A free market would see private universities fail from Day 1

I am responding to Geoffrey Williams’s article titled “Private universities facing major financial crisis, need help”, which FMT published on Dec 2.

His demand for a government bailout for private higher education institutions (IPTS) will not solve anything as they were meant to fail since Day One in the free market system.

The commercialisation of higher education began in earnest in the late 90s with the enactment of the PTPTN Act and Private Higher Education Institution Act (Akta 555).

This measure was to reduce government operational spending with the intention of slashing corporate tax and cushioning the impact of the elimination of inheritance tax in the early 90s.

In short, the government reduced its commitment to education in order to reduce the taxes on the top 1%.

A small handful of GLCs and private training colleges were invited to convert their respective training centres into universities.

However, the inability of students’ parents to pay the high tuition fees immediately sent the universities into financial stress. In 1996, Umno Youth demanded for a national education loan which later materialised as PTPTN.

PTPTN became a cash cow for IPTS, paving the way for the mushrooming of new colleges.

The GLC-linked universities received generous handouts for research, consultancy contracts and scholarships. It’s an open secret that TNB, Sime Darby, Petronas and TM were dishing out scholarships to their respective IPTS to keep them afloat. However, the rest of the IPTS were under-capacity with some relying on the exorbitant fees imposed for foreign students.

In 2009, the IPTS industry players complained about the government crowding out the higher education playing field. Then-prime minister Najib Razak halted any new public universities instead of expanding and upgrading the existing IPTS.

This instantly backfired as the government could not cope with the increasing number of aspiring school-leavers.

The IPTS managements have been complaining of overcapacity as Putrajaya squeezes more students into each campus. Hundreds of new college licences were dished out, relying on PTPTN.

PTPTN went on a huge lending spree, creating the PTPTN financial “time-bomb” as we know it today.

The argument that IPTS meet national economic aspirations is nonsensical as they negatively skewed the entire labour force.

Multiple academic reports have shown that many of the courses provided in IPTS are irrelevant. The excess number of graduates also suppresses the overall national wages for graduates. In Malaysia, 77% of graduates earn below RM3,000 with more than 53% earning less than RM2,000.

Private universities are financially unsustainable because the only way they can meet the higher remuneration for academic senate members (professors and senior lecturers) is by charging students higher fees. However, higher fees reduce the pool of schools-leaver that can afford it. This is a vicious cycle that bleeds the IPTS dry.

It is an open secret that some GLCs previously made a verbal request to Putrajaya to nationalise these IPTS.

The IPTS were meant to fail. Providing them with financial assistance means the government is merely subsidising their profit.

Education Minister Maszlee Malik has extended the moratorium on IPTS licences, but more needs to be done.

Putrajaya could acquire the IPTS owned by GLCs and state governments through share buybacks and debt-to-asset swaps respectively. This would increase Putrajaya’s higher education assets without the need for additional development funds.

Subsequently, Putrajaya should consolidate and reorganise these education assets. The satellite campuses of GLCs and small state IPTS could be converted into TVET colleges. The overcapacity in existing IPTS could be alleviated by newer ones. Putrajaya subsidises at least 60% of tuition fees for the first few years before raising it to 90% like rest of the public universities.

The education ministry previously allowed a 10% “additional revenue margin” on baseline tuition fees which could be eliminated once nationalised.

GLCs could pay 20% to guarantee their access for industrial technology licensing, research capability and consultancy services. Thus, Putrajaya only needs to fork out 30%-50% for the first year. Putrajaya could raise funding 10% each year before reaching 90% tuition fee subsidies like existing public universities.

Students from the B40 and M40 groups could be absorbed into these newly converted IPTS which previously faced under-capacity.

The smaller colleges residing in shop lots and bus stations should be closed down and their students and qualified staff absorbed into newly established TVET colleges. Hundreds of these IPTS barely have any proper academic and co-curricular infrastructures which deprives these students of their rightful college life.

The cash purchase of the rest of the large, privately-owned universities will not be feasible at the moment so it is best to leave them to cater to the T20 pool but at a reduced competition.

Through the proposed acquisition, the government can instead focus on the B40 and M40.

This reduces the state of financial crisis for PTPTN and prevents students from being stranded due to the foreclosure of IPTS.

A combination of strategic approaches would better solve the two decades of IPTS mess instead of bailouts.

Sharan Raj is the PSM vice youth chief.