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.