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.