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.