Federal appeals court weighs in on for-profit group's challenge to tightened Education Department rules, siding partially with industry on marketing-related regulation but upholding most of lower court decision.
In his recent op-ed, “For-Profits’ War on Philanthropy,” Johann Neem misses the point. Unfortunately, his deep philosophical opposition to for-profit colleges and universities gets in the way of an honest discussion.
While he’s absolutely right that public universities have long played a vital role in society, he fails to see that it’s ultimately the students, more than the universities or their legal structure, that matter. In today’s world with a very diverse population, very diverse workplace-skill demands, and a very diverse student body, we should celebrate the diversity of our postsecondary delivery system. I’d suggest that each element of higher education today -- public, private nonprofits and private for-profits -- plays a different, yet important, role.
As a professor himself, Neem rightly takes pride in the importance of not-for-profit colleges in society and their role in advancing the “public good.” What Dr. Neem should be focusing on, however, is the needs of American students.
Private sector colleges and universities offer unique opportunities for millions of men and women, particularly young professionals, military veterans and working parents. For our schools, the first-time, full-time student right out of high school is the rare exception rather than the norm. These institutions have enabled millions of Americans to obtain specialized degrees in a wide variety of fields. If that’s not advancing the public good, I don’t know what is.
For many of our students, who are seeking higher education while maintaining a household and full employment, a career-focused and specialized education from a private sector college or university is simply the most viable option.
Neem claims, without basis, that for-profit universities don’t have a vested interest in their students. One veteran, while re-registering for new classes in one of our schools, told me, “I could have attended a lot of other colleges and universities in this area. But this school, with its focused academic delivery of one course at a time, and the flexible scheduling, was the kind of education I need at this time in my life.”
What most confuses me about Neem’s article is his suggestion that for-profit colleges undermine the traditional role of philanthropy. Having served the past six years as the president and chief executive officer of the Council on Foundations, I happen to know something about the philanthropic sector.
First, let’s understand that philanthropy -- unlike charity -- is meant to be a long-term strategic investment in positive social change.
When I first arrived at the council, philanthropies were engaged in “competitive grant-making.” They would consider multiple grant requests and select the most innovative proposals.
But as impact became an important part of their work, most grant making institutions moved to strategic philanthropic investments, where a multiyear investment was made to create positive and real social change. Since the Great Recession, philanthropy has recognized the limit of public, private and philanthropic resources. In response, the sector has moved to public-private-philanthropic partnerships. The sector’s work with the Obama administration in areas such as “Race to the Top” and the Social Innovation Fund are prime examples of this change.
Today, private sector colleges and universities represent the classic example of a public-private-philanthropic partnership in higher education. Foundations do incredible work related to research and best practices in workforce investment strategies. The government funds programs like the Workforce Investment Act and Title IV to support students seeking to obtain workplace skills. Our schools -- and yes, their owners -- invest in the design and delivery of education programming. At a time when state and federal budgets are limiting support and access in traditional institutions of higher education, we should all celebrate the role private-sector colleges and universities provide to keeping our nation competitive and to equipping our students with the skills demanded in today’s workplace.
Today, public-private-philanthropic partnerships demand that we all work together to achieve change with limits on resources. We both combine and leverage resources. Lifelong learning and workforce investment is a classic example of this exemplified by the National Fund for Workforce Solutions. This same partnership is critical to our efforts to produce the skilled workers needed for the next decade. Look at the pioneering work of the Lumina, Gates, Mott and other foundations in this area -- especially most of our community foundations across the nation.
There’s no reason why both private and public education can’t play a vital role in America’s long-term recovery. The world is changing. So must education.
Steve Gunderson is president and chief executive officer of the Association of Private Sector Colleges and Universities.
The reality is exactly the opposite: the for-profit sector is challenging a centuries-old practice of separating philanthropy from business.
Since the Elizabethan statute of charitable uses in 1601, Anglo-American law has sought to encourage charitable giving to promote the common good. The idea behind modern philanthropy is that nonprofits undertake services that are either inappropriate for market activity or would not be supported by the market. To ensure that these goods are provided, the state both provides them itself through public institutions and offers private nonprofits legal privileges (such as incorporation) and economic incentives (such as tax benefits).
In 1874, Massachusetts passed one of the earliest general laws exempting from taxation any “educational, charitable, benevolent, or religious” institution. Believing that citizens, not just the state, should promote the common good, Massachusetts sought to encourage citizens to devote their money to institutions that would serve the public. Implicit was the assumption that certain kinds of activities — educational, charitable, benevolent, and religious activities in particular — should be done as a service and not for a profit. Massachusetts’ law became a model for other states.
In the modern era, tax incentives are one of the primary ways in which the state encourages nonprofit institutions, whether churches, local grassroots associations, large endowed philanthropies, or universities. The state also subsidizes nonprofits that serve the community, especially in social services and education. As Olivier Zunz has demonstrated in his recent book Philanthropy in America, Americans have not only given generously but benefited greatly from philanthropy.
This is not to suggest that the history of American philanthropy is without conflict. After the American Revolution, many Americans worried about what Anglo-Americans called the “dead hand of the past.” Thomas Jefferson was among them. He believed that permanent endowments enabled one generation to influence the affairs of the next in ways that threatened democracy. “The earth belongs in usufruct to the living; . . . [and] the dead have neither powers nor rights over it,” proclaimed Jefferson in 1789.
These questions re-emerged in the 20th century. Many Americans reacted with great concern when Andrew Carnegie and others used their wealth to engage in philanthropic endeavors that some opposed. During the Cold War, foundation-sponsored research led some policymakers to question foundations’ power and political agenda. Similar concerns can be raised about the Gates Foundation today. Private philanthropies’ wealth may give them undue influence in public deliberation. Philanthropy, no less than business, requires regulation.
Moreover, public and nonprofit institutions become corrupted when profit becomes their goal rather than a means to fulfilling their mission. This has happened to some extent in American universities that invest in tangentially related programs like big-time sports. Since the passage of the Bayh-Dole Act (1980), which permitted universities to profit from publicly funded research, universities have encouraged marketable rather than socially beneficial science. Moreover, in an era of state defunding, many policy makers are urging universities to act more like businesses, even when doing so perverts their mission and institutional culture.
The state must ensure that both public and nonprofit institutions remain true to their civic mission in return for the legal and financial benefits they receive. This point was made recently by Robert Zemsky, a member of President George W. Bush’s Spellings Commission. In Making Reform Work, Zemsky urges colleges to talk constantly “about purposes, about ends rather than means,” to hold fast against the temptations of profit.
Whether colleges are for-profit or not matters a lot. It affects their mission, their culture, their labor practices and, most important, the lessons they offer students. For-profit education implies that education is a commodity bought for the advantage it provides. It makes no pretense that service is a necessary part of being a college graduate. In fact, even if it did, students are too smart to believe it. They know what they are buying -- a degree from a vendor. We expect businesses to make money, but we do not want our churches and schools to treat us as consumers but as congregants and students.
For-profits must be regulated as businesses. They are not charities, despite being subsidized heavily by public student loan dollars. In reality, in return for these public subsidies, for-profits should live by the same rules as other nonprofits. They should make the common good their primary goal and reinvest all revenue to fulfill their mission. They will not, however, because, as Kevin Kinser argues in From Main Street to Wall Street, they exist to generate wealth for investors and shareholders. As recent scandals have made clear, for-profit institutions in higher education, like other Wall Street businesses, too often put their bottom line ahead of the common good.
For-profit higher education’s advocates are declaring war on American philanthropy. They seek to profit off of charity, transforming what should be a service into another way to gain wealth. They threaten a distinction that has deep roots in American history and law. They suggest that all goods -- including education, charity, and religion -- should be commodities. History and common sense tell us otherwise. While the line between the for-profit and nonprofit sectors can be blurry at times, the differences between them are very real, of moral significance, and worthy of protection.
Democratic senators take aim at career colleges' marketing budgets, but bill would affect nonprofit colleges, too. While the legislation faces long odds, it could shape the ongoing debate over for-profits.
Multi-state investigation of for-profits includes review of institutional loans and recruiting of veterans. But finding common targets is a problem, and investigators have yet to take on a major for-profit.
Once little more than a blip on the radar of American higher education, for-profit colleges now enroll about 1 in 10 of the nation’s postsecondary students. And this fast growth has not gone unremarked. The past year has brought unprecedented scrutiny and often harsh criticism of proprietary education from policy makers, regulators, and the news media. Unfortunately, too little attention has been paid to the innovative practices the best for-profits have to offer -- and how such reforms could help the rest of the higher ed world.
For-profit detractors are, of course, not entirely wrong when they complain of dubious recruiting tactics, overblown employment promises, and sky-high student-loan default rates. The sector is under heavy pressure from investors for fast growth and profits, and its expansion has been fueled by the easy availability of a large pool of federal aid. However, at a time of soul-searching about the ability of conventional colleges and universities to serve increasing numbers of students more effectively, for-profits should not be written off.
For a new white paper on private enterprise in American education, I interviewed a small collection of professors, deans, and presidents who have worked in both sectors to gather their firsthand reflections on what distinguishes the two educational universes. They were almost all quick to acknowledge the flaws of some for-profit colleges. But they drew from personal experience – at institutions including the University of Texas, Princeton University, the California State University, the University of Phoenix, and Kaplan University – to argue that the sector has many virtues as well.
These academics observe, first, that these relatively new colleges distinguish themselves, beyond their obvious goal of making money, by their targeted efforts to serve nontraditional students. Many who enroll are working adults with children, members of racial and ethnic minorities, first-generation college students, or all three.
Given the practical orientation of such students, for-profit leaders focus on building convenient campus locations, creating many online courses, and establishing market-driven, career-oriented degree programs. They emphasize data collection and systematically measure learning outcomes. And they are willing to standardize curriculum and minimize faculty autonomy to a degree that is much rarer in conventional colleges and universities.
The focus on meeting the needs of the labor market is a key philosophical dividing line between for-profits and their peers, particularly traditional research universities, according to Harold Shapiro, former president of Princeton and the University of Michigan. Shapiro is now board chairman of DeVry, Inc., which owns DeVry University, Keller Graduate School of Management, and other for-profits. "In elite higher education," he says, "you think you know what people need, so you produce that. You’re not out there asking firms and customers, 'What do you want?'… Whereas at a place like DeVry, which is much more focused on career education, management is out there all the time talking to businesses, asking 'What do you want?' "
For-profits also do something unusual in many traditional colleges and universities: they evaluate new hires on their teaching skills and give new instructors pedagogical training. Once on the payroll, instructors are evaluated much more systematically than their peers in traditional academia, even those who work at teaching-oriented colleges.
That’s in part because the culture of faculty independence in mainstream academe can make even casual evaluation difficult, says Thomas Boyd, former associate dean of the business school at California State University at Fullerton, and now dean of Kaplan's business school. "It was sort of a protocol that you had to walk on eggshells when you talked about what they were doing in their classroom. Of course you couldn’t go into the classroom and observe a professor. You could ask their permission, but you couldn’t drop in on classes. That was considered very inappropriate, to watch how they were teaching."
Perhaps the biggest appeal of for-profits for those who have joined the sector is that they are so new – works in progress in which trial-and-error is encouraged and inevitable. Entrepreneurial for-profits can move much faster to create new programs, adjust staffing levels, and change curriculums.
Michael Offerman, a onetime dean of continuing education at the University of Wisconsin-Extension who later became president of Capella University, says he was struck when he joined the online university by its ability to create new programs, such as the company’s development of "curriculum maps" tailored to skills valued by employers, accompanied by comprehensive measurement of whether students are in fact learning those skills. "The issue isn’t that for-profits are so much better at this," says Offerman. But their newness and distinctive mission "allows us to innovate and experiment in ways that I didn’t see happening as much when I was in public institutions."
Taken individually, these approaches aren’t unique to for-profits. But there is good reason to believe that such practices, when used together on a consistent basis, have particular value -- value that extends well beyond the for-profit context. For-profits will certainly need to work hard to prove their worth as they remain in the regulatory and media spotlight for the foreseeable future. But for all their flaws, for all the dismaying practices and bad actors that continue to be associated with the sector, their innovative characteristics are well worth studying. Traditional colleges and universities will be badly mistaken if they assume that the travails of for-profits today mean that profitable lessons cannot be drawn from their successes to date – and those likely to occur in the future.
Submitted by Anonymous on February 16, 2012 - 3:00am
The following are excerpts from a recent exchange between Bob Shireman and Michael Clifford as moderated by Ariel Sokol (and edited by Inside Higher Ed).
Ariel Sokol: If the new gainful employment rules are good for regulating for-profits, why shouldn't they be used for every single Title IV institution?
Michael Clifford: For-profit institutions have argued for the last several years that they have been targeted. After all, if federal oversight (e.g., 90/10, GE) is good for the for-profits, why isn't it good for all of higher education?
This question is at the core of sector participant duress. There is an inherent unfairness that all institutions are not governed by the same rules. And let's not play games that the current regulations are structured based on statutes already passed by Congress. If we're going to establish a relationship between income and debt, it should be associated with all schools. The excuse isn't to say that Congress won't bite, but our lawyers have concocted a legal way for us to regulate at least part of the industry where we believe excesses exist.
The for-profit industry would have found the regulations much more palatable assuming that all institutions were subject to the rules. Rather than be a battle of for- vs. nonprofit, the issue would have been reframed as good vs. bad institutions.
Bob Shireman: Most of the regulations apply to all types of institutions. The gainful employment regulation uses the statutory definition of career education programs, which includes most for-profit programs as well as public and nonprofit programs of less than two years. If, in fact, all the schools that run afoul of the regulation end up being for-profit institutions because their students end up with worse outcomes, I hardly see that they would have cause to complain. As a friend of mine said, that would be like bank robbers complaining that the bank robbery statute only applied to them.
One fundamental rule that applies only to nonprofit and public institutions is that no one is allowed to hold an ownership interest in the college’s revenues and assets. That prohibition exists to protect consumers and taxpayers. If Michael does not want that rule to apply to his colleges, then it is logical and appropriate for other rules to substitute.
Ariel Sokol: Let me ask the question a bit differently -- why shouldn't every single postsecondary programs have published debt to income ratios and repayment rates accessible to accreditors, academics, and the general public?
Bob Shireman: It should. Graduates' earnings information is already available in Florida and one or two other states, at least for public institutions. One issue that needs to be addressed is how to account for people who go to graduate or professional school after their bachelor's degree....
Ariel Sokol: Is there something specific to career education that requires additional scrutiny?
Bob Shireman: Career education is more amenable to accountability metrics because it is more directly related to a particular job. In their experience with the early GI Bill, Congress found that for-profit providers could not be trusted to deliver on the more vague, long-term bachelor's degree outcomes, but that career programs could be policed more easily. So for-profit providers were allowed in as long as they were focused on direct job preparation.
Michael Clifford: We are seeing a convergence of "career education" and "academic education". Metrics are metrics. Everything is measurable or should not exist.
Ariel Sokol: What are the ramifications of institutions no longer using enrollment metrics to compensate counselors, and do you feel that it goes far enough to change the culture among institutions?
Michael Clifford: The way incentive compensation was frontloaded to enrollment counselors was wrong. It is wrong not to have incentive compensation for every institution employee. There should be some bonus system based on cash, professional development programs, sabbaticals, vacation time, research time, etc. as different payment options across the board for all faculty and staff at an institution based on the outcome of the students who have graduated. These metrics should be measured for ten years after graduation, with staggered bonus programs not unlike other industries. If people are doing a great job, then they should be compensated accordingly.
Bob Shireman: As to Michael’s idea, what outcomes would you measure, and how would you attribute those outcomes to individual teachers, staff and other factors? Education is not like widget factory where you can tell precisely how much value each employee is contributing and can so easily and accurately assess the quality of their work.
As to Ariel’s original question, it is clear from numerous investigations of the industry that compensating recruiters based on enrollment helped produce a culture in which hungry recruiters were preying on the vulnerability of potential students struggling to earn a living and build a future. Such incentive pay, however, was not the only factor creating this predatory environment; investigations by Senator Tom Harkin and others have brought to light a series of internal documents and practices from a number of for-profit education companies teaching recruiters how to get potential students to focus on their own internal pain and turmoil – these coercive tactics often appeared to be company policy or tradition. Scrutiny has now forced several companies to disavow such approaches, at least publicly. Time – and further scrutiny – will reveal if the new regulations and internal reforms are enough to change the culture.
Ariel Sokol: Why is there no accountability in higher education regarding student outcomes?
Bob Shireman: Two developments in 2011 provided considerable momentum to efforts to encourage greater attention to student learning outcomes. The publication of Academically Adrift, revealing that vast numbers of graduates of traditional institutions failed to make any gains in critical thinking skills during college, has made it more difficult for colleges to deny that there is a problem. And the Carnegie-led re-examination of quality in the business degree has energized soul-searching by leaders in that discipline, the most popular undergraduate major. Colleges increasingly are using measures like the Collegiate Learning Assessment to identify strengths and weaknesses in their institutions, and having a focus on verified learning is becoming part of what contributes to a college’s reputation.
That said, we should be careful about wishing for a college outcomes test to compare colleges.
Reasonable people disagree about the goals of higher education (analytical skills, factual knowledge, communication skills, initiative, curiosity, confidence, creativity, diligence, employability). Measuring them can be tricky or impossible; and determining causation is even more difficult (the students might have done well because of their academic or family backgrounds, the professor’s teaching, the advising and support, their peers, the facilities, the technology, or their own initiative). Pressing colleges to focus on the easy-to-measure can skew higher education in ways that may improve some institutions but could narrow or deaden the curriculum in many others. We need higher education to lead to boundless ingenuity; standardized outcomes are antithetical to that goal.
Which colleges are good at stimulating boundless ingenuity? The difficulty in measuring something like that explains why reputation – a brand that can be trusted – is so dominant in the higher education market. As an alternative or a supplement to some of the current efforts to produce better assessments, I am intrigued by the idea of digitally capturing the actual coursework that thousands of students do at various colleges. Examining the actual evidence of student achievement – the material that faculty judge as worthy of conferring a degree -- would value the variety that is a part of higher education’s strength, and might allow some of the less measurable goals of higher education to show through.
Michael Clifford: Accountability will come about the way Adam Smith desired. The consumer and the producer will eventually establish accountability. It is my belief that the Federalization of Higher Education Movement will not bring additional needed accountability. We need to localize all aspects of education. Look at the phenomenal impact that crowd sourced evaluation is having on small business across America with startups like Yelp. What the federal government should do — as well as the states with support from all accrediting agencies -- is to demand absolute, full transparency from all post-secondary educations -- for-profit and not-for-profit alike -- in a centralized website so the consumers can evaluate the producers.
This will bring about true accountability.
Our family does not sponsor any educational institution that has something to hide. We demand clear, open transparency to our donors, our investors, staff, faculty, regulators, and -- most importantly -- students, their families, and employers. The only way to compete in an open free market is with open free data.
The divisive nature of our partisan politics has driven a dangerous wedge between for-profit and nonprofit education, with the business models of the nonprofit schools in danger of becoming obsolete. They can only survive on dwindling state and federal resources plus endowments are suffering, and fatigued donors. In California, I've not heard a single college president talk about efficiencies -- every speech is to each constituency who can continue to give, grant, or fund their operations with no consideration for cost cutting or efficiencies. This is a dead end — and even the 1% can’t afford it!
Bob Shireman: Don’t forget about the other consumers: the employers and society at large who want college degrees to actually mean something. If these end users are not a part of the equation, then a rational consumer will simply seek the college that gives him a degree for doing nothing. Indeed, today I can go online and figure out which courses at a college are the Mickey-Mouse options where I can get an A without doing much work at all. Using some type of data transparency isn’t a bad idea; what, specifically, would you suggest?
Ariel Sokol: Why do you think that problems at specific for-profit colleges end up condemningthe entire private sector, while issues in the traditional sector don’t raise the same concern?
Bob Shireman: Higher education is a trust market, in which the buyer has to trust that the product is what it seems. The student can’t judge whether a curriculum and standards meets the expectations of employers, of a discipline, or of society, and they can’t know whether it will meet the grander goal of tapping their full potential. To the extent students are able to judge their college educations it occurs when it is far too late to get a refund. Much of medical care has similar dynamics, which is why the government has a rigorous process that attempts to avoid snake-oil problems by licensing medical doctors and testing new drugs for safety and effectiveness. In higher education, the government and accreditors declare institutions as worthy of our trust who in turn anoint the faculty and staff.
Exploitation can occur in any sector, but the awesome power of the profit motive makes the scandals more likely and more audacious in the private sector. “That represents a weakness in the for-profit model,” says Kaplan CEO Andrew Rosen in his recent book. “People can exploit the short-term opportunity for-profits that’s inherent in this model in a way that hurts students, taxpayers, and the entire industry.”
The for-profits get slammed as a sector because the incidents confirm the rational fear the companies are taking advantage of the trust relationship. In the same way, it is rational for people standing in line at the DMV to curse the lack of a customer-service profit motive in that transaction. The appropriate reaction is to acknowledge the problematic incentive while demonstrating a resolve and a system for preventing abuse. Instead, when we began our regulatory efforts at the Education Department -- which applied to all sectors -- the for-profit colleges portrayed our effort as an attack on the sector and turned the whole regulatory process into a referendum on for-profit higher education writ large. After that, every piece of data, every anecdote, proved the sector’s outright denial to be overstated. In this sense the reputational damage to the sector was largely self-inflicted.
Michael Clifford: Bob makes some excellent points about trust. The concept that the government can declare institutions worthy of our trust is flawed. Government should empower not restrict.
Bob misses the last 30 years of powerful lobbying by large state institutions on government bureaucracies to slow down or crush entrepreneurs -- rebels with a cause -- who are trying to improve the education system because they are a direct threat to the status quo. This extremely powerful lobbying by the status quo has influenced public perception by taking very small problems and exploiting them across an entire sector.
Profit and power are motives that can be used for good or evil, but I believe that public opinion regarding trust of state institutions, private not for-profits, and especially community college systems are deteriorating at an almost biblical rate. It’s interesting to note that over the last year and a half, we have not seen any “occupied” demonstrations on for-profit colleges -- only nonprofits. Might it be that the people attending the for-profits schools are completely focused on getting in, getting out, and getting on with their life with careers?
Bob, I have personally spoken with the CEOs of most of the schools who informed me that they were never invited to participate but were singled out as the sole problem in the education sector. Why hasn’t the IRS begun similar investigations into the rampant abuses within the nonprofit postsecondary education systems when it comes to use of funds? I must say, I take issue with your comment that it was an “apples for apples” discussion. The resulting regulatory landscape clearly does not confirm a fair and balanced equal playing field, nor has it done anything to help students get a better education at an affordable price, nor does it provide professional development, increased salaries, or benefits for faculty, nor does it attract quality leadership from the private sector to teach. I find it disingenuous to say that “the reputational damage to the sector was largely self-inflicted.”
Bob Shireman: I appreciate that some students want to “get in, get out, and get on with their lives.” The way to accomplish that is to skip college and just take a test that demonstrates what you already know and can do. We should figure out a way to subsidize that so that these students’ time and our taxpayer dollars are not wasted. To be worth a substantial taxpayer subsidy, education needs to do more, motivating and inspiring students to learn and create beyond their previous zone of knowledge and comfort.
As for the CEOs who told you they were singled out as the sole problem in education, I can neither defend them nor can I explain or confirm the accusations. I can see an extraordinary amount of evidence produced by government and media investigators of blatant, cynical abuses in the for-profit sector resulting in serious harm to students and taxpayers. I also see problems and scandals emerging at public and nonprofit institutions regularly. They don’t band together and complain that they are being attacked for being public or nonprofit. Why do so many for-profit leaders play the victim card instead of working to prevent, confine and repair the problems that do come up?
Ariel Sokol: What is a good actor in for-profit postsecondary education, and how do you define it? What is a bad actor and how do you define it?
Bob Shireman: A good actor recognizes the information asymmetry in the higher education transaction and endeavors to correct this market imperfection by serving as a neutral adviser to potential students and to enrolled students. A bad actor (in any sector) takes advantage of the information asymmetry. A very bad actor takes advantage of the information asymmetry with the most vulnerable consumers.
In the recruitment phase, good actors make suggestions of other options potential students could consider and encourage them to compare; bad actors feed on students’ misperceptions about the magic that a college degree can do. (“People with a B.A. in office management can run a hospital, making up to $180,000 or more! We’re accredited by the same agency that accredits Harvard! We have classes starting tomorrow, let’s get you signed up!”) Very bad actors leave many students worse off, and often justify their deeds by posing as saviors of the poor.
In providing the education, good actors have a challenging curriculum that inspires and motivates students to work hard in ways that lead to deep learning; bad actors – too common in all sectors -- have a curriculum and faculty that may look fine on the surface but fails to engage students in ways that inspire lifelong learning.
Michael Clifford: Great job, Bob -- you nailed it on this one!
Let me just add that for the last 14 years, I have encouraged any institution that we sponsor financially or help create or manage going forward to fulfill what I lovingly refer to as our “Four Gospels of Higher Education,” which are to: (1) lower tuition and fees every year; (2) provide broader access; (3) graduate faster with less debt; and (4) get an education with a purpose. Over the last ten years, it has been my experience that if the leadership of an institution can focus on those four metrics in all of their strategic planning, the “good actor” in every group emerges.
Ariel Sokol: Why has the cost of education outpaced inflation over the past 50 years? What are the mechanisms to reduce the cost of higher education?
Bob Shireman: The cost of delivering undergraduate education averages something under $10,000 annual per FTE at community colleges, about $12,000 at state colleges, and $15,000 or more at public research universities. Spending is much higher at some public institutions and especially at the brand-name private universities which have been competing for star faculty, building the most up-to-date facilities, and adding the latest equipment. Amenities to compete for students have also played a role. The escalating spending at elite colleges leads others who want to join the club to spend also if they can find the money.
At public institutions, spending has increased somewhat more than inflation because education is labor intensive. A good professor choreographs a student’s interaction with carefully-selected content, finding ways to motivate the student to put in the brain effort necessary for learning. It is difficult to replace these complex, nuanced judgments with either cheaper labor or with technology. When innovation does occur (e.g., calculators, or Rosetta Stone language learning programs) the boundless nature of higher learning means that new challenges often replace the old objectives rather than reducing the requirements for a credential.
One way to reduce costs is to demonstrate that excellent undergraduate learning can occur at colleges without star faculty and expensive facilities.
Here’s another approach. “Full-time” college students today spend far less time in class and studying than college students did 40 years ago. Let’s reboot the system, elevating standards to significantly increase student academic engagement while reducing many majors to three years. The result would be students who do more college-level work than they do in four years now, while finishing a year earlier.
Michael Clifford: Bob, you highlight the fact that the big issue is that college is labor-intensive. Why has government, especially while you were at the department, not created a regulatory environment to put pressure on all institutions to lower costs? I’m not an advocate of price fixing or margin monitoring, but the current system of giving more loans to students who are unaccountable to pay higher tuition of a result as such flawed policies as [the] 90/10 [rule] seems to create a big part of the mess that we are now experiencing. Why isn’t government creating accountability levels that encourage, not penalize, institutions to lower tuition? I guess my prejudice would be that government does not know how to lower costs and only knows how to demand more.
When I read the speeches regarding policy from all of the presidents and chancellors of state institutions, not once has anyone mentioned cost cutting, efficiencies, or issues like labor demanding more benefits, entitlements, salary increases, and guaranteed lifetime employment for no work called tenure. Help me, Bob, with this issue.
Regarding labor costs, I think that he is missing putting the “big turd” on the table: tenure.
When I went to pay for my daughter’s parking fees at UCSB, I walked across a very large parking lot with hundreds of spaces reserved right next to the classrooms. As I doled out my $1,500 per year for a parking place, I asked the wonderful student worker clerk who all those parking places were reserved for. She snickered, “Tenured faculty… a bunch of really old people who haven’t been here in 15 years but they still get a parking place… and people like me have to work at this job just to try and stay in school.”
Just like any of our current government financial problems, we must take a scalpel to the “entitlement mentality.” We must begin to direct our limited resources where they will have the most impact.
I would argue that the enormous amount of waste in the nonprofit sectors that are trying to create star faculty, building expensive buildings that are hardly used, and bragging about the latest equipment does very little to improve learning outcomes.
To effectively educate America’s middle class and compete on a global basis, we need to integrate private sector professionals with the highly unionized and entrenched current faculty. No doubt, this will be a difficult endeavor for leaders. Learning is mostly about motivation, and if we inject innovation like Bob references (calculators, Rosetta Stone, or the latest Apple textbook self-publishing software), we can continue to challenge students to learn more cost-effectively….
In both nonprofit and for-profit sectors, increased involvement and regulations from the federal, state, and special licensing institutions consumes an enormous line item budget expense. In institutions that I financially sponsor (both nonprofit and for-profit), I estimate that at least one-third of the leadership team’s time is spent navigating a very complex regulatory environment. Why can’t we simply teach and measure the results?
Bob Shireman: When I testified with the CEO of DeVry a few months ago, he got a lot of mileage out of his declaration that we should regulate based on outputs instead of inputs. Everyone nodded: we all like the idea. But no one puts forward an actual proposal for how to do that. One offered analogy was that rules regarding the construction of the building were designed to ensure that we would not be crushed by a collapsing roof or unable to exit in a fire. These rules were portrayed as a good, outcomes-based approach. After the hearing I realized the analogy made no sense at all. In fact, those rules are about inputs – the materials, the dimensions, the workmanship -- not the outputs.
We need specific proposals for measuring outcomes, not constant, repeated exhortations that outcomes measurement is the way to go. Measuring outcomes is the key to reducing costs, because it eliminates the argument that an innovation has reduced quality.
Ariel Sokol: Do we as a society need to have 4,000 institutions of higher education? Would it be preferable to see a consolidation of higher education institutions to eliminate duplicative costs?
Bob Shireman: A convincing economics literature suggests there are inadequate incentives for public and nonprofit entities to combine even when it clearly would be efficient to do so (the participants sit tight because they can’t sell out their shares to monetize the efficiency as a for-profit would do). This calcifying dynamic does seem to be at play in higher education and in K-12 education.
Michael Clifford: My answer would be that we need more than 4,000 institutions of higher education. We need more specialized institutions to address the global job market. We need fewer institutions that try and be all things to all people. I would much rather see institutions with the highest quality, expert faculty on very specific job niches with the cross-pollination of bloated expenses, facilities, bureaucracies, and internal politics that cost so much time and money for a normal state/public/nonprofit institution. This will require a tremendous upgrade in the accrediting commission's abilities to monitor more and more multiple institutions. No longer can you have a volunteer 30-year English teacher from a community college in Nebraska reviewing a high-tech technology department that offers the latest SEO technology with marketing and business support for an evaluation. We need to have specific horses for specific courses.
We need to become much more localized in our administration and approach to education. Local citizens will understand how to leverage local resources to compete globally....
Ariel Sokol: Many postsecondary education companies are implementing quality enhancing initiatives, and Apollo Group implemented its orientation program, while Kaplan rolled out itsKaplan Commitment plan. In your opinion, are these moves sufficient to prevent misrepresentation?
Bob Shireman: They are good steps. I like the concept of a no-risk free trial that helps students to understand what they are getting into.
Michael Clifford: I was recently asked an accrediting commission meeting to define “quality”… I said it is like pornography… I know it when I see it. We all need to better define “quality.” It is my belief that we will see many more initiatives like this in the near future, but not based solely on the regulatory pressure. I also like the "test drive" concept. It's a very innovative approach to introducing students to the institution and should be instituted at all public state and nonprofit organizations as well….
In the future I can see auction sites (not unlike eBay) as platforms for students bidding on various courses. As technology develops, we will begin to see "roll your own" degree programs that will enable students to take various courses from specialized universities, culminating in a degree and a resume for their dream job. To market various degree programs on a bid basis, institutions can manage the enrollment process across the board by having flexibility in placing a student in the right degree program just like many other industries….
In the future I predict that we will see regionally accredited institutions that can be profitable without Title IV student loan funds. As technology continues to create efficiencies, as staff and faculty embrace innovative online delivery models, and as legislators, regulators, taxpayers, and accrediting agencies are faced with increased challenges regarding access, we will see these new all cash models emerging.
Institutions will provide degrees in exchange for 10% of the student’s salary for a better than average return on investment. Students will own stock in for profits after graduation as a bonus for completing on all metrics above average. Innovation will be spread across the sector in all departments….
Bob Shireman: While I recognize the nod to Justice Stewart’s famous line, I would have preferred a comparison to measuring beauty, virtue, integrity, or faith. Your Honor, let the record show that after insisting that we should measure outcomes, Michael’s specific suggestion for how to accomplish that is to show it to him because he knows quality when he sees it.
Ariel Sokol: Many for-profits have engaged in substantial self-regulation in addition to complying with the new regulations. Presumably this is having the effect of improving the studentexperience and protecting consumers (possibly to the detriment of an institution's financialcondition). As such, can one say that Bob Shireman and the Department of Education are heroesin that they catalyzed needed reforms?
Michael Clifford: The Department of Education and Bob should be credited for identifying real problems that the for-profit sector should have self-regulated. Unfortunately, in my opinion the prescription did not fit the diagnosis.
Thank goodness that this is not brain surgery, except for the poor students' brains. Then Congress mucked it up with bipartisan bickering that did nothing but hurt the institution and students. Then came Wall Street to monetize the bickering. The solution should have been the accrediting agencies working with the state governments….
Bob Shireman: The public policy issues in higher education are complicated and fascinating. They also matter in a big way, especially for the disadvantaged, for upward mobility, for the vitality of our future economy. I appreciate higher education leaders and innovators who dive in and grapple with the questions about how to address those tough public policy dilemmas; I look forward to more good dialogue....
Ariel Sokol: Are the program integrity rules sufficient to maintain appropriate conduct by institutions over the long haul?
Bob Shireman: History suggests not. The regulators, the colleges, and consumer groups all need to be vigilant so that problems do not re-emerge.
Michael Clifford: Hopefully, just like the Japanese Admiral said in “Tora Tora Tora,” the last two years has indeed awoken a sleeping giant. From my travels with the leadership of both large nonprofit universities as well as for-profit universities, it is clear that this wake-up call has launched the first real, unified lobbying effort for postsecondary education beyond the nonprofit scramble for public money and grants. The for-profit industry better continue to fund, pay attention, and make a legitimate case based on real outcomes and real data, all driven by innovation if it deserves to maintain its licenses. By the way, I hate our system whereby the only way to win is with lobbyists.
Misrepresentation has always been the real problem in this business sector. In fact, misrepresentation is always the problem in any business or nonprofit sector. Lying is wrong.…
Ariel Sokol: Should for-profit and nonprofits operate under the same set of rules?
Bob Shireman: Mostly, yes. But there are differences between for-profits and nonprofits that should not be ignored. Owners of for-profit companies have the right to seize the uncommitted net assets of the enterprise at any time, creating an incentive for efficiency and growth. This incentive can have an ugly side, especially when the consumers are unsophisticated and the government is largely paying the bill. Managers of nonprofit (and public) institutions relinquish their claim on the unrestricted net assets of the enterprise as a way of assuring customers and funders that the resources are dedicated to education. With a product that is difficult to judge, this invites trust that the college will not cut corners or grow in ways that undermine quality.
Treating for-profits the same as nonprofits would mean that for-profit owners would have to give up their equity stake in the company. Some have taken this step. However, for those who choose to maintain an equity stake it is appropriate for public policy to recognize the potential hazards and apply appropriate protections.
Michael Clifford: Bob, I read your response three times. I must say that it irritates me when government leaders insult students, their families, counselors, and employers as “unsophisticated.” This is the haughty, typical government-run approach to over-regulation. Our Founding Fathers believed that each American was smart enough to govern themselves under the Constitution to seek life, liberty and the pursuit of happiness; they never said that people were unsophisticated, stupid, and lacked the ability to make choices! I have answered hundreds of student inquiry telephone calls, reviewed numerous application essays, and interfaced with parents, employers, high school counselors over the last 12 years. I also have met with immigrants who barely speak or read English that want to get into our colleges.
Never, in all of those encounters, have I met a student who was “unsophisticated.” Nor have I met a student who says, “I really hope that the U.S. government helps protect me from your school.” These students are vigilant shoppers; they ask the right questions. We, as an industry — both nonprofit and for-profit — need to have more transparency, with full disclosure on all issues to help them in their search. These students understand better than the government that they are making a gigantic time commitment plus possibly the largest financial commitment that they will make in their life other than a home mortgage….
Ariel Sokol: Should the government provide student loans rather than the private sector, and if sowhy?
Bob Shireman: The conservative economist Milton Friedman first suggested a government loan program as the right approach to a market failure that tends to cause people to under invest in their own training. If the government is shouldering all of the default risk and is making the underwriting decisions (who can borrow, how much, at what price, for what training, at which institutions) then taxpayers should also get any earnings on capital to help compensate for the cost of those risks. That said, the government should and does rely on private sector companies to do the actual work of collecting payments on the loans. (See a video of my explanation of the history and finance structure of the student loan program at http://www.newamerica.net/events/2009/future_federal_student_loans).
Michael Clifford: Adam Smith might be suicidal if he reviewed the philosophical approach to what is now a governmental monopoly of underwriting and servicing student loans. What is the tricky area of "student" loans? Credit risk. Most students that I have spoken to don't even understand what they are getting into. Yet the United States Department of Education holds the schools responsible for the students' use of the money they borrow.
The schools do all their work getting the money, educating the student on what they are getting into, and then hand it to the student, hoping and praying that the student uses it for school, and then the schools get penalized if the student doesn’t pay it back even if they didn’t use it for school. Wow. What a broken system.
To add insult to injury, the government contracts out all loan collection which creates a layered, bureaucratized structure ensuring that it will cost more money to collect the loans than a traditional, purely private sector context. Do the numbers.
Fundamentally, my friend Bob's Shireman’s thinking (known lovingly in some circles as the “Shirementality”) is a micro view of student loans, which reflects a macro view to extend government intrusion or takeover of most of the U.S. economy….
Ariel Sokol: Should Congress consider imposing some kind of risk-share program on for-profitschools?
Bob Shireman: I like the concept, but operationally it is severely flawed: the school most able to set aside funds for risk sharing would be the school that spends the least on instruction while charging the highest tuition possible. Clearly there’s some serious design work that needs to be done for the concept to work.
Michael Clifford: I don’t like any kind of notion of Congress “imposing” any programs on any schools, whether they be nonprofit or for-profit. The federal government should stay out of the “imposing” business in higher education.
Having stated my philosophy, I think that states should provide a free market regulatory environment based on risk sharing for both nonprofit and for-profit schools. It is time for some innovative pricing models that reward students, faculty, and staff for desired positive outcomes.
Ariel Sokol: Could the federal government do a better job at accreditation than the accreditors?
Bob Shireman: Without private accreditors to rely on, the federal government would have to turn to someone to help make expert judgments about quality. It’s likely to be the same types of people and organizations who are now involved in accreditation. So I’m not sure it would end up much different than what we’re seeing now.
Michael Clifford: The concept of regional accreditors works because it is much more localized. The leadership at WASC knows what the citizens of California and Hawaii need better than the people in the Department of Education in Washington D.C. The more localized that we can make education, the better that we will be able to compete globally. If I could wave a magic wand, I would give more power to innovative accreditors like Dr. Ralph Wolff at WASC, Dr. Sylvia Manning at HLC, and Dr. Belle S. Wheelan at SACS.
They are on the front lines intervening, interacting, innovating, instituting, and providing a “get it done” atmosphere for educators. Give them more resources and more power and let them level the playing field between nonprofit and for-profits in order to inject more efficiencies and better outcomes for students….
Ariel Sokol: What are your thoughts regarding public private partnerships between non- and for-profitinstitutions?
Bob Shireman: Among four-year colleges, I expect we will see more partnerships with for-profits taking on a vendor role, bringing innovation and efficiency through new platforms and processes for teaching and learning while leaving the ultimate decisions about quality to the nonprofit institutions. The growth of for-profit institutions may be stronger in vocational education, where the clearer objective makes accountability easier. For-profits have performed best in that space….
Michael Clifford: We are seeing such incredibly explosive and rapid changes, driven by Silicon Valley’s digerati, not across every business sector, that dinosaur-type leadership in K through 20 education is hurting students and employers. I am astonished at the public school system here in San Diego, which has huge gaps in their teaching of hands-on, real-world knowledge. Students aren’t taught how to open a bank account, vote, balance a checkbook, or write a résumé, and high school students don’t have a grasp on American history for the first 100 years of our country. They do not know how to collaborate or process critical thinking, and their communication skills — other than texting or Facebook — is almost nil. The classroom configurations are outdated and ineffective. I cringe when I drop my 14-year-old daughter off at high school, thinking that she will be fixed in an uncomfortable chair looking straight ahead for six long hours at a 27-year-old talking head who is reading from last year’s notes. It is a painful experience to subject my very bright, creative teenager to at this time in her life. No wonder she is completely diverted by her community of friends rather than thirsting for knowledge!...
Ariel Sokol: What is the future and role of online in higher education, and how should theDepartment of Education confirm the quality of online programs?
Michael Clifford: It is my belief that online education has just begun disrupting K through 20 education. Again, I feel that all of these quality outcome governance issues should be as localized as possible, with the accrediting bodies being given most of the power.
Twenty years from now, educators will look back at those "cute, beautiful things called campuses." While there will always be a place for a campus experience, there is no way to educate the United States – let alone the world – without delivering education via mobile phone-like units. Online education delivered from the cloud, anywhere, anytime, on any device will create a lifelong learning approach to education. "Roll-your-own" degree programs will enable a student to take a history course from a specific institution and a specific professor in a very specific niche while taking math from another institution's professor, with their entire educational experience culminating into a degree that is the resume for their desired job and career. Global corporations will begin to write the resumes for potential employees before the student starts college, with assorted payment plans attached to performance upon graduation. All of this can be done through the technology of online education.
Bob Shireman: A high-quality education is not a one-way interaction that can just be “delivered.” Unfortunately, much of higher education is not high quality, and I am eager for new approaches that can inspire and guide learning. Technology is key, but I do not expect it to replace all live or face-to-face human interaction in education.
Ariel Sokol: What should the role of the for-profit sector be in educating future generations in faceof dwindling federal and state funding?
Michael Clifford: As I shared elsewhere in this interview, I believe that we will see emerging for-profit institutions that do not rely on Title IV funding. The deployment of technology in the online learning space combined with innovative approaches by regional and national accrediting agencies will create this global phenomena.
Many free degrees already are being offered, but the next key will be when the accrediting agencies adopt all of these new emerging models. I believe that we will soon see an "all you can eat" online regionally accredited model based on a monthly subscription fee of perhaps $99 per month to serve as a self-paced, self-motivated accredited degree program.
Bob Shireman: I agree we are seeing the development of some pretty interesting options for the self-motivated learner.
The real efficiency will come with innovations that motivate the student who is not self-motivated, providing them with expert guidance without involving nuanced judgment by people who need to be paid.
Michael K. Clifford is founder and chairman of SignificantFederation.com, which has invested in Victory University and United States University. Bob Shireman was U.S. deputy under secretary of education in 2009 and 2010, and now heads California Competes, a nonprofit group. Ariel Sokol, the moderator, is a financial analyst. The full version of this exchange can be found here.