March 16, 2010 « Transparency Would Benefit Career & Community Colleges »
This Executive Briefing was prepared exclusively for senior decision-makers. The perspective taken in this Briefing assumes the reader’s progressive organizational experience leading to a senior position in a college or university setting.
This week’s schedule called for Part III of executive guidance on end-of-course assessments. This Briefing was preempted by ongoing actions at the Department of Education and, in particular, by an ill-informed piece in the New York Times. We believe this Briefing’s focus on career colleges has broader meaning and is timely for all institutions of higher education, regardless of charter or market.
This weekend (March 13, 2010), Peter Goodman of the New York Times described a “new poor” being created by the for-profits.
At institutions that train students for careers in areas like health care, computers and food service, enrollments are soaring as people anxious about weak job prospects borrow aggressively to pay tuition that can exceed $30,000 a year . . . profits have come at substantial taxpayer expense while often delivering dubious benefits to students, according to academics and advocates for greater oversight of financial aid. Critics say many schools exaggerate the value of their degree programs, selling young people on dreams of middle-class wages while setting them up for default on untenable debts, low-wage work and a struggle to avoid poverty. And the schools are harvesting growing federal student aid dollars, including Pell grants awarded to low-income students.
What follows is not a defense of the for-profits. We have written extensively on the strengths and weaknesses of all institutional types in higher education. The structures of for-profits, especially those that are publicly traded, expose them to various exploitations that are not in the interest of the student or the taxpayer, the two points-of-view taken by Goodman. I worry about these exploitations. To no less a degree, the structural vulnerabilities of taxpayer-supported institutions (public institutions and independent colleges) also expose them to the abuse of students and taxpayers, although different abuses. Among the more common abuses is delivering a four-year degree in five, six, or even seven years because the institution cannot manage its production function. The combined out-of-pocket and opportunity cost of this kind of abuse far exceeds anything Goodman identifies in the career schools.
Accreditation
In castigating for-profits, Goodman's broad and undiscriminating brush fails to distinguish between nationally and regionally accredited colleges – whether for-profit or not-for-profit. These differences are material and effect how the schools operate, the markets they serve, the nature of their students, their measures of success, and the extent to which any of Goodman's claims are valid for that particular sector. Truth lies in the details and there is little detail in this article.
Give or take, there are 3,000 for-profit career colleges operating in the U.S. under the authority of national career college accrediting bodies including ACICS, ACCSCT, and ACCET. These schools serve a population that traditional private and public colleges, with the exception of community colleges, are not interested in serving and, on balance, will not admit into their programs.
In contrast, there are only a dozen or so for-profit universities of any size operating in the U.S. These universities are accredited under the same regional accreditation system and by the same professional standards that apply to public universities, elite private universities, and community colleges. These for-profits offer bachelors, masters, doctorates, and many facilitate post-doctoral internships.
While career schools, not the for-profit universities, seem not to be the object of most of Goodman’s concerns, the article seems to treat them as if they were the same and tosses in mixed statistics to further confuse the non-specialist reader. Goodman gives us isolated financial metrics for Corinthian Colleges (a corporation offering mostly nationally accredited programs of the type with which Goodman appears to be concerned) followed by the University of Phoenix, which is regionally accredited and offers undergraduate and graduate degrees, and none of the typical career college programs.
Tuition
Goodman headlines what he positions as outlandish tuition costs such as $40,000 for a two year program or $30,000 for a nine month program but then acknowledges that the average annual for-profit tuition is $14,000 (source: College Board). The $14K figure is clearly misleading in isolation. Here is the information from the College Board that Goodman omitted:
- Public 2-Year $2,544 (up 7.3%)
- Public 4-Year In-state $7,020 (up 6.5%)
- Public 4-Year Out-state $18,548 (up 6.2%)
- Private Not-for-Profit $26,273 (up 4.4%)
- For-profit $14,174 (up 6.5%)
Somewhere, as Goodman alleges, there may be a $30,000 nine-month program. In the past, elite schools have been known to offer short executive experiences in that price range. In the 25 years I have been working directly with all higher education institutional types, I have never observed such a program. If it exists, it would be the most extreme or outliers, the kind of stuff someone might use to whip up irrational hysteria rather than rational insight. Of the hundreds of such programs with which I am personally familiar, all are priced in a bracket that is typically more than public institutions and less than private not-for-profit colleges.
It is worth mentioning that the increases you see are in a year when the aggregate Consumer Price Index (CPI) was -1.4% for the first half of 2009 (when these prices were set) and was -0.4% for the year. Similar to healthcare, this is a simmering problem whose time will come.
Taxpayer Cost
Goodman is an economic writer. Shame on him for taking the taxpayer’s position to criticize for-profits while failing to identify all-in taxpayer costs for for-profits and other institutional types.
Let’s take a look at taxpayer costs, student loan defaults and all. From 1994 through 1997, I constructed and maintained an economic model that determined taxpayer costs by institutional type. That model was as robust as we could make it. By type, it included allocations for direct and indirect taxpayer funding, grants, loan forgiveness, etc.; student loan default rates; income, property, sales, and use taxes; in all 30 or so economic variables. This model is no longer maintained but I can offer ratios that will be illustrative and that are unlikely to have changed too much aside from higher education’s outsized inflation.
- When a student elects to attend a profitable for-profit college (most are profitable), taxpayers are paid perhaps $500, net, when these institutions pay federal, state, and local taxes of various kinds.
- When a student elects to attend a public college, taxpayers pay about $9,500 to support that choice.
- When a student elects to attend a private college, taxpayers pay about $7,500 to support that choice.
While the taxpayer support costs will make intuitive sense, the relatively high cost figure for the privates may not. It is as high as it is because private colleges receive so much indirect taxpayer support in the form of forgone public revenue, including typically enormous endowment revenues (not in the recession of course), and various forms of grants not available to the for-profit institutions. In 1995, we ran the numbers on a few of the super-elite private colleges and found that the taxpayer was writing a check for more than $40,000 per year to underwrite the expenses of each of the typical students in attendance. Additionally, some states provide stipends for residents to use in attending a public or private college but not a for-profit college. This latter variable was not in my taxpayer cost economic model; it would have increased the differential slightly. Again, these are old numbers that have been updated where possible. The ratio of 17:1 that they depict may now be 15:1 or 25:1 but there is no doubt that taxpayers will get paid by the for-profits and write a check to support the others.
Sources
I have concerns about the bad science in this article. Its sweeping generalizations are based on the views of a disgruntled former employee, a graduate or two of an atypical career school program, and a few insiders to higher education’s good old boy network. The College Board is a trustworthy exception but, here, omissions left false impressions about costs.
Instead of building a case on personal anecdote, a dissatisfied former employee, and extreme outliers, I encourage Goodman to gather objective information that we gather until it is stabilized and rendered valid by the laws of statistics. I'll use health care as an example. Working for both traditional and career colleges, in 2009, we initiated and completed more than 1,200 one-on-one conversations with senior decision-makers and other market-makers in hospitals and health care settings. We conducted this research in states accounting for roughly 85% of the nation’s population. We also spoke with about 300 representatives of the institutions who provide graduates to these health care industry. The truth about the value of career schools and their graduates, as reported by employers and other schools operating in the market, is not represented in the New York Times article. Not even close. The health care industry depends on career colleges, they find them credible providers, they hire a large proportion of their allied health care providers from them, they do not discriminate by place of education, and they find no particular pattern of competence attributable to the type of school in which an employee had been educated. It is irresponsible for anyone to make such damning claims based on anecdote and sample sizes of one or two, or even 20 or 30.
Measures of Success
There is no other word for it. I’m flabbergasted that Goodman tosses out multiple vague claims and implications about joblessness at the hands of career schools (these are the schools he describes in fact but, recall, he lumps all for-profits together indiscriminately) yet says nothing about the applicable mechanisms of accreditation and Title IV eligibility.
As a condition of accreditation and Title IV eligibility, career schools must demonstrate satisfactory job placement rates in every program they are permitted to offer. Effectively, these placement rates are set by the professional standards of the applicable accrediting body and the Department of Education. Schools that fail to place graduates in jobs lose their accreditation and eligibility. It seems to me that it was professionally incumbent upon Goodman to have mentioned these requirements while noting that they may not be working well enough in some areas.
Regionally accredited schools, whether for-profit, not-for-profit, or publicly chartered, have no such requirements for job placement (although some professional accrediting bodies, such as nursing, have such requirements for certain degrees irrespective of the charter of the graduating institution). What graduation or employment requirements are in place for public colleges when they take eight or nine years to graduate 18th Century French Literature doctorates? None. Regionally accredited universities have no institutional requirements to place anyone in any job, irrespective of its ROI or relation to the degree.
Return on Investment
Largely through anecdotes, Goodman points to situations where students who do get jobs for which their career school education prepared them do not earn enough to pay back their student loans.
While poorly supported, this is a real issue caused in part by the recession and in part by the overselling of benefits on the part of some colleges. That said, Goodman’s “get the career schools” mentality obscures the real issues. Let’s see if he is willing to be consistent to the principles he implies.
In his January 2010 State of the Union Address, President Barack Obama saw this issue as important enough to address, saying, "No one should go broke because they chose to go to college.” The Department of Education’s draft language to support this initiative proposes an annual loan payback cap at no more than eight percent of the student’s gross income, as determined by average salaries in the industry.
The first thing to notice with respect to this issue is that it does apply across to all students. From the College Board:
Among 2007-08 bachelor’s degree recipients, 34% graduated with no education debt, but 10% had borrowed $40,000 or more. The median debt for all bachelor’s degree recipients was $11,000 and the median for the two-thirds who borrowed was $20,000.
However, the concern does apply more to for-profits than to other institutional types. Again, from the College Board:
Among students who earned bachelor’s degrees at public four-year colleges and universities in 2007-08, 38% graduated with no education debt and 6% graduated with debt greater than $40,000. Among those who earned their bachelor’s degrees at for-profit institutions, only 4% had no education debt, while 24% had borrowed $40,000 or more.
Graduates of for-profit institutions are more likely to acquire debt that graduates of public institutions with private colleges falling in the middle. There are many reasons for this differential. Some reasons link to the tuition and fees, some are artifacts of the student population, and some reasons relate to the time-to-degree financial advantages offered by for-profits. However, some reasons are related to the overselling voiced in Goodman’s article and need to be addressed. The question is how they should be addressed.
It may help to make this proposed rule more clear with examples, keeping in mind that few students borrow the full cost of their tuition and, among those, some should have been counseled against this option.
Example A – Physical Therapist Assistant. Using College Board values, a PTA pays a career school $28,000 to earn the two-year associate degree and enter the profession. The Department of Labor estimates the average salary for PTAs at $46,000; it will be lower for recent graduates, say, $38,000 (-17%). Under the eight percent cap, the permissible monthly loan payback is $253. Student loan options vary widely but an unsubsidized 20-year loan at 6.0% interest results in a $201 monthly payment.
Example B – High School Teacher. Using College Board values, a secondary school teacher pays a private college $105,092 for a four-year bachelor’s degree and enters the profession. (In reality, most public and private schools drag the process out to an average of over five years for a four-year degree.) The Department of Labor estimates the salary at $56,000 but it will be lower for entry level, say, $46,500 (-17%). Under the eight percent cap, the permissible monthly loan payback is $310. A subsidized loan for 20 years at 4.5% results in a $665 monthly payment.
There are many jobs, many tuition prices, and many student loan options. Some fare better than others in terms of payback ratios. We estimate that more than half of extant undergraduate two-year and four-year degrees would make the cap. That said, a graduate of the average private school in the scenario above would need a starting salary of $99,750 to pass the proposed income test.
To be clear, I am not criticizing degrees for which there are few job or no degree-relevant job prospects. Neither am I criticizing the institutions that offer them. (I have one or two such degrees myself.)
I am recommending that all institutions of higher education provide the transparency necessary for prospective students to make fully informed choices. At present, this information is not available for any institution, for-profit, public, or private, and virtually all schools have vigorously resisted requirements to provide it.
Neither Goodman nor the Department of Education is advocating that this principle be applied equitably to all institutions of higher education. Their idea is that for-profit institutions should operate under strict ROI tests while public and private colleges should have no responsibility for producing a defined return-on-investment for students. Not-for-profit colleges should be free not only to offer degrees for which there are no jobs but should be free to obfuscate this fact. The Department’s ethics are deplorable and should be recognized as such.
Student Loans
In the aggregate, student loans are a profit center, either for banks or the federal government if direct. This is why the feds want to take all of them away from the banks. I will not get into the detail here because the picture is changing as I am writing this but a few points seem worth making in relation to Goodman’s implications.
The primary source of loss (i.e., reduction of gross profit, not net loss) from student loans occurs at an individual level when a student defaults on his loan. Rolling these defaults back up, we see: (a) that the for-profit universities do not lead the institutional types having the highest default rates, (b) career colleges and communities have similar default rates, especially the well-run institutions of both types, and (c) the statistical predictor of a default is not the type of institution. It is the socio-economic status of the student. Poor people default most often. Working adults in career positions (i.e., typical Argosy University or University of Phoenix students) default the least. Is this any surprise? Apparently it is to the Department of Education and to Goodman because they seem to think that defaults are the fault of the school. If so, Goodman needs to rewrite his piece to accommodate the low default rates for working adult for-profit programs.
If one really wants to sharply reduce student loan default rates (they are not bad overall, and they are lower than many other loan types, real estate being the most obvious example), one needs only to tell the underclass that they should be eating cake rather than trying to better themselves by getting an education that leads to a steady job. The underclass, whom the career schools and community colleges educate because no one else will, have high default rates whether they are attending a community college or a for-profit career school.
Out of the Underclass
The greatest value in higher education is added (outputs minus inputs) by career colleges and community colleges where motivated captives of the underclass are routinely elevated to the self-respect and relatively stable income of the middle class. Public and private colleges don’t want these students and community colleges cannot handle them all. Some community colleges have built strong relationships with career and regionally accredited for-profit colleges to the benefit of these students. More are doing this every day.
What is it worth to the individual, to that person’s family, to the community, and to the economy to take a young person out of the underclass and off public assistance and place them in a career where their self-esteem grows along with their income and they become property-owning, tax-paying members of the society? How does the taxpayer fare if these students pay back all, some, or none of their student loan? It is difficult to build economic models to answer these questions but those I have constructed suggest that in as little as 10 years, we are better off as taxpayers even if the student defaults on 100% of his loan.
In applying a harsh double standard to career colleges, Goodman and the Department of Education have tainted the many with characteristics appropriate to the few. My work gives me inside understanding of the finances and product delivery for public, private, for-profit private, and career colleges. While I see abuses within all institutional types, I see no pattern that would support singling out the for-profits in general or career schools in particular.
The Department’s palpable distaste for for-profits rests on a paisley and bell-bottomed idealism that never connected with sound economics. Sections of the Department are guided by graduates of elite colleges whose images of the “college experience” spring largely from the rich and rarified environment that made up their lives at Yale or Cornell. They do not like the idea of “profit” when applied to education. It comes down to that.
Growth of For-profits
I fail to understand the ill informed, illogical, and at times petty vitriol displayed with respect to the for-profits as a category. Even so, anyone who feels that way should confront the fact that there would be no for-profits had traditional higher education not become the unaware, self-serving, inefficient, indolent behemoth it is today.
Those who are alarmed by the fact that the for-profits have grown from 1% to 10% market share could try to legislate for-profits out of business, a direction in which the current Department of Education appears to be headed. Most of us, however, recognize the inconsistencies and hypocrisy in this approach.
A better approach is for a substantial portion of the other 90% to do a better job managing their enterprise in relation to the external market and environment. This means offering better programs, better service, shorter times to degree (e.g., more three year degrees), less indifferent and inefficient bumbling, understanding and participating in the marketplace, more partnerships, and much more. It also means measuring and managing real quality for the very first time, instead of using it as an empty shibboleth as is now the case.
Robert W. Tucker is President and CEO of InterEd, Inc.
He can be reached through this forum.
The expression of other views by leaders in higher education is welcomed.
Reader Comments (4)
Thank you Bob for your articles...I always enjoy reading them!
Good article. You make a lot of good points countering the Goodman article. Somehow the for-profit group has to position itself as a partner and solution provider with ED and politicians. I think the student loan industry is an example of a similar situation. A lot of money was made by private for-profit entities based on federal funds. Too often the student loan industry fought back without recognizing the issues and trying to come up with solutions before being forced to change or eliminated altogether.
I recently met with FL DOE officials in an attempt to understand why state law for the publication of CC placement rates was not being implemented.
Turns out that the state agencies don't exchange this kind of data yet. Worse yet, the CC's were not even aware of what data was available, much less that this was a statutory mandate.
You could have been having this conversation in 1986 when, in Arizona, it was going to become a reality "any day now."