Fitch Ratings, which analyzes some colleges' credit worthiness, on Friday released an analysis challenging the idea that tuition increases are doing damage to many Americans' ability to enroll, and to higher education generally. "[T]he increase in cost of attendance at U.S. colleges and universities, which began during the mid-1990s and accelerated through the end of the past decade, has not yet had a meaningful impact on enrollment at most institutions," the ratings service said. "The lack of a negative enrollment trend, we believe, underscores fundamentally robust societal demand for postsecondary education and the non-discretionary nature of a college degree."
Although long overdue, there is finally a debate in Congress, the White House and the news media over how the federal government should address rapidly increasing college tuition. President Obama has repeatedly attacked rapidly rising tuition in speeches. Peter Thiel controversially called higher education the biggest bubble since real estate circa 2008. And for the first time in a long time, the wisdom of the access-to-college-at-all-costs mantra is being questioned by more than just the fringe on both sides of the aisle. Senator Richard Durbin’s (D-IL) recent proposal turned some heads, but the consensus is that his proposal has little chance of passing — and is definitely a nonstarter in an election year.
Durbin suggests changing the so-called 90-10 rule -- wherein for-profit and career colleges must earn at least 10 percent of their revenue from sources other than federal student aid to be eligible to receive any federal aid -- in two key ways.
Today’s 90-10 rule creates a powerful incentive for for-profit and career colleges to recruit aggressively anyone eligible for military benefits -- but not for the right reasons. Indeed, because military benefits count as part of the 10 percent of “non-federal money,” for every one military student a college signs up, it can acquire nine non-military students paying full tuition with federal loans.
Durbin’s proposal to include military benefits in the 90 percent has some common sense behind it; after all, these are federal funds. Although doing this would probably increase prices in the short-to-medium term as for-profit and career colleges raised tuition to be sure that 10 percent of aid was coming from non-federal sources, in the longer run properly accounting for federal costs will make the true cost of education more transparent and create more room for start-up higher education institutions that are lower in both price and cost to emerge.
Although it’s a shame on the one hand that this looks unlikely to pass, it may open an opportunity to improve the legislation both for the short and long term in some important ways.
In the short term, Durbin should modify the language of the proposed bill in a few ways. First, drop the idea of moving the policy to 85-15 in order to garner consensus and get the bill passed.
More importantly, he should change the bill to address people, not revenue. The difference is subtle, but critical. Instead of requiring 10 percent of revenue to come from non-federal dollars, require that at least 10 percent of students pay full tuition out of pocket. This is, in essence, how some of the regulations were written for the GI Bill shortly after World War II when there was considerable -- and justified -- fear that government dollars were going to flow toward unethical and poor-quality institutions. The idea behind this was simple. People with sufficient means to pay the tuition outright have the social capital to identify if the education is of high quality and if the value proposition is likely to have a positive return on investment, even if that return takes nearly a lifetime.
Many people correctly point out that 90-10 in its current form actually drives up tuition by incentivizing colleges to raise prices so that student loans and grants don’t quite cover the cost and they can receive 10 percent of revenue from non-federal aid sources.
By making 90-10 about people, not revenue, we give these schools a way out without raising prices: recruit students with the means to pay or lower prices enough so as to be priced attractively for many more individuals to be able to pay full tuition. Doing this would also make other proposals that might be logical under the current 90-10 construct — such as allowing institutions to limit the amount of federal loan dollars students can take out or to subsidize low-income students by paying the federal government back for excess federal aid received so that the college is in compliance with the 90-10 rule — largely irrelevant.
Thirdly, the 90-10 rule should apply to all colleges regardless of tax status, not just to for-profit and career schools. To our knowledge there are no nonprofit or public colleges that are close to 90-10, so it shouldn’t affect them considerably, but their inclusion gives an important nod to the role that for-profit companies can and should play in reducing costs and driving educational quality. Additionally, applying the rule uniformly addresses the perspective that heightened scrutiny reflects bias against for-profit actors in the education space and capitalism more generally.
Looking Longer Term
These quick fixes will eliminate the perverse incentives to recruit veterans regardless of program quality or fit, but they do not address the more persistent problem of massive annual tuition increases. Doing that requires a substantial realignment of federal financial aid with a longer-term view -- and it means moving beyond the clunky 90-10 rule entirely.
Given the amount of money the federal government provides to higher education, it’s perfectly reasonable for it to use those dollars to promote affordable, high-quality options.
We recommend establishing a new track for institutions to access federal loans and grants based on measures of quality and student satisfaction relative to total cost, not just tuition price. The better a school performs on this measure compared to its peers, the higher percentage of its educational operation it could finance with federal aid -- thereby eliminating the all-or-nothing access to federal dollars and encouraging students to make decisions based on quality and cost, which will drive innovation.
To create this metric -- an institution’s Quality-Value Index -- the government could add together four measures: job-or-school placement rate 90 or 120 days after graduation (assuming the student isn’t already in a job); graduates’ earnings change as a percentage based on students’ risk profile -- over some amount of time -- relative to the total revenue the institution received (regardless of source and including grants, subsidies, gifts, expenditures from endowments and so forth); alumni satisfaction; and loan repayment.
The devil is in the details, so implementation should take a few years. Nevertheless, changing the funding dynamic in this way would accomplish several things.
It would move the focus away from judging colleges and universities on inputs such as student-teacher ratios and arbitrary outputs such as degree attainment, to more tangible student-centered outcomes based around how well the experience improves students’ lives relative to the total price students and society pays.
It avoids controversial discrimination between for-profit and nonprofit providers.
And given that providers are motivated to follow dollars and innovate aggressively, innovation would focus on lowering costs, increasing speed of learning and aligning offerings with the evolving niches of employer needs -- not on aggressive recruiting.
Getting this right ultimately would accomplish goals on which everyone can agree: allowing many more students to receive a high-quality education without breaking their banks or the nation’s.
Gunnar Counselman is founder and CEO of Fidelis, a company that works with colleges and veterans organizations to help military employees make a transition to the work force. Michael B. Horn is the co-founder and executive director of the education practice of Innosight Institute, a nonprofit think tank devoted to applying the theories of disruptive innovation to problems in the social sector.
California State University campuses are withholding grants to about 20,000 graduate students with financial need, The San Francisco Chronicle reported. The grants typically cover tuition for the students, and Cal State is instead offering the students a federal loan with a 6.8 percent interest rate. Cal State officials cite looming state budget cuts, which they say require them to hold on to their cash for now, while they consider all options. Graduate students say that many be unable to enroll without the grants. One student told the newspaper: "I was horrified. I started crying once I realized it was happening to everyone."
After a panel fails to reach consensus, the U.S. Education Department will have a free hand in writing regulations that affect whether students in teacher preparation programs can receive some forms of financial aid.
American higher education is a divided system, in which the “haves” fret over their odds of getting into Swarthmore, while the “have-nots” balance minimum-wage jobs with classes at a nearby public college. In that light, tuition increases for high-demand courses look like an assault on the last bastion of equity, creating two tiers within the community colleges themselves. Students who can pay more -- or take on more debt -- will have better options. Those who can’t, won’t.
In fact, though, this is what has already happened. At four-year colleges, differential pricing is becoming the norm. But for low-income students, the more important trend has been the rapid growth of open-access private institutions. From 2001-2 to 2009-10, the proportion of Pell grant recipients attending for-profit colleges rose from 15 to 25 percent, while declining from 35 percent to 32 percent at community colleges. Given the much higher prices at for profit institutions, this has meant a huge -- but hidden -- tuition increase for low-income students.
Nursing programs in Florida provide a good case study. It’s backed up by data, but also by the experience of an acquaintance whose child goes to school with mine.
Joe is exactly who we imagine when talking about adults retraining for new careers. A former commercial pilot who took a severance package when his airline downsized in the recession, he decided to enter a field with much better employment prospects: nursing.
He considered the R.N. programs at each of Tallahassee’s three public colleges -- Florida State, Florida A&M, and Tallahassee Community College (TCC). As a bachelor’s degree graduate already, Joe could easily have qualified to enter any of them after completing a couple of science prerequisites.
But they all had waiting lists. It would have taken a year and a half before Joe could have started at TCC.
So Joe did what more and more students -- especially adults returning to college -- are doing. He turned to a private career college, Keiser University (which recently shifted from for-profit to nonprofit status), which said he could start in three months.
The shorter wait, he figured, would make up for the cost, which Joe pegged at about three times that of TCC.
Joe was not alone. Between 2005 and 2011, the number of registered nurses graduating from for-profit colleges in Florida rose from 114 to 1,034 — an increase of 800 percent. Average published tuition and fees at these institutions was over $15,000 a year in 2010-11.
Nursing programs at Florida community colleges also grew, but only by 36 percent, from 3,761 graduates to 5,124. Average tuition and fees at community colleges — which are closely regulated by the state -- run less than $3,000, a fifth of what the for-profits charge.
When demand is modest, bargain basement prices keep costs low for community college students, most of whom fall squarely into the low-income category. But for high-demand programs, the net effect on prices can be deceiving.
Average tuition and fees at community colleges in Florida went up about $800 from 2005 to 2011. But at the same time, an increasing number of nursing students like Joe were enrolling at more costly private colleges. As a result, the average tuition and fees for all nursing students — public and private together -- actually rose by about $3,700. The biggest source of that increase was the shift of unmet demand to the more expensive private sector.
What if community colleges had raised tuition by another $2,000 for nursing programs? There would have been an outcry, but would students necessarily have been worse off? Would community colleges have been able to increase capacity more quickly to compete with the private sector? It’s hard to say, but that is the type of big picture question we should be asking.
The story of nursing programs in Florida is higher education’s version of the shortages in the Soviet Union in the early '90s, when food in state-run shops was cheap — if you could get it. People either waited in long lines, or paid higher prices in private markets. While nursing has especially high costs and high demand, for-profit colleges have also found a profitable in areas such as business and general education, where they can charge more than public institutions while keeping costs as low as possible.
The explosive growth in for-profit colleges around the country shows that there is more demand for postsecondary education out there than open-access public institutions have been able to meet. Some of that demand was ginned up by dubious recruiting practices, but some is certainly real. According to its founder, John Sperling, the nation’s largest for-profit, the University of Phoenix, can trace its origins to the unmet needs of working adult students in the 1970s.
There may be alternatives to Santa Monica’s path, or at least ways to soften the blow. More financial aid could help defray the costs of high-demand courses for low-income students. States could also consider incentive funding for institutions that successfully serve challenging student populations. But before reflexively jumping to price controls, we should consider how those might affect the same students we are trying to protect.
And Joe? After one term, he started doubting whether nursing was the right choice. So he dropped out, though he says he might have stuck it out longer if the price weren’t so steep.
In the long run, he’d like to enter one of the few graduate programs in the country that train anesthesiology assistants. In the meantime, he found a job — running an employment retraining program at TCC.
Students at Guilford College are pushing for a fee increase ($100 over two years) at a time when many college students are objecting to such increases. The News-Record reported that students want the increase to increase the student aid budget. The move comes as Guilford (along with other private colleges in North Carolina) face a loss of state funds for aid for North Carolina students. The college's board will vote on the proposal in June. Kent Chabotar, president of the college, said that he was surprised by the proposal. "The last thing you’d think would be that they’d want to increase the fees even more on their own authority." But he added that push to help fellow students was "a classic Guilford move."
Student Veterans of America on Thursday announced that it had revoked chapter memberships at 40 for-profit colleges for violating the group's policies and "using the SVA brand to legitimize their programs." The group did not name the 40 institutions. (The Associated Pressreported that the association has 417 campus chapters.)
Chapters must be run by students, according to the association's rules, but a review turned up for-profits that had administrators, rather than students, listed as primary contacts at campus chapters. Michael Dakduk, the group's executive director, said in addition to that violation, some colleges lost their membership because they used primary institutional websites or pages devoted to recruiting military students as chapter websites, another no-no under association policies. "Chapter websites are organization websites devoted the group and not meant to be a promotion of the university," he said in an e-mail.