Business of Higher Education in Malaysia:
Development and Prospects in the New Millennium

5.0 Some Economics of Higher Education

What are the implications of private sector involvement on the supply of and demand for higher education in Malaysia, and on its quality? This question compels us to look at the economics of private higher education. With such a large number of private colleges in the market (about 600), one is tempted to conclude that private higher education must be a lucrative business. Otherwise how can it attract so many new entrants?

According to many sources, the conclusion is erroneous⁷. Compared to other services (e.g. banking, finance, insurance), the business of private higher education brings only modest returns to investment. At least this is what people in this line of business are insisting. A case study of a small not-for-profit private educational institution is given in the Box at the end of the paper (Case Study).

They say that after paying for salary of lecturers and administrative staff, rental of premises (in the case of small-time players) and utilities, only a small surplus remains which can be called profit in the commercial sense. Remember that companies have to set aside a few thousand ringgits to acquire government permits to conduct their programmes-one permit for each degree or diploma programme. Moreover, each branch campus is treated differently; and separate permits are required. Then there is the accreditation fee to be paid to LAN⁸. These high overhead costs are a deterrent to small-time 'edupreneurs.' It is not free for all, with high costs of entry. Hence, most players do not go into higher education solely for the profit it brings. Unlike in manufacturing, the higher education industry is highly regulated. For example, changes in student fees must first be approved by the Ministry of Education. The government encourages mergers of the smaller colleges in order to gain economies of scale. However, report of mergers in the industry is rare; perhaps most private colleges value their independence and have carved a special niche in the market.

The demand for private higher education in Malaysia will continue to rise. This will be due to rising population of high school graduates, rising income of parents, and rising costs of providing public higher education. On the supply side, the government envisaged that there will be 120,000 places for degree and diploma courses offered by the private sector. Of these, 17,000 (14%) will be 'reserved' for foreign students⁹. Lee (1999: 97) reports that, in 1998, there were already 11,733 foreign students studying in the current 12 private universities in Malaysia, compared to only 5,635 in 1996. These students come from neighboring countries that have been adversely affected by the economic crisis.

Private colleges provide alternatives to parents to choose from. Urban middle-class parents, being better endowed financially, have the widest choice possible. Public universities tend to have very high entrance requirements (but charge low tuition fees) compared to the average private colleges that admit students into their diploma programmes. Upon completion of their diplomas, the students can proceed to the degree "twinning" programmes in collaboration with foreign universities¹⁰. Finally, these students will be graduating with foreign degrees without having to leave the country. Besides the relatively lower tuition fees in Malaysia, this possibility of proceeding to the degree course is a "selling point" for most private colleges wishing to attract students from the Asia Pacific region.

What is the relative tuition cost of private tertiary education compared to a public one? A three-year undergraduate programme at one of the public universities costs about RM1,400 per year in tuition fees (which is 13% of the actual cost)¹¹ whereas it costs about RM30,000 to complete a 4-year IT degree at the UNITAR¹², from RM8,000 to RM13,000 per year for an engineering degree at Multimedia University (The Star, July 18, 1999) and RM12,000 at the UNITEN (e-mail comm.). One can expect to pay much more to study for a Monash degree at its Sunway campus¹³. If a student were to study in the USA (e.g. BBA at Ohio U.), he/she will have to fork out about RM35,000 per year in tuition fees alone. If one includes all living expenses, books and supplies, the average cost of programmes per annum in the Midwestern USA is USD15,000 (RM57,000) (The Star, July 4, 1999). All these go to show the extent of subsidization (87%)¹⁴ at Malaysian public universities. Following corporatization, Vice Chancellors in Malaysia have been directed by the Education Ministry not to increase tuition fees to local students, as the government has promised the general public that tuition fees remain unchanged after corporatization.

With so many private colleges around, who undertakes quality control of private higher education in Malaysia? This question takes greater significance as the number of programmes increases. In 1997 the Malaysian government established a National Accreditation Board (or LAN by its Malaysian acronym) to accredit (and eventually give ranking to) all institutions of higher earning (private and public)¹⁵. The work of this board seems to be enormous as they have to scrutinize every curriculum that needs to be accredited¹⁶. At the moment, this requirement is not compulsory; but before a college can run a course, it must first meet "minimum standards" set by LAN. The standard fee for a certificate programme is RM5,000, for a diploma programme the fee is RM6,000, while for a degree programme, LAN charges RM7,000. In addition, these private colleges have also to pay accreditation fee to LAN which is the second stage of the quality control process. This accreditation is mandatory if a private college is to admit international students. By getting accreditation, a private college enables its students to apply for loans from the National Higher Education Fund Corporation¹⁷. However, many doubt if these middle-class students need this loan in the first place. In the second place, they do not qualify based on parents' combined income not exceeding RM30,000. Another advantage of getting accreditation, as mentioned by the Ministry of Education, is that graduates from these private colleges may seek employment with the government sector. Again, many will argue how many of these graduates want to enter government service, as the trend points otherwise? For colleges that run foreign degrees or diplomas, even though quality control is already undertaken by their foreign partners, the Minister still requires LAN to take a second look, which has caused some dissatisfaction among the private colleges (The Star, 5/9/1999). For foreign universities that are already "recognized" by the Malaysian Public Services Dept. (PSD), accreditation by LAN would seem to be superfluous for entry into the civil service. Thus, there appears to be some immediate streamlining of policies in this area, at least to give the correct impression that the authorities are not overzealous in the quality control domain.¹⁸

Quality of higher education is also tied to the quality of the teaching staff. Without exception, lecturers in public universities must possess, as a minimum, a master's degree before they can be recruited. Many of them have doctoral degrees. Their job is not only to teach, but also to do research and engage in consultancies. Their research exposure enhances their credibility as university lecturers. Promotion to higher levels in their career depends on their research and publications. This is where public universities differ from the private colleges. Most lecturers in the smaller colleges have only a first degree. This is deemed sufficient if they only prepare students for diploma courses. If these colleges conduct twinning programmes with foreign universities, then their foreign partner may send their better qualified lecturers and professors to teach. The main function of a lecturer in private colleges is teaching. Research is an expensive undertaking, which may not bring in any immediate returns. Generally, private colleges will not be willing to spend money on research in the academic disciplines that they teach. This activity increases cost and reduces profit.

One striking feature of the private higher education business is the aggressive advertising undertaken by the industry's big leagues. This practice is consistent with the economic model of monopolistic competition where a large number of firms are selling differentiated products. In this case, a product may be a degree in electronics engineering or computer science, but it is offered by different colleges "twinning" with different foreign partners. Advertising is a sign of the "stiff competition" among the players; it is the opposite of the "perfect competition" of economics textbooks, where advertising is unnecessary. In their advertisements, the colleges will try to draw the attention of the audience to the strength of their foreign partners, such as their rankings or their being accredited by such and such a body overseas. Most advertisements appear in the printed English language media¹⁹. For example, one ad says: "If you can't go to ULH and Murdoch, they will come to you." A KDU ad says the college wants to "make you somebody." It also claims (perhaps rightly) that it is a pioneer in American university transfer programme. Kolej Komuniti Mertajam boasts that it is the first government approved private college in Penang. RIMA College in Penang capitalizes on the fact that they are offering "a part-time American degree for busy people." Silicon Institute of Technology proudly promises to offer an Honours degree in engineering and computing in three years after the SPM²⁰. HELP Institute says that theirs is "more than just a degree-it's an American experience." Taylor's College, which is twinning with, among others, Sheffield university, warns that it's not easy to be top engineers and financiers-you have to be prepared for a tough life as an engineering student on its campus.