The government should allow private providers to treble their share of public-backed student loan funding or risk ¡°snuffing out¡± the sector altogether, the founder of one of the UK¡¯s biggest for-profit institutions has said.

The Department for Business, Innovation and Skills is currently developing a system that will cap the number of students at private providers claiming public-backed loans in light of a recent consultation.

The Treasury is reportedly ¡°terrified¡± by rapid increases in Student Loans Company funding at private providers, which, unlike public universities, are presently not subject to a numbers cap.

Students at private equity-owned GSM London, formerly known as the Greenwich School of Management, accounted for ?22.7 million of the ?100.3 million in SLC funding loaned to those enrolled at private providers in 2011-12.

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William Hunt, co-founder and deputy chairman of GSM London, said it was ¡°totally justifiable, from the Treasury¡¯s point of view, that some form of capping should come in - and so much better that it is coming in with this particular government¡±.

But Dr Hunt warned: ¡°A draconian capping policy could easily snuff out that sector altogether, as it is so small.¡±

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He said that David Willetts, the universities and science minister, and Nick Hillman, his special adviser, are ¡°aware that they are going to have to have some sort of growth policy within the capping strategy¡±.

Dr Hunt said that private providers currently accounted for only 1.5 per cent of SLC funding. He suggested that after the first year of the cap (he thought the 2014-15 academic year was the most likely start date for implementation), their share should be allowed to grow to 3 per cent.

¡°The following year I¡¯d like to see it grow to 4 per cent, then to 5 per cent, then I think we¡¯re stable,¡± he said.

Healthy competition

Asked if the new system could mean private providers competing head to head with universities for student places, Dr Hunt said that this would be ¡°a good thing, in my view¡±.

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He said that ¡°we¡¯re charging ?6,000 and not ?9,000¡± in tuition fees, adding that private providers with courses designated for SLC funding ¡°are offering degrees that are very similar quality to what the student will find at a university, if not better in certain circumstances¡±.

Asked about union criticism of public subsidies for for-profits, Dr Hunt offered a contrast with the traditional university sector.

¡°There are no limousines driving the vice-chancellor around, no salaries of ?350,000 a year¡± at GSM London, he said.

Carl Lygo, principal of BPP University College, said his institution had responded to the consultation by encouraging the government ¡°not to go down the route of nationalising the private sector by forcing funding on [it] with caps on growth¡±.

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¡°A free market for education could be achieved if the government allowed providers to take on the cost of the student loan scheme,¡± he added.

Alistair Alcock, deputy vice-chancellor of the University of Buckingham, told a conference on private provision held in London last week that there was ¡°huge tension between BIS and the Treasury¡± over loans, with the latter ¡°terrified of this doubling year by year¡± of public-backed funding at private providers.

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john.morgan@tsleducation.com