Gainful Employment...On Hold For Now

A recent press release from the Department of Education revealed that 13 of the 14 proposed rule changes have been drafted. The one outstanding rule relates to gainful employment:

Disclosures regarding Gainful Employment: The Department is proposing that proprietary institutions of higher education and postsecondary vocational institutions provide prospective students with each eligible program’s graduation and job placement rates, and that colleges provide the Department with information that will allow determination of student debt levels and incomes after program completion.  The Department is still developing metrics to hold programs accountable for meeting federal requirements.  A separate NPRM on this topic will be published later in the summer

Tuition Inflation...Blame it on Former Presidents

Here's my latest post on the CCAP blog: The Obama Administration likes to blame former President Bush for the growing national deficit, although the new administration has certainly not shown any restraint in combating this problem. Well, I've got some blame to place on former presidents myself - rapid tuition inflation over the past several decades can and should be attributed to former presidents, beginning with Jimmy Carter. In 1978, the Carter Administration passed the Middle Income Student Assistance Act (MISSA), which extended federal guaranteed loans to all students, regardless of financial need or income. Before this, federal loans were restricted based on income and need.

The above chart shows federal aid expenditures by program type, in constant 2008 dollars, between 1970-71 and 2008-09. As we can see, loans dollars began escalating rapidly a few years after MISSA was passed by President Carter. The sharp spike that we see again in 1992-93 marks the expansion of the Parent Loan (Plus) program and introduction of a new, unsubsidized loan option not restricted by financial need under the last year of the G.H. Bush Administration, and subsequent expansion of the Direct Loan program by newly elected President Clinton in 1993.

What these policy changes did, was increase the ability to pay for students from middle and high income families. My colleague Andrew Gillen, Robert Martin and others have explained this phenomenon quite well, so I won't go into much detail here.

The Slippery Slope Argument

Here's my latest post on the CCAP blog:

Ben Miller is a fan of the gainful employment proposal from the Department of Education that would impose a debt-to-income limit on vocational programs using actual debt of program participants and occupational wage data from the BLS (specifically, the bottom 25% of earners). While I agree with Miller's assessment that

asking for actual programmatic outcomes and earnings...could be immensely useful to either warn away consumers or help them make more informed decisions.

I respectfully disagree when he asserts that

the sky isn’t falling. It’s a big opportunity for better consumer transparency that’s on the horizon...

Gainful employment is not an improvement in transparency, it is a slippery slope towards more government interference in education and the private enterprise system. It will essentially establish a ceiling on tuition, for which many for-profit schools will struggle to meet thanks to the 90/10 rule which limits the percentage of revenues that a for-profit school can receive from federal aid programs to 10 percent. My hypothesis is that many schools set their tuition above the federal aid thresholds to ensure compliance with the rule. Having faceless bureaucrats dictate how much a private business can charge for its products or services is a slap in the face to the market system and will likely lead to adverse effects similar to those experienced with other government price control schemes (e.g. - supply shortage, price increases for alternatives).

Gainful employment will likely be a stepping stone towards central command of all of postsecondary education. How long before the feds start dictating prices of bachelor degrees or how many can be awarded? How long before the government decides who can study what at which college? This is precisely the reason that even non-profit representatives opposed the proposal during the negotiated rule-making session, and why our higher ed system has fought for so long to retains its autonomy. More government involvement will create even more market distortions in an already dysfunctional education system. While maintaining the status quo in higher ed is not acceptable, imposing a regulation that requires schools and programs to disclosure valuable information is one thing, but putting federal bureaucrats behind the decision-making wheel is quite another -- and destined for failure.

See my recent Career College Central article for more reasons why the gainful employment proposal is problematic.

House Hearing on Accreditation and Credit Hour Definition

According to Inside Higher Ed:

The House of Representatives education committee said Thursday that it would hold a hearing next week to examine how regional accrediting agencies define the "credit hour" as they judge the academic quality and rigor of the institutions they accredit. The issue was raised in audits of three accrediting agencies that the Education Department's Office of Inspector General released in the last six months, amid concerns that the agencies are setting too lax a standard for the amount of time students spend on course work to earn academic credit. No details were available on the hearing before the House Education and Labor Committee, other than that it would be held on June 17.

House to Hold Hearings on For-Profit Education

Senator Tom Harkin (D-IA), Chairman of the Health, Education, Labor and Pensions (HELP) Committee, recently announced plans to hold a series of hearings to examine federal education spending at for-profit higher education institutions. The hearings will begin June 24th.

Career College Association Announces Name Change

It will now be called the Association of Private Sector Colleges and Universities (APSCU). From its press release:

CCA will complete the process of changing its name to better represent students, institutions and the sector overall.

Harris Miller stated: “

In voting the change, the Board recognizes the evolution of career oriented education from its primarily trade school roots to a multi-dimensional, multi-faceted, multi-modal philosophy of higher education delivery that directly responds to the demands of 21st century students, employers, and the larger economy. The phrase 'private sector' is synonymous with innovation in virtually every walk of life, and the public’s faith in private sector solutions to solve most of society’s biggest challenges will carry over into the realm of higher education too.”

Michael Clifford Refutes Eisman

Education entrepreneur Michael Clifford offered a rebuttal to the recent criticisms of short seller Steve Eisman, in an article for Earth Times.

Eisman is one of the legendary Wall Streeters, who has a strong proclivity for making ‘easy money.’ He doesn’t create jobs or help people live better lives. Instead, he makes money for himself and investors in his $1.1 billion long/short equity fund by creating doom and gloom scenarios, then shorting stocks.

the industry, as a whole, can be improved. He humbly suggests the following to Secretary Arne Duncan:

“Get rid of 90/10 rule, or the requirement that schools receive no more than 90 percent of their tuition revenues from the government. Watch prices fall at institutions. The primary way today for schools to solve the 90/10 dilemma is to increase tuition.

“Jobs: If under your watch, Secretary Duncan, the Department of Education decides to cut the for-profit sector’s participation in helping these students, the sector will be forced to lay off hundreds of thousands of faculty and support staff resulting in increased unemployment numbers. And hundreds of thousands of current students will be denied access to school and much needed retraining.

“Make sure the Department of Education differentiates between publicly traded for-profits and privately held for-profits. The pressure Wall Street demands for increased profits with growth to avoid players like Eisman every single quarter contributes to the abuses. Private for-profits don’t have this pressure.

“Increase transparency with ALL regionally accredited institutions for-profit and non-profit. The best contribution the Department of Education could provide would be to give the accrediting commissions the same technology in order to create real time reporting for the entire world to review. Level the playing field for all institutions receiving Title IV funding.

“Invest in technology and encourage innovation. The Internet is continuously and radically disrupting every business model it touches, so get some super smart Internet leadership riding shotgun with you, Secretary Duncan, as nobody can stop the power of the Cloud.

“Allow the opening of more post-secondary institutions with affordable price points. Encourage the regulators to support Public-Private Partnerships – get rid of the divisive ‘them or us’ mentality.”

Clifford summed up his position as follows: “If you make it prohibitive for all market-funded institutions to come into the higher education sector, then you will be smothering the dreams of millions of Americans, who want a better life. Are there bad actors in our industry? Sure. Just like there are in other industries. But the vast majority of schools and school owners are working to change lives through the power of education while fulfilling their corporate mission at the same time.

In The News Today: 06/08/10

Inside Higher Ed has a great story on the increasing use of e-textbooks at for-profit institutions.

The Chronicle of Higher Education's Kelly Field and Sara Hebel discuss the latest gossip on the much anticipated rules on gainful employment in a short audio clip.

Steve Eisman dishes out some hate for the for-profit sector in an article for the NY Post.

NY Times Discusses Gainful Employment

The NY Times has an article this morning discussing gainful employment. There is nothing new or groundbreaking in the article if you have been following the issue.

Shireman's Replacement Named

If the for-profit sector thought that it caught a break with the announced departure of Bob Shireman, they might be second guessing right about now. Shireman's replacement -James Kvaal -was announced today. Kvall joins the Department of Education as a former colleague of Shireman at the Institute for College Access and Success, as well as employment at the liberal Center for American Progress, and advisor to former President Bill Clinton and candidate John Edwards.

A Better Approach to Gainful Employment

I have a short piece on the Minding the Campus forum following up on my recent article discussing the negative implications of gainful employment for Career College Central.

Death by Gainful Employment

Check out my latest article for Career College Central magazine, "Death By Gainful Unemployment: The Department of Education raises the blade on the guillotine of ambiguity.” In the article, I discuss the negative implications of the Department of Education’s proposal to define its gainful employment rule in terms of an 8 percent debt-to-income ratio. In addition, I calculate the maximum lifetime student debt that a student could have borrowed in both 2003 and 2008 to pursue training for a career in 10 occupations expected to create a great number of jobs in the next decade, using the Department’s proposed metric. What I find is that for 7 of the 10 occupations, students would have been able to borrow less in 2008 than they would have in 2003, after adjusting for inflation.

You can access the online version of the magazine and flip to pages 24-27, or download a PDF to read the article.

Role of the For-Profits in Meeting Obama's College Completion Goal

The Chronicle of Higher Education has the story.

Jeffrey J. Conlon, chief executive of Kaplan Higher Education, says the United States will need to produce 63 million degrees to match leading nations in the percentage of adults with college degrees by 2025. At the current pace, the United States will fall short of that threshold by 16 million, according to data from the National Center for Education Statistics.

Growth Trends

Chad Adelman discusses trends in enrollment and completion growth in the for-profit industry:

While for-profits enroll only about 7 percent of all undergraduate students, their growth rate far outpaces public and private, not-for-profit institutions. Public college and university enrollment increased 19 percent from 2000 to 2008. Private, not-for-profit enrollment rose 15 percent over the same period. For-profit enrollment tripled.

It’s not just enrollment either. The growth in the number of degrees awarded by for-profit colleges over the last ten years is astounding. They gave out 127 percent more associate’s , 456 percent more bachelor’s, 804 percent more Master’s, and 572 percent more doctoral degrees. For comparison’s sake, the publics granted 27, 27, 27, and 29 percent more degrees, respectively. The raw number of degrees granted by for-profits still pale in comparison to those granted by publics, but, if these growth rates continue for another decade, it’ll be a much different story. For example, if the rates continue as they have, for-profits institutions would award more Master’s degrees than public universities by the year 2015. That would be a rather remarkable occasion.

Kaplan's Relationship with California Community Colleges

Sara Goldrick-Rab comments on it in a post for the Chronicle:

There's a bit of an uproar in California over an arrangement between the for-profit Kaplan University and the California Community College Chancellor's Office that makes it possible for students locked out of community college courses to enroll in a Kaplan course at a reduced rate. The arrangement stems from the overcrowding and under-resourcing of the California community college system, which is nothing less than under siege. Of course, it also stems from a completely sensible desire of Kaplan to expand its reach and enrollment. The California State Legislature, by failing to adequately support its community colleges, created that opportunity. Kaplan is doing exactly what we'd expect any educator to do—responding to student demand. We denigrate that action only because it will also result in profits. Let's at least be honest about that.

To me the really distasteful part of the backlash against Kaplan comes from those who are outraged that an agreement was reached to ensure the transferability of credits—an arrangement in which faculty were not consulted. Faculty members are used to being consulted on which courses they will and will not accept. Professors like to sign off on what courses can count to "replace" theirs—seemingly because they want to ensure educational quality, but let's face it, it's also because it helps to protect their jobs. The more courses deemed transferrable, the more it will become clear that the current system is inefficient—if many courses equate with each other, why have so many different people in different places teaching them?

But undergraduate education isn't meant to serve faculty; it's meant to serve students. This is something people seem too ready to forget. The president of the Academic Senate of the California Community Colleges was quite straightforward about her priorities when she told a reporter, "I'm hard pressed to see where we could ... make this favorable to faculty." Huh? Since when is ensuring the continuation of a degree, and the portability of credits, meant to be about helping the faculty?

I get it—this move opens the door to a lot of scary possibilities. One is that Kaplan and other for-profits will fulfill a need and let the legislature off the hook in future funding of state higher education. The degree to which we treat that as negative should be at least partly informed by empirical evidence on how California's community college students fare at Kaplan. Kaplan is to be commended for providing the data to allow a study on that topic to take place, and Scott Lay, president of the Community College League of California is a smart guy to recognize that as a real opportunity. Make that commitment a real one, and assess the outcomes of the arrangement. Then we'll have something more solid with which to pass judgment: evidence on how this affects students.

Eisman Condemns the For-Profit Industry

From Inside Higher Ed this morning:

Steven Eisman, the Wall Street trader who was mythologized in Michael Lewis's The Big Short as that rare person who saw the subprime mortgage crisis coming and made a killing as a result, thinks he has seen the next big explosive and exploitative financial industry -- for-profit higher education -- and he's making sure as many people as possible know it. In a speech Wednesday at the Ira Sohn Investment Research Conference, an exclusive gathering at which financial analysts who rarely share their insights publicly are encouraged to dish their "best investment ideas," Eisman started off with a broadside against Wall Street's college companies.

"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry," said Eisman, of FrontPoint Financial Services Fund. "I was wrong. The For-Profit Education Industry has proven equal to the task." Eisman's speech lays out his analysis of the sector's enormous profitability and its questionable quality, then argues that the colleges' business model is about to be radically transformed by the Obama administration's plan to hold the institutions accountable for the student-debt-to-income ratio of their graduates. "Under gainful employment, most of the companies still have high operating margins relative to other industries," Eisman said. "They are just less profitable and significantly overvalued. Downside risk could be as high as 50 percent. And let me add that I hope that gainful employment is just the beginning. Hopefully, the DOE will be looking into ways of improving accreditation and of ways to tighten rules on defaults." Stocks of the companies appeared to fall briefly in the last hour of trading Wednesday, after news of Eisman's speech made the rounds.

Why Should Pay for Student Loans Gone Sour?

I discuss a recent proposal to make private student loans dischargeable in bankruptcy in this article for Forbes. In the article, I identify several troubling aspects of the proposal and offer a few alternatives, including one that would share some of the burden of bad debts with the colleges whose students default or file bankruptcy.

Gainful Employment is a Bad Idea, Period.

My latest post on the CCAP blog:

I've been openly critical of the gainful employment proposal being considered by the Department of Education (here and here). The proposed rule is overly harsh and would likely result in many programs and schools going out of business and hundreds of thousands of students being shut out of postsecondary educational opportunities. An analysis by economic consulting firm Charles River Associates concluded that up to 1/3 of the students currently served by for-profit schools would be denied access. An analysis by financial aid expert Mark Kantrowitz concluded that the proposed rule is flawed, unrealistic and would lead to unintended consequences.

While I generally think that for-profit sector does more good than harm, there is some anecdotal evidence of foul play in the sector. This is by no means pervasive among the entire industry, nor is it limited to for-profit schools (Kevin Carey recently highlighted the scam of Southeastern University that was knowingly permitted to occur over multiple decades). There are admittedly scam artists in every sector of society, including the government and non-profit world. Does this mean that we need to regulate ourselves out of jobs, economic growth and individual liberty in an unrealistic effort to safeguard every nook and cranny of our lives, turning over human responsibility to far-off bureaucrats who have proven repeatedly ineffective at protecting its citizens? We simply can't prevent every crime or wrong doing in society.

By and large, economic interventionist policies by the government have lead to unintended consequences that are far worse than the situation present before the rules were implemented. Individual decisions and markets are the best allocator of resources, not central economic planners. So what are the unintended consequences likely to result from gainful employment?

First and foremost, hundreds of thousands of students will be shut out of the educational opportunities to improve their lives. The public and non-profit sectors do not have the capability or capacity to absorb these students, nor do they offer programs or schedules that meet the needs of this segment of the population. This is a negative for college access.

Second, it will be counterproductive to making college more affordable and productive, as the for-profit sector is the one bright spot in postsecondary education today that is showing real signs of management efficiency and innovation. It would also weaken competition and restrict the supply of education, which as economics 101 tells us, will lead to an increase in price.

Lastly and as I mentioned earlier this week, it will attack our freedom and individual liberty to make decisions that have consequences. Are we really willing to surrender this rare freedom and turn over our decision making to bureaucrats and politicians?

Apparently this group of folks (a consortium of politically left and special interest groups) thinks that all of the above negative consequences are acceptable, as they have written a letter to Secretary Duncan calling for even stricter gainful employment rules.

The solution to the problems of misleading advertising regarding employment and high levels of debt are really quite simple:

Mandate that colleges disclose to all prospective students the typical level of debt occurred by their students, program completion rates, data on where students have been placed and how much they are earning, and what the likely debt-to-income ratio will be for students finishing the program. This information would give students all the information that they need to make an informed and rational decision on what school and program to pursue. If prospective students don't like what they hear, then they can vote with their feet and go elsewhere. Because of the incentives, schools would seek to offer programs that provide relatively high rewards for students, while programs with costs that exceed the benefits would likely go wayside, and thus, eliminating most of the problem. For the remainder, violators and cheats would be dealt with harshly with loss of Title IV eligibility and possibly criminal punishment.

In The News Today: 05/20/10

Kaplan partners with community colleges to help bridge gap in offerings and control costs:

agreement allows Kaplan to provide classes that community colleges have cut. Students will be able to take the courses for a discount, and use them towards their associate's degree. Those who want to transfer to Kaplan's bachelor's program will also receive discounts and academic credits.

Bridgepoint transitioning towards e-texts:

launching a suite of Web-based course materials for general education classes this spring, with more discipline-specific e-texts coming in the next two years. While Bridgepoint is touting the program, called Constellation, as an opportunity for students to save cash as they avoid markups from third-party sellers, the school also expects to make money on the venture as it sidesteps fees paid to outside vendors.

Gainful Employment is an Attack on Freedom

Here's my latest post to the CCAP blog:

The Chronicle has extensive coverage today regarding the for-profit industry's efforts to stymie the gainful employment rule being proposed by the Department of Education. CHE has even developed a table detailing lobbying dollars spent and political contributions made by the industry. Democratic Congressman were the recipients of 70% of the for-profit industry's $400k in total political contributions, with George Miller (Chair of the House's Committee on Education and Labor) taking home honors as the top recipient of more than $70k in campaign contributions. On the Senate side, the top 5 recipients were all Democrats, with Harry Reid being the top recipient.

I've written in this space in the past about the implications of gainful employment (here, here and here) and have an article due out soon on the topic in Career College Central. I'm generally opposed to the Department of Ed's proposed metric, which would impose an unrealistic 8% student debt to income ratio that would force the closure of many programs and limit the career and college choices of students.

The for-profit industry has floated a counter proposal similar to what I have recommended in the past, namely that colleges provide full disclosure to prospective students regarding the debt that students at their school take on and the employment outcomes (placement rates, salaries, etc). This ought to be a respectable solution to those opposed to the for-profit sector in the name of consumer protection, as their main argument appears to be that students are lured into these schools based on false or limited information. If it is not and they continue to insist upon a top down approach in which bureaucrats decide how much debt is appropriate for a particular program, then these folks are obviously convinced that individuals do not have the capacity to make decisions that will affect their livelihood and should be stripped of decision-making rights in favor of turning such decisions over to the state. In other words, anonymous bureaucrats in far off places are better equipped to make decisions for people than the actual individuals themselves.

Here's the abbreviated case for full information disclosure:

If the students are presented with the information upfront, prior to enrolling, then they are responsible for the decision of whether to attend. If, for example, a prospective student is told that they will incur $25k in student loans, that their first job upon completion will likely pay $30k (likely to increase over time with experience), and that their monthly loan payment on that loan over a 10-year period would be $294 (which would be 12% of their income), then the student can make an informed decision of whether to pursue that particular program and compare it to other options. This presents the prospective student with enough information and potential career training options to make an informed decision.

The alternative, centralized decision making, will limit the number of options and essentially decide what fields that certain students (i.e. - those who don't have parents capable and willing to foot the bill) may pursue. This is an attack on freedom and only a few steps removed from the European education model in which students are directed towards a particular track (vocational or academic) early in their education - often middle school. This is in sharp contrast to the American tradition of a forgiving educational model that allows late bloomers the opportunity to pursue postsecondary education of their choosing.

Gainful Employment and Bob Shireman

Lots of press concerning the departure of Bob Shireman from the Department of Education and speculation on what this means for gainful employment. The Chronicle of Education has coverage here and here. Inside Higher Ed also has coverage.

Has Bob Shireman Completed his Agenda?

Over lunch I heard a rumor that Bob Shireman was to depart from the Department of Education. Kelly Field at the Chronicle confirms that Shireman will vacate his post at the end of summer. Will ED implement a gainful employment rule before he leaves is the billion dollar question.

Credential Inflation?

Here's my latest post to the CCAP blog:

Lately, I've been doing some thinking about the college wage premium and the growing number of college graduates. Advocates of higher ed have long espoused that college is the best investment that one can make, and that the returns to this investment are substantial. This line of reasoning has been continuously espoused by proponents for increasing the number of students going to and completing college, with folks implying that the labor market increasingly demands more college graduates. The evidence doesn't seem to support this claim.

The Bureau of Labor Statistics identified the 30 occupations that will experience the most numeric job growth between 2008 and 2018. Only 7 of the 30 occupations require a bachelor's degree or higher, with 5 of the top 6 occupations requiring on-the-job training only. According to BLS, these 30 occupations will create more than 7.3 million jobs by 2018. 2/3 of these jobs (nearly 4.9 million) will require no formal postsecondary credential.

So where exactly are all of these new college grads going to find jobs if they are not in fact in demand by the labor force? My hypothesis is that the US labor force has been and will continue to experience credential inflation. Jobs which in the past didn't require a postsecondary credential (and likely still don't), will increasingly be filled by those with college degrees because there is an excess supply of them. Why hire a high school grad when you can hire a college grad for roughly the same cost?

I think that this phenomenon helps explain why administrative, customer service, retail and other relatively low skill jobs are increasingly staffed by persons with a college education. It is not that these kinds of jobs require someone with a degree, but rather that college grads are willing to take these kinds of jobs. I think that credential inflation plays at least some role in explaining the wage college wage premium.

Credential inflation is not only bad for those without a college credential, as they are pushed out of jobs for which they previously were able to do, it is also bad for those with a college degree who spent a considerable amount of time and money to get that degree, only to wind up in a job for which the degree wasn't really necessary. In other words, the explicit and opportunity costs are high to seek a college degree.

The counter argument is that college is not only an economic investment, but that there is also the socialization and consumption value that needs to be considered. This is true, but the problem with this line of reasoning is that wage earners should not be taxed so that young people can have a good time and make new friends. Socialization and consumption are experience goods that individuals choose to purchase and as such, should be paid for by the benefiting party that voluntarily elects to purchase them.

Income Based Repayment

Please see my latest piece on Forbes.com, “New College Loan Rules Put Taxpayers at Risk.” In the article, I describe how the new Income-Based Student Repayment plan puts taxpayers at risk, will exacerbate the tuition bubble and sends the message that public sector work is good and will be rewarded.

Both Sides of the Coin

Daniel deVise of the Washington Post writes today about the for-profit sector, offering viewpoints from both sides of the coin:

The esteemed PBS program Frontline borrowed our name this week for a broadcast about the for-profit sector of higher education.

Like recent investigative pieces in the New York Times and Bloomberg BusinessWeek, the Frontline program questioned whether operating a college for profit is a good idea. I think I'm safe in saying that all three concluded it was not.

I have published both positive and negative appraisals of the for-profit sector on this blog, always with the important disclaimer that the Washington Post Company owns Kaplan University, a player in the for-profit industry.

(Incidentally, I shook hands with an actual employee of Kaplan University at a speaking engagement last week, so I can no longer say that I have never met one.)

In a nutshell:

For-profit colleges are a fast-growing and profitable sector, offering serious competition to both four-year and (especially) two-year public and private, not-for-profit colleges. They set up shop near freeway exits, offer classes at all hours and market themselves as a convenient, efficient route to a certificate or degree for a student who doesn't have a lot of free time. They are an overflow to over-taxed community colleges, which offer many of the same classes at much lower cost but also lower availability.

For-profits charge more than state universities but less than private universities, at least in terms of sticker price. For-profit students tend to carry more debt after completion than their counterparts in other sectors. That's partly because for-profit students are more likely self-supporting and, well, poor.

Perhaps the most unflattering material in the Frontline piece came from former for-profit employees who spoke of high-pressure sales techniques, call-center tactics more commonly associated with peddlers of time-share vacations and magazine subscriptions.

There was also the familiar procession of dissatisfied students, many of whom claimed they finished their studies with a degree that was not worth the money they had paid, because they had not been given sufficient training.

I spoke to Harris Miller, president of the Career Colleges Association. He lobbies for the for-profits, just as several of his counterparts on the non-profit side lobby for Harvard and U-Md.

Why all the bad press?

"For whatever reason, we haven't been able to communicate effectively," he said.

The criticism, he said, comes from "people who think that for-profit and higher education don't belong in the same sentence."

Miller calls it "attack by anecdote." He says he tries to remind reporters "that for profit is a tax status, not a financial status. Harvard has to run a profit every year. Otherwise, they'd shut down." He reminds his critics in not-for-profit education that "I don't think it's in our collective best interest to be shouting at each other."

But he faults his own sector for a certain lack of transparency, particularly in the past.

"I think there's been a historic tendency to kind of hide from the news media and from the research sector," he said. "We can't hide. We're too big. We're 10 percent of higher education."

He said the industry has to "be honest about the fact that there are some rogue employees in our schools," although not necessarily entire rogue schools. "The dark days were in the late 80s and early 90s. They had some bad actors. And Congress reacted. They probably over-reacted." More than 1,000 for-profit colleges closed, he said, in a wave of regulation and reform.

Lost in the blitz of negative coverage, he said, is the important role that the for-profit sector can play in raising the numbers of low-income and minority students who finish college. The sector serves a group of students more at-risk, by the government's definition, than any other. Three-quarters of students are working adults.

"And, yes, if they're going to go to school, a Pell grant, if it exists, is not enough, and they're going to have to borrow some money," he said.

For-profits, he said, are "serving a group of students who have been abandoned by the higher education system."

NPR Discusses For-Profits and Kaplan

NPR's All Things Considered aired a story on for-profit higher ed, highlighting Kaplan in particular. You can read the write-up and transcripts, or listen to the show.

Denouncing Bob Shireman

Stephen Spruiell of National Review wrote a piece attacking Bob Shireman's strong-armed approach to federal control of higher ed.

government subsidies are never no-strings-attached affairs. Once an activity is fully subsidized, it is one Bob Shireman away from being fully controlled.

Read more

A New Assistant Higher Ed Czar is Coming to Town

As reported by Kelly Field in the Chronicle:

The U.S. Senate education committee has approved President Obama's nomination of Eduardo M. Ochoa as assistant secretary for postsecondary education, a long-open leadership spot at the Education Department.

If confirmed by the full Senate, Mr. Ochoa, who is now provost and vice president for academic affairs at Sonoma State University, in California, would take charge of the Education Department's Office of Postsecondary Education, which administers most of the federal government's programs for colleges and college students. The assistant secretary has also typically served as the chief adviser to the education secretary on higher-education issues.

The position has been vacant since Mr. Obama took office more than a year ago. He nominated Martha J. Kanter for the other top postsecondary job, under secretary of education, in April of last year, and her appointment was confirmed last June. The president nominated Mr. Ochoa in February.

As assistant secretary, Mr. Ochoa would report to Ms. Kanter, who also came from California, where she was chancellor of the Foothill-De Anza Community College District.

Andrew Kelly on College, Inc

Andrew Kelly of the American Enterprise Institute has an excellent piece on the shortcomings of the PBS documentary, College, Inc. He identifies 4 key areas that the film failed to capture:

1. outside of a few stories about students who were bilked out of their money and given a shoddy education, the documentary says very little about how for-profits have rethought the core business of most colleges and universities---the teaching and learning of undergraduates.

2. the documentary seems to suggest that for-profit schools are subject to less accountability than traditional colleges and universities, and that these institutions should be subjected to additional regulatory burdens because of their profit motive...Many non-profit colleges and universities, some of which are of exceptionally low quality, also reap benefits from billions in federal aid; but, outside of the restrictions inherent in their tax status and some licensure requirements that vary across states, they are rarely subject to much more stringent accountability measures than these for-profit institutions

3. Martin and his interviewees often discuss the cost of for-profits, their spending on marketing and recruitment, and how the "costs" of for-profit often accrue to the "taxpayer." Clearly, these for-profits benefit from public money, and their tuitions are almost always greater than their public four-year and two-year counterparts...What this discussion ignores, however, is that the true "cost" of public community colleges to "the taxpayer" is much larger than the cost to the individual community college student because of the state subsidies that are "baked into" public colleges' operating budgets. In other words, public four year and community colleges do not charge tuition that equals what it actually costs to educate their students, because public subsidies make up the difference

Kelly continues:

Like most business ventures, for-profit colleges are filling a void that existing providers are leaving open. As Smith points out in the documentary, community colleges are unable, or perhaps unwilling, to fill this demand themselves.

these traditional institutions, and their four year brethren, have shown little inclination to search for innovative ways to serve more students and leverage their best faculty by harnessing technology. The for-profits have done so with gusto, and may provide lessons to these traditional institutions on how they might create and implement such practices.

There are multiple messages to take away from College, Inc, but one is more subtle than the others. When it comes to making the case for the niche they fill, the for-profit colleges and universities must be more proactive about showing us that they do add to the common good, and they must be more transparent about how they do so.

Opening up their data on student success, internal operations, and instructional innovation to outside researchers would help to close this credibility gap. At the end of the day, whether these institutions are good for higher education, and what might make them good, is an empirical question, and one that we should answer before jumping to hasty conclusions.

College Inc

PBS FrontLine aired its documentary, College, Inc., last night. You can watch the video online for free. Kevin Kuzma has a great review of the show over at Career College Central.

PBS vs. For-Profit Colleges

According to Inside Higher Ed this morning:

Airing tonight on PBS at 9 p.m. is Frontline's College, Inc., an hour-long look at for-profit higher education, its investors, and the U.S. Department of Education's efforts to regulate it. For close readers of Inside Higher Ed, the documentary won't bring much new to the table. It tells stories of students plunging deep into debt and unable to get jobs, touches on traditional academe's criticisms, and looks at the negotiated rule-making process aimed at reining in abuses of the Title IV federal financial aid system, with a particular focus on career colleges.

But it is likely to garner lots of attention -- from ordinary Americans, think tankers and Congressional staffers -- and to stir up press releases, editorials and conversations that will skew against the for-profit institutions just as the Education Department ratchets up its criticisms of the sector. The storyline is more balanced than many major-media examinations of for-profit colleges, but it's still a less-than-favorable depiction of the sector.

Universities and Illegal Tax Arbitrage

Here's My latest post on the CCAP blog:

Iowa Senator Charles Grassley is perhaps the biggest critic of higher education in Congress, seeking out scandals and improprieties in the Ivory Tower in an effort to effect change. He has thus far failed to achieve any great and lasting reforms, but I give him an 'A' for effort and his willingness to travel the road often not taken - battling the establishment. So what's Chuck up to these days? His latest criticism of higher education is the use of tax-exempt bonds by universities for (indirect) tax arbitrage. In other words, Grassley believes that universities are taking advantage of their non-profit status to raise cheap, subsidized capital that they use to bankroll higher risk investments and capital expenditures. So what is the problem you might ask? Tax arbitrage is outright illegal.

Grassley asked the non-partisan Congressional Budget Office to assess the extent to which tax arbitrage is occurring among universities. The CBO report indicates that:

the law as currently implemented allows many colleges and universities to use tax-exempt debt to finance investments in operating assets (buildings and equipment) while, at the same time, they hold investment assets that earn a higher return. (Investment assets are publicly traded and privately held securities, as well as land or buildings held for investment purposes.) To the extent that colleges and universities can earn untaxed returns on investments that are higher than the interest they pay on tax-exempt debt, they are benefiting from a form of “indirect” tax arbitrage.

the cost of allowing institutions of higher learning to borrow using such debt—measured in terms of the revenues that could have been collected if those institutions had borrowed using taxable debt—will be about $5.5 billion in 2010

Using data from information returns filed with the Internal Revenue Service by institutions of higher learning and by issuers of tax-exempt debt, CBO developed measures of tax arbitrage under a broader definition of the term that encompasses both direct and indirect tax arbitrage. Under one such definition, nearly all of the tax-exempt bonds that 251 colleges and universities issued in 2003 would be classified as earning profits from tax arbitrage. If some investment assets were set aside in a reserve, which would be excluded from the arbitrage measure under an alternative expanded definition, the amount of debt earning returns from arbitrage would be lower; even so, about 75 percent of bonds issued in 2003 would still be classified as earning arbitrage profits under that expanded definition.

"On the one hand, if colleges and universities use tax-exempt financing for projects that they would complete even without the subsidy, resources are just reallocated from taxpayers to the schools with no additional social benefit," the report says. "On the other hand, if the subsidy finances capital projects that would not otherwise have been undertaken and that create a social benefit in addition to the institution, it could improve the nation's welfare."

Additional coverage is available here, here and here.

In The News Today: 05/03/10

Albert Gray of the Accrediting Council for Independent Colleges and Schools offers his opinion in the Chronicle of Higher Education on the Department of Education's upcoming rules regarding gainful employment:

some high-cost, high-tuition programs offered by career colleges, like culinary arts or cosmetology, will face closure unless the salaries and wages for those legitimate and high-demand occupations are substantially increased—a function of economic conditions that are out of the institutions' control. The hospitality and aesthetics industries will confront even more profound shortages of qualified workers than exist today.

Accreditors review and measure student retention and placement, and maintain quantitative and qualitative standards on measurement of satisfactory academic process, student learning, and student and employer satisfaction. By adjusting the frequency, specificity, and depth of job-placement data required of member institutions, accreditors will have an enhanced ability to develop models of best practices and share—or ultimately require—their application.

and incentive compensation

Most objections to incentive compensation for admissions representatives are rooted in recruitment abuses by a small number of marginal institutions more than 20 years ago.

Completely eliminating a reward system that is tied to effective student enrollment could reduce the number of potential students who are attracted to, and ultimately enroll in, programs that will improve the quality of their lives.Reward structures in a variety of industries are moving toward such incentives, and many people in the education sector believe that demonstrates a best practice in student recruitment and retention.

What the Education Department and sector-based negotiators failed to recognize is that the emphasis on outcomes does not end with recruitment

Adam Sichko indicates that gainful employment is a threat to the health care profession:

a federal proposal tying college borrowing to future earnings will jeopardize high-demand nursing, medical assisting and information technology programs.

medical assisting, criminal justice and business programs have the highest student demand because they lead to jobs after graduation. Placement in those programs is around 90 percent, he said.

With an annual tuition of $7,335, Gutierrez said, it could limit borrowing for students enrolling in the medical assisting program since the starting salary in that field is roughly $24,000 a year. “It could force schools to either lower the cost or get rid of some programs"

I've commented on the implications of gainful employment many times on this blog. I also wrote an article for Career College Central awhile back discussing the Department of Education's NegReg process that you can read here.

I'm Not the Only One

Apparently I'm not the only one who suspects that Bob Shiremen is the unofficial higher ed czar. The Washington Times made the same suggestion.

Obama Administration's Disdain for the Market Driven Sector

Check out Richard Vedder's latest post on the CCAP blog:

Many Democrats don't trust markets and prefer public solutions to private ones, so I suppose the assault on private for profit higher education should not be surprising. But it is threatening the single part of higher education that focuses on student needs with laser like intensity, the sector that is most efficient, and that disproprtionately serves lower income Americans whose parents never went to college.

First came the assault on the private loan providers. Obama wanted to put them out of business, and largely succeeded. Then there is the harassing of the smaller for profit start ups. I get nearly daily missives from Dick Bishirjian of Yorktown University. First was the accreditor/Department of Education threat to make on-line providers get licensed in every state that they operate. This imposes enormous costs, creates barriers to entry, restricts competition, and raises fees to the mostly lower income recipients on the educational services. Yesterday, Dick told me that the Dodd financial reform bill would make Private Placement equity financing nearly impossible --precisely the type of funding most for profit start ups get to begin business.

But then that old Enemy of the People, Bob Shireman, struck again. Bob is the Deputy Under Secretary of Education in charge of harassing the for profits. I once chided him that he was the only person I knew personally who could and did destroy $200 million in wealth in the manner of seconds by his utterances. Two days ago, he beat that record easily, wiping out over a billion dollars of wealth instantly by his bellicose attacks on the for profits and their accreditors, saying, as if it were a crime, that the for profits are having enormous gains in Pell Grant recipients. Rather than applauding their reaching out to a market that most of his beloved not-for-profit public schools ignore, he berates them, likening them (if news accounts are to be believed) to Wall Street predators. Apollo stock fell six percent in minutes; Corinthian Colleges fell almost 10 percent.

As one person correctly said at the conference of the Annointed in Higher Education that I attended yesterday (why I was invited, I am not sure), it is mathematically impossible to achieve the Obama college attainment goals without greatly expanding education of adult learners, yet the administration harasses the very people who are doing the most in achieving that goal, all because of a near pathological hatred of free market capitalism. The November elections should be interesting.

Bob Shireman is Apparently the Czar of Higher Ed Regulation

According to Doug Lederman of Inside Higher Higher Ed, Bob Shireman (the undersecretary of the Department of Education) unleashed a flurry of criticisms of the for-profit higher ed sector at a meeting yesterday. One person in the audience described Shireman's attack:

"It was like fourth grade, with a teacher scolding students over their grades"

This is the first time that his true colors have shown since he was named to the post a year ago. Prior to this, he masked his idealism by remaining neutral about the sector, although it is widely believed that he is vehemently opposed to the for-profit sector. Shireman announced his intentions to crack down harshly on the sector through new federal regulations. My colleague at CCAP, Andrew Gillen described the position of the ED as opening Pandora's box, saying:

whatever weapons end up being used in the apparent crusade against for profit colleges in the near future (gainful employment, debt limits, etc.) will be applied to public and non-profit colleges as well in the not too distant future. Given the greater adaptability of the for profit sector, these changes will have a much more devastating and long lasting effect on the public and non-profit sectors.

Buying Grades

My latest post to the CCAP blog:

CCAP has been recently been blogging on the matter of grade inflation (here, here and here). While CCAP has been looking specifically at the Colleges of Education in an effort to examine the trickle down effects into our K-12 education system, we are not the only ones investigating grade inflation. Research from Stuart Rojstaczer and Christopher Healy have uncovered some interested data which helps explain what one really gets for their money when choosing to attend a selective private college over a public one. They found that:

Currently at private colleges and universities in our database, the average GPA is 3.3. At public schools, it is 3.0

Since the evidence indicates that private schools in general educate students no better than public schools...private schools are apparently conferring small but measurable advantages to their students by more generous grading. Private schools also have on average students from wealthier families, and the effect of our nation’s ad hoc grading policy is to confer unfair advantages to those with the most money.

It is perhaps easy to see why graduates from certain private schools dominate placement in top medical schools, law schools, business schools, and why certain private schools are overrepresented in Ph.D. study. They grade easier and there is a tendency for graduate schools, professional schools, and some employers to confer extra stature to those who have attended selective private schools. Also, the fact that students from private schools tend to come from wealthier homes means they can stay in school longer.

In other words, private college tuition is buying, on average, higher grades, admission to top professional and graduate programs, and a cut in line for job openings, according to Rojstaczer and Healy.

Rebutting the Dept. of Education

My latest post to the CCAP blog:

Yesterday, I blogged about the double standards of the Obama Administration in its ruthless pursuit of strangling the for-profit education industry with a gainful employment metric. The Career College Association sent a detailed letter to Education Secretary Arne Duncan denouncing the current proposed metric, providing evidence from research that it commissioned from Charles Rivers Consulting and University of Chicago economist Jonathan Guryan which indicates that

18 percent of for-profit postsecondary programs would not satisfy the debt limit requirement of the gainful employment proposal

33 percent of students in for-profit postsecondary programs would be impacted.

[and] that by 2020, approximately 5.4 million students who are on track to attend programs would be denied access by the proposed regulation

The research also indicated that:

Because the limits on borrowing do not vary with the length of program, longer programs would be more severely impacted.

approximately 40 percent of students in 2- and 4-year programs would be impacted. We also estimate that the impact would not be limited to a few areas of study, but would impact a wide variety of programs.

The reports author, Dr. Guryan, described additional problems with the Department's proposed metric that are similar to issues that I mentioned in a post back in January, such as the regulation:

focuses on the ability of recent graduates to repay loans in the early years of their post-schooling careers.

it cannot logically make sense to say that the average student cannot afford to pay 8 percent of her annual earnings to cover student loans for 10 years if those loans paid for education that raised her earnings more than 8 percent each year for the rest of her working life.

A policy aimed at protecting students would compare the benefits of education and the costs of education. A key feature of education is that the costs are paid up front, both in terms of foregone earnings and tuition, and the benefits accrue over the entire working life. To focus
exclusively on the short-term benefits is to ignore the long-term benefits

the premise of limiting borrowing for education based on early-career earnings is inappropriate and would be harmful to low-income students who rely on student loans for access to education beyond high school.

[and] The use of the 10-year repayment length is another way that the regulation would overweight the early costs of education and ignore the future benefits.

The report concludes that:

Our analysis suggests that the ―unintended consequences‖—cutting off
access to hundreds of thousands of students who want postsecondary education—will be much more substantial than the intended consequence, which we believe to be—though we are not certain—reducing the number of students who over borrow.

To start, the Department of Education has not clearly defined what the problem is that the
regulation aims to address.

it should not be assumed that public postsecondary institutions, particularly
community colleges, would absorb these students.

Double Standards

My latest post on the CCAP blog:

Inside Higher Ed ran a story on gainful employment this morning, outlining the Department of Education's (ED) proposal to tie eligibility for Title IV funding to an arbitrary debt to income ratio for vocationally-oriented schools. Basically, colleges offering training in occupationally-specified fields would become ineligible for federal student aid programs if their average student debt exceeded 8% of the supposed entry level salary for a given occupation, as determined by BLS occupational wage data (specifically, the 25th percent of earners). The rumor mill has recently suggested that ED is softening its approach a bit, by making an exception to the rule for programs with completion rates above 50% and job placement rates above 70%.

Still, ED seems determined to plunge forward with the misguided policy that will cause more harm than good. I've written in this space several times on the negative implications of such policies and have an article coming out in next month's Career College Central magazine discussing the policy. To rehash briefly, the ED proposal, if retro-acted to 2003, would mean that

students pursuing 7 of 10 growing occupations would not have been able to borrow as much to pay for their training in 2008 as they were able to borrow in 2003, in real inflation-adjusted terms. Students pursuing training in the other 3 occupations would not have much more ability to borrow in 2008 than they did 5 years prior.the end result will be a reduction of educational options and access for low income and minority students, and a shortage of qualified employees to fill the demands of the labor force

In a separate post, I applied the same metric to the law profession and found that

the maximum total debt a law student could borrow [in 2008] would have been just under $44,000, or 2.3% more than he/she could have borrowed in 2003 after adjusting for inflation. Given the ED's proposal, this would also include any debt incurred as an undergrad, unless the student managed to pay it off before starting law school. FYI, the average law school tuition was just under $28,000 in 2007-08.

Despite its rhetoric to the contrary, I increasingly believe that the current administration is pursuing policies that are intentionally aimed at harming for-profit education providers. The gainful employment proposal obviously specifically targets the for-profit industry and is counterintuitive to the administration's stated goals that it wants to make college more affordable and accessible. Compare this proposal to the Income-Based Repayment plan that was recently signed by Obama, which provides borrowers with an option to limit their student debt payment to 10% of their income, after accounting for a living deduction (150% of the poverty level).

Why is it that students attending "preferred" institutions and pursuing so-called traditional education, are enabled to accrue huge amounts of student debt and be bailed out by the taxpayers when they are unable to find gainful employment after college, while students attending career colleges and pursuing vocationally-oriented education are demonized? Why is it that taxpayers are put on the hook for the institutions failing to prepare these individuals for the real world in the case of public and non-profit education, while we attack and hold accountable the institutions themselves in the case of for-profit education? This is a double standard that is based on nothing more than an ideological philosophy that profit is a 4 letter word and that the public and non-profit spheres are somehow pursuing the greater good.

Why Is Obama Administration Targeting Career Colleges?

Larry Penley asks this question in an OpEd for AOL News, attacking the gainful employment proposal:

The rule would set absolute limits on the amount of debt students can carry based on their earnings at the beginning of their careers. The rule is meant to reduce student debt, but it would actually limit students in some careers from being able to get federal loans and grants that come from Title IV federal funding.

Many students need financial aid in order to go back to school; the gainful employment rule, if adopted, would consequently limit them from attending career colleges that prepare them to get a job. Americans will either be unable to attend the schools of their choice or they will be forced to use more costly and restrictive lending.

I'll have a blog up to discuss the rule shortly.

Acquisition News

From Inside Higher Ed:

Laureate Education, the company that owns Walden University and more than 50 other for-profit colleges and universities worldwide, announced today that it has acquired a majority stake in National Hispanic University, a nonprofit institution with a campus in San Jose, Calif.

"We're a mission-driven university for Hispanics, like the historically black colleges are for African-Americans," said David P. López, NHU's president. "We're not going to have the leadership that this state and country need" without serving Hispanic students. But despite lofty goals, the university -- which offers certificates, associate's degrees and bachelor's degrees in education, business and information technology to a largely first-generation student population -- has struggled to expand.

"The fulfillment of their mission was being prohibited by lack of capitalization," said Paula Singer, president and CEO of Laureate Higher Education Group. Laureate will provide the capital and infrastructure to help NHU expand its mission, first in San Jose, but eventually with other brick-and-mortar campuses nationwide, and possibly online course offerings.

More Onerous Regulations in Store

My latest post to the CCAP blog:

Dick Bishirjian, the president of Yorktown University (an online liberal arts college), has reason to be fired up about the policy of the Higher Learning Commission of the North Central Association of Colleges and Schools that requires:

all of its accredited members to be authorized to operate in all the states where they have students either in online or traditional courses

Apparently, the Department of Education (ED) is considering developing a similar policy that would be applicable to all accredited institutions. In other words, a college would need to go through the bureaucratic red tape to become licensed to operate in every state in which it has at least one student enrolled, adding vast sums of legal and administrative costs.

This is a misguided policy that would be a huge setback to the effort to make college more affordable and accessible. That's because technology can be utilized to offer educational courses and programs at a significantly lower marginal cost and greater efficiency than at a centralized campus. As online education improves and becomes more widely accepted, the competition will likely intensify with the result being even greater efficiency and lower costs for students.

Online education also provides students with greater flexibility of where and when to "attend class," reducing many of the barriers that stand in the way of non-traditional students enrolling in and completing college. By imposing additional onerous regulatory and administrative burdens on online providers, the ED would not only help fuel rapidly rising tuition costs, but also deter much needed competition.

Community Colleges Could Learn from Career Colleges

Here's my latest post on the CCAP blog:

Community college officials and other interested parties gathered this past weekend for the annual meeting of the American Association of Community Colleges. From what I've read (here, here), the topic du jour was how to improve completion rates.

I know that some in the education community are under the illusion that their industry is in some way on a higher moral ground, making it therefore not appropriate to think of higher education in business or market terms. But I really must question whether anyone among the community college reform crowd has considered conducting a competitive market analysis to determine what its top competitors, the for-profit career colleges, are doing that enables them to retain and graduate demographically-similar students at much higher rates than the public community college sector, while charging higher out-of-pocket tuition.

I think they would find that the career colleges are specialized service providers that are focused on meeting the needs of their customers. They generally are focused on helping their students succeed by developing relationships with them in order to be in the position to identify potential issues that might lead to a student dropping out of school - before it happens. This allows college officials to step in when appropriate to help the students try to overcome the issues before a student drops out. Career colleges are also specialized service providers that aren't trying to offer a large number of educational programs and amenities in order to meet every single educational objective in a community (be all things to all people). Rather, they offer a limited number of career-specific training programs in fields for which there is likely a local demand for skilled workers.

Responding to Critics

Arthur Keiser wrote this piece for the St. Petersburg Times over the weekend:

It is unfortunate that the April 11 story "For-profit colleges teach lesson in cost vs. value," did not utilize more centrist experts on higher education. It is only divisive and counterproductive to quote Barmak Nassirian, the career college sector's most extreme and unreasonable critic. The article exaggerated lobbying activity, misrepresented cohort default rates, ignored critical outcomes, and implied that career college students are not getting the value for their investment.

The implication that career colleges are unduly influencing legislation is unfair, as the halls of Congress are filled with publicly funded lobbyists from traditional higher education. It is necessary to participate in our country's political process to advocate on behalf of our students.

More than 2.8 million students nationwide choose to attend accredited career colleges and universities. The majority are adult learners with jobs and families who need the flexible schedules and small classes offered by private schools. Fifty-five percent of career college students are the first in their families to go to college. This does not make them naive or foolish. These students deserve federal loans and grants as much as any other group of students. They also deserve the respect and right to spend them on the school of their choice.

The profits enjoyed by career schools only reflect their success at being relevant to their students. For-profit schools, by the way, are federally mandated to be fiscally solvent and to maintain a minimum profit level. Career schools — which receive no state or federal subsidies — are succeeding in the marketplace by providing a quality education with a career focus, resulting in most graduates gaining employment in their chosen field of study. Keiser University, as an example, spends more per full time equivalent student than a nearby community college and, being regionally accredited, meets the same faculty requirements as state universities.

The article makes no mention of the positive outcomes of these graduates. Keiser University's audited graduation rate for 2009 is 72 percent, well above community colleges and many state universities. At Keiser University, 34 percent describe themselves as career changers. While many students hold jobs while studying at Keiser University, 86 percent attain careers in their field of study after graduation. Fifty-four percent of Florida's allied health and medical services graduates, the backbone of our state's economy as of late, are from career colleges. How could this happen if many schools produce "worthless credentials," as asserted in the article?

While Keiser University and the career college sector oppose the "gainful employment" proposal by the U.S. Education Department, that does not mean there is a lack of concern about rising student loan debt. However, tying student loan amounts to starting salaries upon graduation would severely limit the opportunity of many to follow their career dreams in fields such as nursing, teaching and law enforcement. This is another proposal that unfairly targets students attending career colleges and not the thousands of students attending traditional colleges and universities who will graduate with a taxpayer funded degree in psychology, political science or art history.

A recent Education Department study speculated and "projected" default rates to increase dramatically. But that is assuming the general economy remains weak — a major cause of student loan defaults — and assumes no mitigation steps will be taken. Keiser and other schools have long advocated capping living expenses and other expenditures students are allowed to make with their student loans in addition to actual tuition costs. There is also debt counseling upon enrollment and many other steps proposed or being taken to help students. Keiser University's 2008 student loan default rate is closer to one out of 10 and not one out of four graduates as inaccurately stated in the April 11 article.

Our country is facing a tremendous challenge to develop a highly trained work force that can compete successfully in the global marketplace. Instead of focusing on the negative, the news media would better serve the public by providing a forum for creative ideas and cooperation among all sectors of higher education.

News on Gainful Employment

From the Wall Street Journal:

The DOE, in negotiations that started late last year, wants to impose regulations on the for-profits to temper the argument that the institutions charge too much tuition without producing quality educations and by forcing them to have certain levels of students in "gainful employment" positions.

The draft, apparently sent from the DOE to the Office of Management and Budget for review, isn't a public document but analysts at Credit Suisse and Signal Hill reported it included an exemption for institutions with a 50% completion rate and, of those who finished, 70% job-placement rate. That would reintroduce an exemption that had appeared in earlier drafts before being cut, the analysts said, and lower the completion rate from the previous 70% threshold.

News Highlights: 04/07/10

Inside Higher Ed reports that the For-profit sector has outperformed other sectors:

Six years ago, there were almost three times as many students enrolled in private nonprofit colleges as there were at for-profit institutions. By 2008-9, that ratio had slipped to about 2 to 1.

Graduation Rates of Students From Original Institution, By Degree and Institution Type

Total | Public | Private Not-for-Profit | Private For-Profit
Bachelor's
100% of Normal Time 36.1% 28.9% 50.3% 26.8%
150% of Normal Time 57.5% 54.8% 64.4% 33.9%
200% of Normal Time 60.6% 58.3% 66.4% 37.8%

Degree or Certificate, 2-Year
100% of Normal Time 18.9% 11.5% 41.9% 42.1%
150% of Normal Time 31.4% 22.0% 53.5% 61.3%
200% of Normal Time 37.3% 28.4% 58.1% 65.4%

Certificate, Less Than 2-Year
100% of Normal Time 47.3% 57.4% 54.2% 45.8%
150% of Normal Time 67.0% 71.4% 73.8% 66.2%
200% of Normal Time 71.5% 80.1% 80.0% 70.1%

Walden University to offer M.S. in Marriage, Couple, and Family Counseling

News Highlights: 04/06/10

Rick Hess discusses criticizes the exclusion of profit-seeking companies from participating in i3 innovation funding.

Thomas Frey:

Overhead costs are far too high, state support is dropping, and college tuition is far too expensive. Colleges are pricing themselves out of existence.

Online education can take place at a fraction of the cost. Many of the courses can be packaged and commoditized, and as courseware aggregators begin to sell courses online, there will invariably be course wars where each will try to undercut the price of their competition.

Majors tend to be a label that is both defining and restrictive at the same time. Majors represent a top-down approach to sorting out what skills are important for a given career path. But over time the major tends to lose its relevance. Employers use majors to help prioritize candidates, but they all know that the major alone is a poor indicator of the skills and talents an individual will bring to the table. Is there a better system? None that I'm aware of yet, but it is clearly an old system long overdue for an infusion of disruptive new approaches.

classroom-centric education is not necessary for learning

Colleges are like slow moving whales about to get attacked by saltwater piranhas. While department heads in colleges are off studying the mating rituals of Komodo Dragons in Indonesia, corporate managers are working day and night, ruthlessly focused on opening new markets and uncovering new revenue streams. The pace and intensity of the work is radically different.

Colleges have huge operating budgets and the corporate world is seeing this as fertile territory to make money. The vultures are already circling.

Kerry Picket speculates whether Robert Shireman will be appointed as Student Loan Czar, and criticizes his appointment as Undersecretary as a violation of Obama's pledge to not allow lobbyists on his staff.

his previous involvement as a lobbyist for TICAS shows he is establishing the very policies at the Department of Education he advocated for when he previously headed up TICAS.

Congressman Buck McKeon criticizes the federal student loan takeover:

is a bad deal for both students and taxpayers.

It is just plain common sense that putting 100 percent of borrowing risk and responsibility on the U.S. Treasury — in other words, on taxpayers — would be a costly proposition..Yet because of congressional accounting rules, Democrats were able to claim ‘savings’ by driving out the private sector and transforming the U.S. Department of Education into one of the nation’s largest banks. This new analysis has a simple message: Taxpayers beware

Laissez Faire Higher Ed Market?

Here is my latest post on the CCAP Blog:

Ben Wildavsky has an interesting essay in the Chronicle this morning in which he calls for free global trade in higher education.
The globalization of higher education should be embraced, not feared. The worldwide competition for human talent, the race to conduct innovative research, the push to extend university campuses to multiple countries, and the rush to produce knowledgeable and creative graduates who can strengthen increasingly knowledge-based economies—all of those trends are hugely beneficial to the world.

Just as free trade in manufacturing provides the lowest-cost goods, benefiting both consumers and the most efficient producers, global academic competition allows for the free movement of people and ideas, on the basis of merit, with enormously positive consequences for people, for universities, and for nations.
I'm all for free and open global competition in higher education and ideas, and generally think that protectionist measures that restrict the number of students, scholars or colleges that can be traded (imported/exported) do more harm than good. There may be one factor that contributes more to the protectionism than anything else: the fact that many governments subsidize higher education extensively.

The public subsidization of of higher ed creates many perverse incentives that work counter to free trade.

First, public subsidies are intended to serve domestic interest. Many taxpayers support the subsidization of higher ed because they want it to be affordable and accessible for domestic students. If colleges supported by taxpayer money were to tell the public that they plan to reject many more domestic students in order to open more seats to foreign students based on merit, and that the taxpayer funds would used to pay for these students, then I suspect that the public would soon begin to demand that the taxpayer funds be re-allocated in order to serve domestic interests (FYI, a similar scenario has been taking place at the prestigious public state universities for some time).

Second, subsidies create barriers to competition. Domestic industry players (i.e. - colleges and their associations) would be, and have been, opposed to new market entrants. This would mean more competition for students, faculty and especially public resources. Higher education has substantial lobbying efforts to impose barriers to entry and protect its interests, mainly just to deter domestic competition. Introduce foreign competition, and the stakes become much higher.

Third, public subsidies distort market prices. It is impossible to have a global free market in higher education when the industry is so heavily subsidized and consumers rarely incur the full costs, especially when the subsidies from different governments are in various amounts. This prevents normal supply and demand conditions from establishing a market-clearing price, even in a domestic market.

While I laud Wildavsky for his desire to create a global free market in higher education, it is not quite a realistic goal in the era of massive public subsidization of the industry. However, there is some optimism that globalization may help turn the page on affordability:
a new corporation is promising that American college students can get a year's tuition, room, board, airfare, and support services for that price ($12,750)...Just one catch: It's all in China.
(Note: this list of perverse incentives created by public subsidies is certainly not exhaustive)

News Highlights: 04/05/10

Apollo to enter the UK MBA market.

Harris Miller and Kathy Mizereck respond in the Sun Sentinel to an earlier article that attacked career colleges.

Inside Higher ED on the disaggregation of degrees

Since the online-education boom, the notion that students could cobble together a curriculum that includes courses designed and delivered by a variety of different institutions — including for-profit ones — has gained traction in some circles. “As it has with industries from music to news, the logic of digital technology will compel institutions to specialize and collaborate, find economies of scale and avoid duplications

Much of the talk about this imminent unbundling has come from colleges that predict that students might want to transfer credits from other colleges that might have different missions. But the competition may also come from entities that do not even offer degrees.

educational model is not about minimizing costs as much as maximizing expertise. "Organizations that provide the 'best' online education in a given subject area will come to dominate others," he says. In other words, as technology allows students to pick and choose courses from different institutions, the education providers that thrive will be those that concentrate their resources in particular fields.

The institutions that dominate in a particular subject area will do so, in part, because they have expertise and experience in that subject area that will give them a leg up on institutions whose orientation is more general

Leveling the Playing Field

New research from the Parthenon Group reveals that the societal cost of producing a positive outcome (defined as a completion or transfer) is quite comparable for community and for-profit colleges.

When schools’ total revenues are considered (agnostic as to source of funding) and compared against the positive outcomes that are generated, private sector and public sector 2-year (or shorter)institutions look a lot alike: they take in roughly $25,000 of revenues to produce a positive outcome of graduation or transfer. This neck-in-neck cost to society clearly needs to be evaluated against the value of those degrees.

I'm not all that surprised about the results of this analysis, as I previously suspected that the true cost per student of public colleges (once we account for subsidies) is likely not all that different than what for-profit schools charge. While this research is quite compelling, it falls a little short of revealing the full societal cost, as it fails to account for implicit costs, such as lost property tax revenues due to the non-profit status of public institutions, and the opportunity costs of government subsidies.

The research also portrays the costs in terms of positive outcomes. In measuring the societal cost, I would think that we should account for both positive and negative outcomes. Despite a few shortcomings, the results are very interesting and suggest that further research needs to be done. Stay tuned.

Richard Vedder Comments

Richard Vedder gives 3 reasons why he doesn't like Obama's student loan takeover bill in this National Review Online post.

First, he violated basic tenets of representative democracy by tying otherwise politically unattainable education changes to the health-care bill.

Second, the bill’s student loan provisions will not save the $68 billion promised, and will move the country closer to a European-style socialism that has brought that continent stagnation.

Third, the bill proceeds from a false premise.

Community vs For-Profit Colleges

Daniel de Vise of the Washington Post reports on a new study scheduled to be released tomorrow that compares, among other things, the cost of community colleges vs that of for-profit colleges. The main findings of the study are:

1. For-profit colleges are adding capacity at a rate of 6 percent, investing $800 million to $900 million a year, compared with a 1-percent annual growth rate among two-year public institutions, whose growth is hindered by dwindling state funds.

2. For-profit colleges serve a larger proportion of high-risk students (meaning at risk of dropping out) than community colleges. Fifty-four percent of for-profit students meet three or more "risk factors" as defined by the federal government, including parenthood, delayed enrollment and lack of a high school diploma. Thirty-six percent of community college students are considered at high risk.

3. For-profits have -- arguably -- a higher success rate than community colleges. Sixty-nine percent of students surveyed by the federal government attained the degree or certificate they sought or transferred elsewhere within five years of enrollment in a for-profit college. The comparable rate in community colleges is 62 percent. Community college students are far more likely to transfer to other schools, whereas for-profit students are more likely to attain certificates and then conclude their studies.

4. For-profit colleges receive $26,700 in funding, on average, for every student who successfully completes study or transfers. Community colleges receive $25,300 per student. The funding sources, of course, look entirely different: the for-profits receive most of their funding in tuition and fees paid by students, whereas community colleges get most of their funds from state and local government.

5. For-profit students start out with a lower income than community college students but yield a greater earnings gain through their studies. For-profit students earn $14,700, on average, when they begin their studies, and see an income boost of $7,900, or 54 percent, when they leave. Community college students earn an average $20,300 when they start, and see a boost of $7,300, or 36 percent, when they finish.

6. For-profit students are less likely than community college students to report that they were surprised by how much they owed at the end of their studies. More than half of for-profit students report they were told how much they would have to borrow by their institution, according to a survey of students by the Parthenon Group. By comparison, about 40 percent of community college students said their institution provided information on debt.

Beating a Dead Horse

Here's my latest post on the CCAP blog.

(Career College Central also posted the piece)

Let's play a little game of education policy and research trivia. Read the below statements regarding the for-profit sector and try to guess when these statements were made.

Private career schools became a front-burner issue for postsecondary education policy about _______ (hint: timeframe)..., in terms of participation in federal programs and in broader discussions about consumer rights and abuses...The impetus...can be traced to one key indicator: rapid increases in the amounts defaulted by students participating in federally guaranteed student loan programs

The sudden interest in proprietary schools generated by the debate over default led to several subsequent policy discussions. One had to do with the level of debt appropriate for young people entering the labor market, another with the increasing proportion of overall federal funds for student assistance going to students in private career schools, and another with consumer rights and abuses related to admissions, advertising, and promises for employment

Now, you are probably familiar with the fact that the Obama Administration and the Department of Education are changing the cohort default rate rules to account for 3-year defaults in 2012, and that there have been discussions about tightening other regulations regarding the for-profit sector, such as the 90/10 rule and gainful employment. So it would be a great guess if you said that the above statements were made in 2009, but you would be way off because they were made during the 1980s and included in a paper by Lee and Merisotis (1990) that I recently came across.

That's right, we've been having the same policy discussion about student default rates and so-called consumer protections for around 25 years. Despite subsequent regulations including establishing limits on CDRs to maintain Title IV eligibility, the 90-10 and gainful employment rules, laws requiring career schools to publish their job placement and graduation rates, laws forbidding incentive compensation and a slew of other regulations being placed on the for-profit sector, not much has changed in terms of outcomes. It seems that all of this federal meddling has led to...an escalation of tuition and the closure of 1,000s of career schools. I'm not exactly sure this was the intended outcome.

Just to touch a bit more on CDRs, I don't find it surprising at all that research produced in the 1980s reveals the same findings that current research on default rates does, namely that:

Studies that examine the effect of institutional type on default have sometimes been viewed as controversial because, given the structure of the student loan system; institutions themselves have no direct control over the borrower to influence his or her repayment

...students from different cohorts and varying income levels showed a considerable variance in their propensity for defaulting, supporting the idea that sectoral differences in default rates may at least be partially explained by differences in borrower’s characteristics

Defaulters have, regardless of institutional sector, significantly lower family incomes at the time the loan is made

the disadvantaged socioeconomic status of students attending proprietary and two year schools was found to be most strongly correlated with the likelihood of default, and institutional practices were found to be of limited importance