Office for Students to gain new powers to intervene when providers face closure

Out-Law News | 12 Apr 2021 | 9:51 am | 2 min. read

The Office for Students (OfS) has introduced a new ongoing condition of registration requiring English higher education providers facing the risk of closure to comply with OfS directions as to their contingency planning for, or an actual, market exit.

Condition C4 is designed to protect students’ interests if providers are at risk of shutting down for financial or other reasons, and enables the OfS to direct universities, colleges and other institutions to take actions such as arranging student transfers, providing information, advice and guidance to students, or providing refunds.

The introduction of condition C4 (8 page / 339KB PDF), which began to apply from 1 April 2021, follows consultation with the higher education sector. The proposals were largely supported by students, but received less support from providers, which expressed concerns about the impact on their autonomy.

McCall Rebecca

Rebecca McCall

Senior Associate

There is a concern that the new condition C4 would allow the OfS to overstep the autonomy line by taking the decision as to a provider’s financial sustainability and future direction out of its hands

Higher education expert Rebecca McCall of Pinsent Masons said section 2(1)(a) of the Higher Education and Research Act 2017 provided that, in performing its functions, the OfS must have regard to protecting the institutional autonomy of English higher education providers.

“There is a concern that the new condition C4 would allow the OfS to overstep the autonomy line by taking the decision as to a provider’s financial sustainability and future direction out of its hands and that by forcing a provider to produce and potentially make public a ‘market exit plan’, there is a likelihood of creating more confusion and uncertainty for students,” McCall said.

Under condition C4, the OfS will be able to require a provider to comply with a ‘student protection direction’ where it reasonably considers that there is a material risk that the provider will fully or substantially cease the provision of higher education in England.

The student protection direction can require a provider to produce a market exit plan setting out student protection measures for approval by the OfS and implementation by the provider. The OfS has the power to impose monetary penalties, suspend registration, or de-register the provider if a provider fails to comply.

It will be at the OfS’s discretion whether it makes public that a market exit plan is in place.

The OfS already requires providers to produce and publish a student protection plan, which has to be approved by the OfS and which should set out what the provider will do to mitigate risks to the continuation and quality of study.

McCall said the OfS had introduced the new condition as it believed there are deficiencies in student protection plans currently.

“That begs the question as to why, if it is within the control of the OfS to approve or reject a student protection plan, the OfS has not been working with the sector to improve them so that they are fit for purpose in the event of an identified risk crystallising,” McCall said.

McCall said higher education providers should consider whether to review and update their student protection plans so that they are fit for purpose should one of the risks identified, including financial risk, crystallise, and so that there is a clear plan as to what the provider will do to support its students in such circumstances. This would help avoid the risk of the OfS intervening under the new condition C4, which would potentially take key decisions out of the provider’s hands, including managing how information about a potential market exit is made public.

Withyman Tom

Tom Withyman

Partner

It is clear from the new condition C4 that the OfS wishes to be in a positon to intervene quickly where it identifies a terminal issue

Whereas the higher education restructuring scheme introduced by the UK government as a result of the Covid-19 pandemic provides for rescue lending to an eligible institution, the new condition C4 provides the OfS with powers to direct how an institution not eligible for rescue lending and facing the risk of closure might cease teaching and exit the sector. 

Restructuring expert Tom Withyman of Pinsent Masons said: “It is clear from the new condition C4 that the OfS wishes to be in a positon to intervene quickly where it identifies a terminal issue and to be able to direct a provider to the appropriate route to closure, presumably seeking to avoid a damaging insolvency process.”

The OfS is using its powers under section 5 of the Higher Education and Research Act 2017 to introduce the new condition of registration.