A Few Bad Apples Don't Rot the Entire Orchard

For decades, opponents of the for-profit education sector have used the same arguments to try and de-legitimize the career focused schools that are operated on the basis of profit. True, there have been some horror cases of abuse by opportunistic operators and such cases should be prosecuted as crimes. But overall, the vast majority of schools operating for a profit are doing good for their students and the labor market. As such, the entire sector is not deserving of the stigma that opponents of it have attached. I often espouse that a few bad apples don't mean that the entire orchard is rotten. Others before me have describe this situation similarly:

In a 1973 speech, Jack Jones suggested that the public image of proprietary institutions is based largely on the lowest common denominator, implying that the entire sector is identified according to the misdeeds of a few bad apples that are part of a much larger and healthy orchard. In a 1974 paper, David A. Trivett likened this personification to “basing the image of all colleges and universities on knowledge about Harvard or Oxford.

Similarly, there are bad apples in the public and non-profit sector. Look at the case of Southeastern University in DC, which Kevin Carey excellently describes in the Washington Monthly. But you don't see Burd or other critics viscously attacking the public sector because of a few cases of abuse and neglect. This suggests to me that critics of the sector are biased on ideological grounds - they oppose capitalism and profits. I tend to defend the career college sector because I see that they are doing things a little differently than traditional colleges, often more innovative and in tune with creating value for their students. I could care less whether such schools operated for a profit or not - the outcomes are what matters. Are graduates completing their degrees? Are they finding good jobs in a field related to their studies? Are they improving their socio-economic status? Policy folks need to focus on identifying which things are working, and which aren't, as opposed to drawing lines based on ideology.

Must Reads: 02/26/10

George Leef on Whether we Need More College Grads, or Better Ones?

Does American economic strength dependson increasing the percentage of people who have college degrees? Or should our focus be on raising the level of instruction and achievement for those who show an interest in advanced academic studies?

Ramesh Ponnuru describes the Case Against College Education:

We may be close to maxing out on the first strategy. Our high college drop-out rate — 40% of kids who enroll in college don't get a degree within six years — may be a sign that we're trying to push too many people who aren't suited for college to enroll. It has been estimated that, in 2007, most people in their 20s who had college degrees were not in jobs that required them: another sign that we are pushing kids into college who will not get much out of it but debt.

Kevin Carey on how hard it is to lose accreditation.

Southeastern had lived for many years on the most distant margins of higher education, mired in obscurity, mediocrity, cronyism, and intermittent corruption. Students routinely dropped out and defaulted on their student loans while the small, nonselective school lurched from one financial crisis to another. Yet during all that time Southeastern enjoyed the goldest of gold approval seals: "regional" accreditation, the very same mark of quality granted to Ivy League universities

Community Colleges' Plan to Compete with Career College....

According to the CHE, in the wake of double digit unemployment, there is a push being made to renew the Workforce Investment Act that would authorize

billions of dollars for education and job-training programs, including at community colleges.

Apparently, here is what the community colleges idea entails:

Another key issue in debate over the act's reauthorization is the role community colleges will play. For the most part, they have not served as the primary providers of the education and training programs financed by the Workforce Investment Act. The grants regulated by the law have been used more often to help people find jobs than to train them for new types of employment.

Sen. Robert P. Casey, Jr., a Pennsylvania Democrat, heaped praised on community colleges, an indication that he may be inclined to give them a stronger role in a new Workforce Investment Act. He called two-year colleges the most "underappreciated and underserved sector of higher education."

Robert G. Templin, Jr., president of Northern Virginia Community College, urged lawmakers to make community colleges the "hub of work-force development" rather than just another training center.

He said current training providers, such as proprietary schools, unions, and community-based job training centers, work in isolation and therefore tend to provide only entry-level training skills that do not result in a "portable and market-valued credential." He said community colleges are adept at moving low-skill workers into higher-paying careers by developing and offering high-demand occupational programs and working directly with businesses to help train their workers.

Essentially, what this boils down to is the community colleges are looking for more handouts from the government. They are losing ground to the career colleges in terms of providing in-demand educational training programs and providing services that help students complete their programs and find jobs. The community colleges are confused about their role in the educational community and this has contributed to their ineffectiveness. They don't know whether they are vocational training grounds, adult learning communities, a gateway to 4-year degree or a place for the unemployed to hang out and collect some financial aid overage until a job opening comes along.

The career colleges are doing better because they respond to market incentives and have specialized in offer the types of programs that employers need. The community colleges plan to compete is simple....beg for more handouts so that their tuition looks cheap compared to career colleges. I've got news for you folks, it is not about cheap tuition, it is about the value of the education and training provided.

Must Reads

New GAO report identifies:

seven for-profits, seven nonprofit privates and one nonprofit public institution were found to have violated the ban

on incentive-based compensation between 2002 and December 2009. I've written in opposition to the ban on incentive-based pay in an article for Career College Central. Career College Association President Harris Miller was quoted in an Inside Higher Ed story as saying that the violations:

"involve institutions of all types," even though accusations against for-profit institutions have garnered the most headlines about incentive compensation.

Neal McCluskey of the Cato Institute on why we should abolish the Department of Education:

many Americans - who are generally too busy with other things to cogitate over why government fails - truly equate federal politicians interfering in education with improving education. But as decades of academic stagnation and belt-busting budgets have proven, that's just not the case.

The Future of Higher Ed - $99 a Month?

For awhile now, I've been intrigued by StraighterLine - a company founded by Burke Smith - that offers online introductory courses for $99 a month. Fox 5 DC did a special report on the company last night. The video is posted above. For those of us who believe that technology is necessary to alleviate the rising cost of college, StraighterLine is an exemplary example of how this is possible. It is able to drive the non-labor costs of providing instruction near zero using the power of the internet.

Must Reads

Check out Richard Vedder's essay over at Minding the Campus in which he discusses why tuition always goes up. He argues that more colleges and universities need to operate with the profit motive in order to control costs and improve educational outcomes.

David Koon's essay for the Pope Center's Clarion Call discusses a growing trend to privatize and argues that it could be for the public good.

Also, check out Kevin Kuzma's blog over at Career College Central, in which he suggests that for-profit providers are gaining legitimacy.

Higher Education's Tunnel Vision

Check out my latest article on Forbes.com, where I argue that there is a tunnel vision when it comes to policy being focused on improving graduation rates and increasing the number of graduates. I suggest that this goal, while admirable, does nothing to address the most pressing problems with higher ed.

Unintended Consequences of the 90/10 Rule?

I've been doing some thinking about the so-called 90/10 rule, which stipulates that profit-seeking colleges must obtain 10% of their revenue from non-federal aid sources. Since proprietary schools do not get state subsidies, research grants, or have a massive income-earning endowment (profit-seeking firms would likely re-invest their retained earnings in growth opportunities anyhow, as they don't have the tax advantage of a public or non-profit organization), the other 10% of revenue usually is generated from out-of-pocket tuition charges. In other words, student tuition payments from private funds such as income, family savings, company sponsorship, private scholarship or private loans.

By requiring colleges to come up with revenue sources other than the federal government, politicians believed that profit-seeking colleges would be forced to provide something valuable that students would be willing to pay out of their own pocket for, with the intent of cracking down on the so-called diploma mills operating in the for-profit space. While the implementation of the rule did lead to some for-profit providers closing up shop, I wonder if there are negative unintended consequences as a result.

For instance, it may be possible that profit-seeking colleges have an incentive to set tuition at a level that exceeds the maximum federal student loan thresholds so that students have to come up with the remainder of the tuition on their own. It may also be possible that proprietary schools set their tuition above the combined maximum annual federal loan and grant thresholds, or some ratio of it depending on the particular target student demographics. In the absence of the 90/10 rule, it is possible that profit-seeking colleges might price their tuition at or below the federal aid thresholds.

I plan to empirically investigate this matter in the future. Stayed tuned.

The Relationship Between Federal Aid and Tuition

The NY Times Room for Debate forum today asks the questions:

Is there a connection between federal education aid and the inflation rate in higher education? More broadly, what can Washington do, if anything, to improve the effectiveness of its programs and reduce the costs of college?

Richard Vedder opines:

President Obama wants more and bigger Pell Grants to help relieve rising college costs, along with revamped student loan programs. I think he has it backward: federal student financial assistance is more a cause than a consequence of rising college costs.

Work done at my research center reinforces findings of others that exploding student loan programs have contributed to higher tuition charges, and if Pell Grants grow more inclusive and generous, the same effect will occur with them.

The president joins many Americans in wanting to equalize college participation for all. Yet the root cause of low college attainment among poor people is not a lack of resources. It is dysfunctional living arrangements and abysmal academic preparation in our mostly free public secondary schools, particularly those located in inner cities. Indeed, Pell Grant recipients on average are less likely to graduate within six years from college — despite generous financial aid — than others, in large part because of prior educational deficiencies.

It is an inconvenient truth that a larger portion of college students were from low-income backgrounds in 1970, before Pell Grants, than today. No doubt the rise in college costs relative to family incomes makes more believe that higher education is something for the affluent, not everyone. But the cure — federal student aid — is causing (at least in part) the disease.

The demand for higher education grows with rising federal financial assistance, but the supply grows less rapidly, pushing up prices (tuition fees). Supply is comparatively rigid because the so-called best schools attain their lofty reputation by turning away customers: college rankings are enhanced by taking very qualified bright kids who likely will graduate (and are disproportionately affluent). Dropping money out of airplanes over the houses of college students (or its equivalent) is not the solution.

The three “I”s of higher education reform are incentives, information and innovation. Colleges must provide incentives for their staff to want to cut costs and be efficient, they must provide better information on outcomes and finances to consumers, donors and taxpayers, and they must embrace innovation in the forms of labor-saving technology. That, not more student financial aid, is the key to making colleges more affordable.

Arthur Hauptman also offers some interesting analysis:

Unlike Pell Grants, as part of the aid packaging process, colleges have some control over how much students borrow as loan amounts. Moreover, just as one couldn’t imagine house prices being as high as they now are if mortgage financing were not available, it is difficult to believe that colleges and universities could have increased their charges so rapidly over time without the ready availability of students’ ability to borrow.

As does Pat Callan:

But recent increases in Pell Grants during the Bush and Obama administrations and higher levels of federal expenditure for the program have had little, if any effect, on improving college access and affordability. As additional Pell dollars are absorbed by steep tuition increases, the effect is to shift costs from colleges and states to students and the federal taxpayer, with little or no net gain in higher education opportunity.

News Highlights: 02/03/10

Is Joint Venture the next big thing in higher ed?

At its basic level, the joint-venture idea is a variation on the outsourcing that many institutions already engage in with companies for 'noncore" services such as facilities management and marketing, and for the curricula and electronic platforms they use to deliver distance-education course materials.

The difference? Instead of paying an outside third party to provide such services and letting it keep the profit it makes, the college and a financial partner establish a joint venture and pay market-rate fees to that entity for providing the services.

"Instead of all the profit being retained by the third party," says Mr. Goldstein, it goes to the joint venture, and then is shared between the college and its partner.

Career College Association to hold Policy Forum and Hill Day in March.

Career College Association annual convention to be held in June in Las Vegas.

NASFAA summarized the outcomes of the NegReg committee, including its failure to compromise on gainful employment and incentive compensation (HT: Tim Ranzetta)

Negotiated Rulemaking Committee Fails

Inside Higher Ed reported today that the Department of Education's (ED) Negotiated Rulemaking Committee failed to reach a consensus during its third round of negotiations last week. The committee ostensibly got hung up on 2 measures that were directed towards career colleges: gainful employment and incentive pay. I wrote negatively about the potential negative impact that such changes would have on the sector in a recent article for Career College Central.

The committees failure means that any regulatory amendments will now be subject to Congress and the political process. I doubt that the attempt to link student debt to income, which is chock-full of problems as I explained here, will survive the political process. This should not, however, be perceived as a free pass to any college to become complacent at seeking to add value to its programs. Students and the taxpayers are investing large sums of money and hope in the postsecondary education system, and these students and the public deserve better outcomes than is currently the case.