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.