Submitted by Paul Fain on December 21, 2016 - 4:42pm
Last week the U.S. Department of Education announced a delay in the release of an updated template colleges are required to use next year to make gainful employment disclosures. The gainful employment regulations, which went into effect last year, set performance standards for the ability of graduates of vocational programs to repay their federal student loans. The rule applies to for-profits and non-degree programs at community colleges and other nonprofit institutions.
The department in November released its first batch of gainful employment data, which it plans to use to enforce the rule. The public release didn't include programmatic numbers, and the disclosure template is not slated to be available until the tail end of January, the department said. Colleges will have at least 60 days to post the required information once the template is out. Prior disclosure requirements remain in effect under the 2016 version of the template. But experts said specific gainful employment data might not be publicly available until the new template is out.
Congressional Republicans have been critical of the gainful employment rule and likely will seek to roll it back, or at least portions of it, probably with the backing of the incoming Trump administration.
Submitted by Paul Fain on December 21, 2016 - 3:37pm
The U.S. Department of Education on Wednesday released the latest version of an annual report on compliance with the so-called 90/10 rule, which prohibits colleges from collecting more than 90 percent of their revenue from federal aid sources.
The report identifies 17 for-profit colleges that exceeded the limit, up from 14 the previous year. Two of the for-profits, Pat Wilson's Beauty College and United Medical and Business Institute, were out of compliance for two consecutive years and, as a result, have lost their ability to collect federal aid for at least two years.
Southern Careers Institute, which has seven campuses in Texas, was at the top of the department's list. Federal aid comprised more than 98 percent of the $33 million the for-profit collected in annual revenue.
The department also released a new analysis showing that many more for-profits would exceed the 90/10 limit if dollars from Post 9/11 GI Bill and active-duty military student benefits were counted as federal aid. Nearly 200 institutions collecting a total of $8 billion in federal aid would exceed the 90-percent limit under that scenario, according to the department.
Democrats in the U.S. Senate have attempted to close the veterans' benefit "loophole" in the 90/10 rule. But the Republican-led Congress is unlikely to back those efforts.
Until The Atlanta Journal Constitution reported this month that Ben Holm had agreed to plead guilty in Georgia to charges of aggravated assault and statutory rape, students at Loyola University Chicago had no idea that their fellow student (and a member of the university's golf team) had been charged with rape and was awaiting a trial since 2013.
Now, many students are upset that they didn't know. More than 1,200 students and others have signed a petition calling on Loyola to apologize for not letting students know about the charges against Holm. "Students at Loyola University Chicago are disgusted by the institution's actions and do not feel safe on campus," the petition says. "The administration's silence is only making things worse."
Loyola released a statement on the situation after the petition started to get attention on campus and elsewhere. "In the past few days, Loyolans have expressed concern following media reports related to a student-athlete who was charged and pled guilty to a gender-based violent crime that occurred in his home state of Georgia," the university statement said. "This crime occurred prior to the individual joining Loyola. To our knowledge, we neither received information about the crime, nor had any awareness that it occurred until Monday, Dec. 12, when we received a media inquiry. Based on media reports, the individual is in police custody in Georgia. The individual is not registered for classes in the spring semester."
Minnesota football team has ended its boycott over the suspensions of 10 players accused of sexual assault, but coach’s comments in support of the team continue to draw criticism as taking sides against woman who brought complaint of gang rape.
Two Wisconsin Republican legislators have threatened to withhold state funds from the University of Wisconsin at Madison in relation to a planned course on racism called The Problem of Whiteness. State Representative Dave Murphy has also called on the university to fire the professor in charge of the course over his tweets, saying that some condone violence against police officers.
"The state has a lot of different priorities when it comes to funding things," Murphy told the Wisconsin State Journal. "Is funding a course that’s about ‘The Problem of Whiteness’ … a high priority? I’ve got a feeling it’s not.”
Wisconsin Senator Steve Nass also criticized the planned course in a statement. "Madison must discontinue this class," he said. "If [Madison] stands with this professor, I don’t know how the university can expect the taxpayers to stand with [Madison]."
The university defended the course, saying in a separate statement, “The course title refers to the challenge of understanding white identity and nonwhite identity across the globe.” The course is not mandatory, according to the university, and “will benefit students who are interested in developing a deeper understanding of race issues.” Murphy also criticized the professor’s tweets, including ones he posted in July after a gunman killed police officers in Dallas.
Murphy said that Damon Sajnani, the assistant professor of African cultural studies in question, should be fired for the "vile" tweets, according to the State Journal. Sajnani declined an interview, citing "the preponderance of white supremacist backlash against myself and the [university] community."
In response, Provost Sarah Mangelsdorf said the university "supports the First Amendment rights of its students, faculty and staff, including their use of social media tools to express their views on race, politics or other topics, in their capacity as a private citizen."
Submitted by Paul Fain on December 21, 2016 - 3:00am
The federal government is withholding a portion of Social Security benefits from a growing number of older Americans to cover defaulted student loan debt, according to a new report from the U.S. Government Accountability Office. This so-called offset accounted for about $171 million of the $4.5 billion in defaulted student loan debt that the U.S. Department of Education collected in 2015.
The report found that among older borrowers (age 50 and older) who were subject to the offset for the first time between 2001 and 2015, about 43 percent had held their student loans for 20 years or more. And three-quarters of these older borrowers had taken loans only for their own education, with most owing less than $10,000.
In this year’s presidential election, Trump University brought for-profit colleges into focus, but it should hardly be considered representative of the promise that lies within postsecondary education. To the contrary, for-profit institutions can, in fact, play a valuable role in furthering knowledge and career prospects for a large group of nontraditional students, including military veterans, working adults, single parents and unemployed workers.
The ability of such institutions to effectively deliver on that promise may experience a boost in the coming year under the incoming presidential administration. The stock prices of companies running for-profit colleges rose significantly after the election of Donald Trump. The president-elect is expected to roll back regulations that have negatively impacted hundreds of struggling for-profit schools over the past four years, many of which have been wrestling with falling enrollments and unprofitable operations.
But even though for-profit colleges may be poised to benefit from deregulation under the Trump administration, the potential reduction of regulations governing the sector should not be viewed as a signal that for-profit school operators should pursue taking a passive, business-as-usual approach to managing their operations.
If the goal is to generate better student outcomes and long-term success, as well as attract new financial investment, leaders of struggling postsecondary colleges must be willing to embrace change and move forward with a sensible rethinking of their business models and a restructuring of both their institutional assets and curricula.
Changing demographics are a key challenge for for-profit colleges. The number of eligible enrollments peaked in 2010, and the pool of 18-year-old high school graduates that would typically pursue postsecondary education isn’t expected to rebound until 2021. Enrollments at for-profit colleges have already declined markedly since 2010 as a result of student concerns about job placement and the return on investment of a college degree. In addition, economic challenges mean that students and parents have less discretionary income and ability to pay.
For example, Congress shortened Pell Grant terms from eight years to six years, reduced overall funding for direct-loan programs like Parent Plus, and renewed support for Perkins Loans for just two years. Competition has also heightened. Online offerings from nonprofit colleges have been luring students away from campus-based for-profits. What’s more, for-profit educators have also had to contend with the exit of traditional lenders from the sector. Nontraditional lenders, such as private debt providers, are starting to emerge to fill the gap in financing, but it comes at a price: a higher cost of capital.
However, what has really been putting a choke hold on revenue and cash-flow generation for many for-profit schools -- which typically derive upward of 86 percent of their funding from federal dollars -- has been stiffer government regulation, such as the Obama administration’s gainful-employment regulation that took effect in July 2015. That rule stipulated that for-profit colleges must ensure a student’s annual debt payment does not exceed 20 percent of his or her discretionary earnings or 8 percent of his or her total earnings. Programs that do not meet the gainful-employment thresholds will need to either be discontinued or shortened, which reduces revenue. The stakes got higher in March, when the U.S. Court of Appeals rejected a challenge to the rule brought by the Association of Private Sector Colleges and Universities (which is now called Career Education Colleges and Universities). Industry operators are hopeful that relief comes from the new Trump administration, but no specific changes have been discussed or announced.
In addition, some for-profit institutions shut down due to the U.S. Department of Education declaring them ineligible for Title IV programs, terminating their students’ ability to receive financial aid. In February, for example, the department announced that it denied eligibility to 23 campuses of Marinello Schools of Beauty, leading to the subsequent closing of all 56 of the California-based institution’s schools in five states.
Given all that, it shouldn’t be surprising that the prognosis hasn’t been good for for-profit colleges. Data from the U.S. Department of Education, which analyzed the financial health of 160 private colleges, indicated that 66 for-profit institutions failed the government agency’s financial responsibility test. (The test combines three ratios from an education institution’s audited financial statements: a primary reserve ratio, an equity ratio and a net income ratio.)
A Ray of Light
All that said, owners of for-profit enterprises may have reason for hope after the new presidential administration takes over in January. But perhaps an even greater cause for optimism is the recently approved $1.14 billion sale of Apollo Education Group, which owns the University of Phoenix, to a group of three private equity firms. As former Deputy Secretary of Education Tony Miller, an investor in the deal, said at the time, “We are excited by the opportunity to build on the transformational work being done by the company. For too long and too often, the private education industry has been characterized by inadequate student outcomes, overly aggressive marketing practices and poor compliance. This doesn’t need to be the case.”
The statement is telling, but more important, it should signal a call to action to owners of for-profit enterprises. When an institution representing one of the largest operators of for-profit institutions has been able to generate interest from a group of institutional investors at a time when regulation has undercut the industry, it illustrates how restructuring can attract new investment.
Indeed, the good news is that for-profit-college administrators can undertake a number of restructuring alternatives, without resorting to filing for bankruptcy, to improve their business operations, maintain accreditation, strengthen financial resources, improve use of campus resources and bolster enrollment. Traditional Chapter 11 reorganization isn’t a viable solution for postsecondary colleges that depend on Title IV funding. But owners and administrators at these institutions can be -- and must be -- willing to be accountable, as well as more open to restructuring, if the goal is not just to survive but also to thrive.
Making the Most of Fixed Assets
The way forward for challenged institutions may not be easy, but they can take a number of practical steps. For starters, for-profit operators can scrutinize and reduce capital expenditures as well as costs for duplicate or unnecessary staff involved in campus administration.
For example, one of the biggest challenges for troubled for-profit colleges is how to use campuses efficiently and manage costs connected to long-term property portfolios. Owners of for-profit institutions should close or put up for sale any facilities that aren’t being used and hire a qualified third-party selling agent to manage the process.
As part of that, leaders of for-profits should recognize the impact of liquidity on campus asset sales. If an institution has limited liquidity, it is not going to command top dollar for the sale of its assets. Therefore, it’s crucial for administrators to improve their college’s liquidity before initiating a formal sales process by improving the efficiency of their Title IV funding operations to receive timely disbursements from the Department of Education.
Long-term leases should also be renegotiated with landlords, with the focus being to secure rent concessions. At campus locations with short lease periods or that are facing imminent shutdown, administrators should not be reluctant to move courses to other facilities off-site. They should also consider holding the same courses online to reduce costs and retain students. Beyond leases, for-profit institutions would be wise to review and renegotiate all types of contracts with major vendors for food service, conference center operations, the bookstore and other services.
When assessing institutional resources, owners of for-profits should also evaluate management and teaching staff. If a number of administrators or instructors are determined to be underutilized, or campuses are expected to close, it’s important to be able to make the hard but necessary decisions to reduce the size of the staff. Most for-profit institutions do not typically cancel programs and reduce faculty members unless they lose eligibility for the program. Or, for example, they might hire more counselors and advisers, when instead they should be more effectively training the employees that they do have to perform better and to foster a culture that encourages students not only to enroll in the institution but also to persist and graduate.
Indeed, in some instances, for-profits should not have expanded but rather should have focused on increasing retention by emphasizing student placements and outcomes, the creating of a high-quality culture, and lowering tuition costs. Strayer University, for example, reduced its expenses significantly and cut its tuition costs by 20 percent by more closely managing its operations.
The fact is that the most effective way for-profit institutions can improve their profitability is to enhance retention among their students. Thus, instead of hiring more instructors and staff, a better use of resources might be investment in data and analytics that can provide thoughtful intelligence about when a student needs help so that the institution can effectively intervene and provide the support that student needs.
One of the other most important steps for-profit educators can take to improve student outcomes is to innovate their curricula, particularly programs that are relevant to students’ job placement after they graduate. Course offerings should reflect current trends in education delivery and include high-quality online courses that can strengthen retention and lower campus costs.
In addition, for-profit educators would do well to consider the role local businesses can play in developing new course material. That approach offers a win-win for businesses and pupils alike. Many students are interested in securing employment opportunities in their local community upon graduation, while companies are often eager to use low-cost interns to assist with business projects, as well as scout for future employees. In some instances, some interns are qualified to become full-time employees. Teaming up with corporate partners to develop curriculum also leads to diversification of revenue streams.
For-profit institutions can also augment their traditional sources of revenue by offering contracted education and training services to corporations. For instance, Strayer University has reportedly teamed up with Fiat Chrysler to provide education programs for its work force, including employees of the company’s auto dealerships. By engaging in such contracted services, for-profits can help train and educate new student groups and also use any additional revenues to invest in new programs and support services for their students.
One thing is certain: unless for-profit educators engage in more hands-on restructuring of their institutions, they won’t be able to serve the large number of nontraditional learners that turn to them to advance their careers. The demise of more for-profit colleges would not be a good outcome for millions of students -- or for America’s future job growth in years to come.
Joseph R. D’Angelo is a partner at the investment banking and advisory firm Carl Marks Advisors. He has extensive experience in the education sector, particularly in working with underperforming businesses and advising on restructuring matters.