A growing number of universities are setting up lower-fee private subsidiaries in response to increased competition in the sector, with regulators committing to monitor the emerging trend.

The latest to announce such a move is the University of Hertfordshire. Its non-profit private offshoot, aimed primarily at part-time students in employment and set up jointly with further education institution Oaklands College, will launch in 2013 under the proposed name St Albans University College.

Quintin McKellar, Hertfordshire's vice-chancellor, said the ultimate aim was for the college to gain its own degree-awarding powers to demonstrate to students that it offered "a slightly different product" from the university.

Asked if potential competition from for-profit colleges was a factor in the move, Professor McKellar said: "It's certainly happening at a time when we anticipate private providers will come into the market."

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Coventry University and the University of Bolton are also to launch private subsidiaries.

Coventry University College launches this month, aiming to target workplace students and charge maximum fees of ?4,800.

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A Bolton spokesman said the university was "exploring a highly affordable and innovative model of ÖйúAƬ provision" to launch "in strategic locations".

"This subsidiary will play a major part in redefining the (ÖйúAƬ) sector," he added.

A recent paper written by officials from the ÖйúAƬ Funding Council for England notes that "some universities are creating new structures to attract the part-time, accelerated learning mode, lower-fee student market".

"Some approaches might be interpreted as avoidance of regulation," the paper adds. It would be "possible to avoid the effects of core and margin controls, Key Information Set requirements...[Quality Assurance Agency] scrutiny and, potentially, financial reviews".

However, Hefce's July funding agreement said that students at "connected undertakings" would count as part of a parent university's full-time numbers' cap.

The paper on subsidiaries was presented at a separate July meeting of Hefce's Regulatory Partnership Group. The RPG, which was set up to examine regulatory issues arising from the new fees and funding regime, will carry out case studies of the subsidiaries in a research project on the use of different organisational forms in the sector. The project will be led by Anthony McClaran, the QAA's chief executive.

A spokeswoman for the QAA said the agency "is aware of subsidiary colleges", but was unable to state whether such entities would be covered by the process of QAA review undergone by universities.

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Second chances

The Hertfordshire college, to be housed at Oaklands' campus in St Albans, will teach a range of subjects, starting with those related to business. It will offer flexible teaching on evenings and at weekends, as well as distance learning.

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Zoe Hancock, Oaklands' principal, said the new institution was "a great opportunity to broaden out education for more people who maybe missed out early on in life".

Quality assurance standards "would apply absolutely" in the institution, Professor McKellar said.

On staff salaries and conditions, he said that "because this will be a partnership between a (further education) college and a university, we will have to consider a compromise of the terms and conditions of those who would be working for the college", with the majority seconded from the university or Oaklands.

"Because the vast majority of the students we anticipate will be part-time, they would be outside the student numbers cap," Professor McKellar said. On fees, he said it was "more likely that we'll pitch it below ?6,000, in which case we'll be able to take as many students as we like and they will still have access - even though it's a private college - to the [public] loans scheme".

Asked whether the private college would be a charity, Professor McKellar said the university was "confirming with our legal colleagues what the status will be".

A Hertfordshire spokeswoman said the university "would need to seek the approval of the Privy Council for the use of the title 'university college' and of course we will need to register the company with Companies House...(with the correct title) if we choose to give it company status".

A Coventry spokesman said its university college "has been set up within the established regulatory framework to offer a greater choice of study options for students".

Sally Hunt, general secretary of the University and College Union, said: "We would be very concerned if institutions are looking to set up these companies in order to escape from the current regulatory framework and establish subsidiaries that are non-charitable and exempt from quality controls."

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john.morgan@tsleducation.com.