education

Yet Another National Disgrace: For-Profit Colleges »

Ripping off the younger generation Oct 5 2012 Update: October 21: Citing declining applicants, the Univesity of Phoenix will close 115 physical locations, 25 of them main campuses. Growing revelations in the media, such as the article that follows, have made the public aware of Phoenix's and other "universities'" aggressive recruiting, and poor post-grad employment that leaves alumni deep in unpayable debt.
    

The reputation of American universities, long viewed as the best in the world, is being befouled by the cancerous growth of for-profit colleges that saddle students with crushing debt in return for very little of marketable skills.

At a time when our youth are told that a college education is indispensable to their hope of ever finding a job, the for-profit colleges pursue the young like gulls following fishing trawlers, encouraging them to take on debt they cannot afford to pay. This predation takes the form of eating our young.

The schools do not issue that debt; they just cash the checks, which is what has caused a stampede to create some 2,000 colleges that now account for 13% of all students, up from 3% ten years ago, most by large corporations and even private equity and hedge funds. The loans — about 80% of them — are from the federal government. And if the student cannot pay? The U.S. taxpayer will eventually pick up the tab.

The government in the 2010-11 academic year issued $24 billion in loans and $9 billion in grants to students at for-profit schools. A study of 30 such colleges just issued by a Senate education committee chaired by Iowa Democrat Tom Harkin says that these institutes do not behave like the usual accredited institutes of higher learning. They spend on average 22.4% of that revenue on marketing and recruiting and only 17.7% on teaching. Keeping down the costs of actually educating students made certain that profits would be a heady 19.4% — that is, after paying the CEOs of these colleges an average of $7.3 million that year. One CEO — Robert Silberman of Strayer Education — was paid $41 million including stock options. (The president of Harvard was paid $700,000).

The colleges make such handsome profits by charging far more. The Harkin study schools charge almost four times as much as community colleges and public universities for associate degree and certificate programs. For four-year degrees the industry-wide average tuition is $31,000 a year, almost double the cost of public universities. For-profit colleges have been found to ratchet up their tuition to match the maximum amount a student can borrow from the government.

And the students?

Schools find it in their interest to be unclear about the real costs of enrolling. There is a newsletter that advises marketing technique called Enrollment Management that counseled admissions personnel to “avoid bad words like ‘cost,’ ‘pay’, ‘contract’ and ‘buy’”. These are “direct marketing ‘words’ that can make or break” the pitch. Letters to students often refer to “financial aid” without clarifying that the aid takes the form of loans.

What results? Few at for-profit colleges complete their courses. At Phoenix University, the largest in the field — it took in $4.9 billion in 2010, almost all from the government — two-thirds of associate-degree students leave before earning their degree, and less than 9% of its bachelor degree candidates graduate, even allowing them six years before taking the measure.

But the students’ debt lives on. About 96% of students at for-profit schools take out loans, versus about 13% at community colleges and 48% at four-year public universities. Those at the for-profits may be only 13% of the national student body but they account for 47% of the defaults on student loans.

The few that do complete courses get little help finding employment. The Harkin report found that while there was the astonishing total of 32,496 recruiters for the 30 studied colleges, there were 3,512 staff members to assist graduates in finding jobs. One of them, Ashford College, wth 78,000 online students and $216 million in profits, had 1,700 recruiters, but just 1 job placement officer.

Others who do complete coursework and seek to transfer to a different school then find that their credits are not accepted elsewhere. ITT Educational, for example, has 148 locations in 39 states and 71,000 students enrolled. At the end of its ad small type reading ''Credits earned are unlikely to transfer” appears for a moment. In contrast, credit for a two-year associate degree from a community college will almost certainly transfer to a four-year college toward completion of a degree.

The $1 trillion in student debt, now greater than credit card debt, caused us to report almost a year ago on student loan defaults posing “The Next Financial Crisis” (restored to our Education page or here). It is the dropout group which poses the greatest threat. Education Sector, a Washington research outfit, published this study earlier the year which found that the default rate on loans to students who drop out is four times higher than those who stay for a degree. They leave themselves strapped with a loan to repay with greatly diminished chances to find a job, much less jobs that pay enough to cover the debt.

Most insidious is the targeting by the for-profits of U.S. armed services personnel. There is a federal regulation that the for-profit colleges must derive (a mere) 10% of their revenue from sources other than the Department of Education. In an unaccountable loophole, even though the post-9/11 GI Bill benefits come from the federal government, they qualify toward the 10% requirement. So the for-profits aggressively promote GIs to use up their benefits on their worthless courses.

Congress Objects

One would think that Republicans would cheer the Harkin report for outing the waste of government funds and, therefore, taxpayer money. Instead, Republicans on the committee that issued the report called it a hostile partisan work that should have investigated nonprofit colleges as well. That puzzling reaction may be explained by the for-profit college sector spending $8 million a year on lobbying in 2010 and again in 2011.

The Courts Help Out

To stem the hemorrhaging of money to the for-profits, the Obama administration devised a rule that would cut off funds to those that failed in (a) three of four years to meet (b) just one of the three requirements that (1) at least 35% of recent graduates are repaying loans or (2) that their payments do not exceed 12% of their income or (3) 30% of discretionary income. Despite the several ways a college could pass, the rules — a test of whether a college produced employable graduates rather than wasting tax money — were struck down by a judge of the U.S. District Court of D.C. as being “arbitrary and capricious”, as if any threshold along a path of 0% to 100% could have a concrete premise.

The Education Department said that 48% of for-profit institutions failed the 35% test. As it stands, they will go on getting full funding.

That’s OK With Romney

One would expect the disgust from Governor Romney with the scandalous waste of government money sent to the for-profits and even the alarming burgeoning of student debt they are causing. Yet he has said, “I just like the fact that there’s competition. I like the fact that institutions of higher learning will compete with one another, whether they’re for-profit or not-for-profit”. He believes they “hold down the cost of education”. Given what we have cited, he seems unaware of the facts. Either that or unduly influenced by friend Bill Heavener who is the head of the private equity fund that owns Full Sail University, a college in Florida, and is co-chair of Romney’s fund raising in that state, and who gave $45,000 to a SuperPAC set up by former Romney aides.

As for holding down costs, Full Sail, which specializes in the entertainment field, charges $81,000 for a 21-month program in video game art. It graduates just 14% of students.

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education

Why Are We Making a College Education Unaffordable? »

The endless rise in tuition threatens the nation’s future Feb 16 2012

If America is to compete successfully in the global economy, it must have a better educated workforce. One would expect we are doing everything possible to make a college education available universally.

Not quite. The federal government does much to make that happen — Pell grants, Perkins loans, Stafford loans — but does so in conflict with unrelenting tuition increases by our colleges and universities that pull in the opposite direction. Combined with a reduced economy that has caused states to cut back aid to their schools, the one-third of students who had to borrow to pay for an education a decade ago has risen to two-thirds now. The class of 2011 left school owing on average $27,300, the highest debt level ever.

President Obama, in the State of the Union address, called attention to one unhelpful burden that government does place on students — interest on those loans. He sounded the alarm that the interest rate is about to double on July 1 if Congress does not act.

On that date the original 6.8% rate will be restored. In 2007 it was reduced by half with a 5-year sunset clause. If that cutback is not renewed, some 8 million students will see an average of $5,000 added to their 10-year debt, and about $11,000 if their loan term is 20 years.

As the midyear date approaches, we can expect banks and other lending institutions that issue private loans to lobby for a return to the higher rate. The reason there are any interest charge at all is that the banks practically wrote the student loan law and saw to it that the government not compete with the private sector by demanding that it, too, charge interest.

Fast forward to the recession. Banks now borrow from the Fed at near 0% interest (and then buy treasuries rather than making loans to help businesses), whereas students borrowing from the government are saddled with interest rates far above what the rates have become. So the question in a zero-interest recession is, why are we making it more difficult for students by adding interest charges?

The banks also saw to it that even the private loans are not “dischargable” under bankruptcy. Of all classes of consumers, students are thus singled out with harsher bankruptcy rules than anyone who defaults on mortgages, car loans, credit card debts, etc. Those debts are eligible for dismissal in bankruptcy court; student loan debt stays permanently attached. That’s your Congress at work.

In an employment market in which graduates cannot find work to repay the debt, there is the growing risk of widespread default, as we reported in September in this article (which spells out the Draconian consequences that rain down should someone fail to repay a student loan).

The Obama administration has softened the blow somewhat with special provisions. If a graduate’s debt exceeds his or her starting salary, monthly payments are reduced to 15% of discretionary income and anything still owed after 25 years will be forgiven. Borrowers who remain a teacher or in another public service occupation are eligible for forgiveness after 10 years of payments.

But take note of that: students potentially still paying for their education 25 years later. It says how we are impacting the lives of our best educated. If they bring debt to a relationship, how does that forestall or even foreclose marriage (it’s been called the anti-dowry)? That in turn postpones having children, embarking on a normal life. How many will still be paying for their education when their own children need money for their education?

runaway tuition

The root cause of the problem is the rate at which college tuition, room and board has risen unchecked — 538% over the last 30 years, four times faster than consumer prices, twice as fast as even health care.

Because states are strapped, schools dependent on their state’s support understandably had no immediate recourse from increasing the annual tab at a record pace in this recession — 8.3% last year to an average of $17,000.

But for the most part colleges have given no thought to the damage they have done by constantly raising tuition to pay for heedless spending, competing to make themselves attractive to students who in turn seem mindless about what the cost of those attractions will do to their future. Colleges were once rather austere, with under-heated rooms, double-deck beds and dreary food, but our youths now expect all the comforts of the homes they just left. So the colleges pile on “amenities” from food courts to sports palaces with olympic-size pools to recreation centers (climbing walls seem to have become a metaphor for this excess).

Worse still is the competition for star professors, who are lured with huge paychecks and minimal teaching requirements. Stanford's professors now get paid sabbaticals every fourth year that hand them $115,000 for not teaching. College presidents are paid in the millions, with compensation of the administrative echelons beneath them similarly elevated. Prestigious research is pursued even if not funded by grants. And it’s the students who pay for all of this.

Mr. Obama also threatened that federal aid would be reduced to those colleges that continue to increase tuition, and proposed a number of yardsticks to test the post-graduation success rates of their students in finding employment after graduation. Much of this, though, depends on approval by an uncooperative Congress. Even if it comes to little beyond rhetoric, the bully pulpit at least serves to turn the spotlight on the runaway tuition problem.

clueless students

Students are at fault as well, naïvely taking on more debt than they will be able to handle, and then taking degrees in subjects that are not needed in the marketplace. So we frequently read of young graduates who are unable to find work, and a paragraph or two later learn that they were English majors, or studied French literature, or “communications” or anthropology or film-making. There are jobs out there, but employers are looking for degrees in science, engineering, math, electronics, software.

We don’t much hear anymore the cherished notion that a liberal arts degree produces someone of an intellectual breadth well-equipped to quickly learn on the job whatever skill is needed. That sounds quaint in the new world the nation faces.

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