rate institutions from UK and Australia.”

But he says that this comes as no surprise, as Malaysian parents have this idea that overseas is better than local.

“In a way, you don’t know who to blame. It’s our Malaysian attitude to think that way. And parents here are very uninformed. As long as it’s a British university they think it’s great. They don’t bother looking at the rankings. I haven’t heard of half the places institutions twin with. Some of them are polytechnics that were raised to university status.

“And of course, these overseas institutions are eager for the foreign students. They’re eager for the money. So they come here, teach a compressed one week, and then go back. The students are supposed to be ‘self-mentoring’ and we are supposed to tutor them. This is not proper,” the industry practitioner said.

Another practitioner points out that there are many students who pursue a degree in a private higher education institution (PHEI) solely for the certification from an overseas institution, providing a lucrative source of income.

A glance through the programme pages of nearly any private higher education institution’s webpage would reveal a seemingly endless number of partnerships, twinning programmes and franchises from overseas institutions – especially those from the UK and Australia. For many Asians, this is supposed to automatically mean that it is a better offer than if it were merely offered by a local institution.

Little do they know that some of these overseas institutions rank beneath our own on the QS World University Rankings, and the private colleges would probably do better to partner with Universiti Teknologi Malaysia if they wanted some prestige.

At Kolej Bandar Utama, the BA in Business Management programme is franchised from the Anglia Ruskin University. According to the QS World University Rankings, Universiti Malaya is ranked 167 and Universiti Kebangsaan Malaysia, 269. The Anglia Ruskin University, meanwhile, does not show up on the rankings list. Aside from that, despite recently receiving a satisfactory report from Office for Standards in Education, Children’s Services and Skills, the university had been investigated on the quality of its trainees in 2010.

KiniBiz is still awaiting a response from Kolej Bandar Utama on the quality of its partnerships.

A small price to pay?

One of the reasons small colleges have managed to survive is the low fees that they charge students, many of whom were unable to get a placing in a local university, or could not afford to attend a university. Most of these colleges rely on diplomas as their main attraction for enrolments, sending offer letters to students who have completed their SPM but may not be considering Form 6 or matriculation.

The smaller colleges usually only a certain number of credits and a pass in either English or Bahasa Melayu, while larger institutions and universities have specific criteria and higher requirements for enrolment. Swinburne University of Technology for example, has a requirement of at least a B grade in SPM and a Band 4 in MUET, while Olympia College requires only three credits and a pass in English.

But is the cost really that much cheaper in comparison to a degree at a university?

Theoretically, that is what one would think, but there are instances of the cost being comparable. An example would be a diploma in business. Swinburne University of Technology, a local branch campus of an Australian university, charges RM21480 for its diploma, while Kolej Bandar Utama’s diploma in business is RM20,140 and Kolej Mutiara offers one for RM16650.

The range from branch campus to shoplot college presents a disparity of less than RM5000. And since a majority of these private higher education institutions are recognised by PTPTN, it brings to mind the question of why, barring an inability to fulfil academic requirements, a student would choose one over the other.

It makes the case that a lot of institutions are preying on the ignorance of students when it comes to making the choice of investing their money in education.

 Online forums and consumer complaint websites reveal students from these smaller colleges complaining about the lack of facilities, the accommodations which are more often than not sub-divided shoplots above the ‘campus’, allegations of college administrations attempting to extort money from students under the threat of being barred from exams or graduation certificates being withheld, and further allegations by students who were duped by accepting ‘scholarships’ that amounted to less than 10% of the actual fees upon enrolment.

Due diligence is indeed something that all potential students and their guardians should practice, and making complaints based on not knowing the true cost or the actual certification of the programme is naïve. At the same time, the institutions – that may or may not be guilty – have the responsibility to disclose all information that is relevant to enrolment in its entirety. Another frequently heard complaint is that students have enrolled for a programme only to find that it is not accredited by the Malaysian Qualifications Agency (MQA).

According to the Malaysian Qualifications Agency, an institution does not need all of its programmes to be approved by MQA for it to continue running without catching the eye of the ministry.

A telling note from 2011’s Private College Equivalence was the quote by then Deputy Higher Education Minister Dr Hou Kok Chung, stating that out of the 311 institutions that participated, only 232 were qualified. The remaining 79 did not have courses accredited by MQA, and thus did not qualify.

Aside from fines, there does not seem to be any clear consequences for running programmes that are not accredited by MQA, and it is no surprise if colleges continue getting away with it and collecting fees from parents and students who do not do their due diligence.

Syed Ahmad Hussein, Chief Executive Officer of MQA, laments the fact that students and parents rarely check their website to ensure that the programmes they are eyeing have in fact been accredited.

“We run awareness campaigns and we try to get people to be more aware when it comes to accredited programmes,” Syed Ahmad says. “And we can only hope that people come to MQA if there are any complaints.”

So why doesn’t MQA just shut down all the institutions or at least the programmes that do not have accreditations? On one hand, some programmes do not have accreditation because the assessment may be ongoing. On the other hand, says Syed Hussein, MQA does not have the authority to shut anything down. They can only operate in the capacity of advisor to the Ministry of Education.

In 2011, the Ministry of Education issued fines to 47 private education institutions from January to March, and in 2010, 48 institutions were fined throughout the year. In 2009, the number of institutions fined was nine. This incredible leap in numbers may be due either to a rise in infractions or an increase in crackdowns, although the latter is more likely.

The big companies

Small colleges aren’t the only ones who have cashed into this Asian obsession for paper qualifications. Listed companies have also sliced themselves a piece of the education pie. Paramount Corporation has the KDU Education Group; Masterskill Education Group (MEGB), HELP International Corporation and SEG International are all education-focused listed companies.

In terms of profit before tax, SEGi reported a year-to-date amount of RM19 million and HELP, RM10.9 million. Masterskill on the other hand, reported a negative earning of RM30 million. KDU’s Education Group contributed an overall RM28.3 million, with the higher education institutions KDU University College and KDU University College Penang providing RM8.3 million of that amount according to the 2012 annual report.

While the fruit of industry liberalisation was extra sweet in the 80s and 90s when Masterskill and KDU first formed their institutions, it is clear that the pie has rapidly become smaller and less tasty. All of the education-centred listed companies have shown a consistent fall in pre-tax profit year-over-year, with KDU Education Group reporting an overall decline of 7%, SEGi saw a 63% fall and HELP was down 20%, while losses for Masterskill nearly tripled.

In fact, profits for Masterskill has consistently fallen in the last few years, leading to its position of operating on negative profits for the past two years. Masterskill’s difficulties lie primarily in the reduction of the PTPTN loan schemes that served as a profit mainstay for private higher education institutions.

“The PTPTN loan scheme which was reduced from RM60,000 to RM45,000 for each diploma students is just one of the many hurdles in the path of the Group,” read Masterskill’s 2012 Annual Report. “The decision by the Malaysian Nursing Board to increase the minimum entry requirement for the diploma in nursing programme from three credits to five credits at the Sijil Pelajaran Malaysia (SPM) was another underlining factor to the obstacles faced by MEGB.”

Masterskill is not alone in being affected by PTPTN cuts, as a report by Kenanga on the education sector earlier this year noted that HELP and SEGi have approximately 10% and 50% of their respective student base dependent on the PTPTN loan to finance their tuition fees.

In 2010 parliamentary proceedings, the seven private institutions that raked in the most through PTPTN collection in 2008/2009 resulted in a collective amount of RM251, 331, 148.47.

According to the Kenanga report, other factors that would negatively affect profits of operators in the education sector, namely the drop in international student enrolments due to the implementation of EMGS, its stringent visa-approval system and it’s lethargy in service; and the boom in players at the university level, including branch campuses of overseas universities that are due to be set up in Malaysia over the next few years.

KiniBiz previously reported the expected losses from foreign student enrolment, noting that EMGS could cost education stocks that rely heavily on them millions in net profit for this financial year. EMGS recently released a press statement acknowledging that while there were teething problems initially, these are fast being addressed and the charter for the issuance of a student pass within 14 working days will soon be achieved.

It remains to be seen whether the increased speed with which student passes are processed will mitigate the thousand dollar fee that is now applicable to all students who wish to study in Malaysia, and ensure a consistent trickle of foreign enrolments in the country’s private higher education institutions.

In the next issue, KiniBiz takes a look at the employability of Malaysian graduates and the practices of institutions that offer medical and nursing programmes, questions that have come up concerning the legitimacy of their programmes and accusations of cronyism allowing them to continue operating.