A heated Congressional exchange raises the question: does the U.S. government need more power to hold colleges accountable for handling sexual assault cases, or has it already overstepped its authority?
The court of public opinion has not been kind to the for-profit college sector over the last few years. In particular, the reputations of the 15 publicly traded companies that dominate the sector have been tarnished through repeated stories of alleged abuse of federal financial aid programs and students aggressively lured into programs where some end up with unmanageable debt.
But for-profit education did not always operate this way. Some of the same companies barraged by today’s negative headlines were innovators of new business models that served populations left out of the traditional postsecondary education space. Others offered training programs for years before there even was a Higher Education Act that made federal financial aid available to students.
What led so many companies astray is a story of strategic choices made at the height of the 2000s boom. Faced with the means to achieve infinite scalability by tapping into a federal entitlement program, the opportunity to use online learning to cut costs, and motivated by Wall Street cash and its accompanying investor pressures, several companies pursued hypergrowth at all costs. They moved away from traditional missions, pursuing any and all students they could through sophisticated recruitment machines designed to feed the neverending demand for hitting enrollment and earnings targets.
U.S. Department of Education data on students who left school in 2008 and 2009 at the peak of the for-profit college boom show just how bad the strategic emphasis on growth over quality has been. In total, 40 percent of programs offered by publicly traded companies, representing 48 percent of for-profit students in the data, fail one or both of the tests of debt-to-earnings and student loan default that the Education Department is proposing to use to judge the success of career training programs. This includes 44 percent of students enrolled in colleges owned by the Apollo Group, which runs the University of Phoenix. It also includes 90 percent of students at ITT Technical Institutes.
But companies like Strayer and Capella that took a more measured approach to growth look much better in the data. Not a single program at Strayer appears to be leaving graduates overly indebted or headed for default, while just one of Capella’s 96 programs has problems — a bachelor’s degree in health informatics. Capella’s income results are so strong that not a single program had a debt-to-earnings ratio above 1 percent.
The results for Apollo and ITT are particularly troubling because these are two companies with long operating histories that used to be some of the best examples of what successful for-profit education could be. The ITT Technical Institutes actually predate the Higher Education Act by nearly 20 years and were clearly able to recruit and educate students without being wholly reliant upon the federal grants and loans that make up the majority of its revenue. From its founding in the 1970s until the early 2000s, Phoenix would not admit students unless they were 23 or older, were working full-time, and had at least two years of workplace experience. This helped it build and maintain a reputation as a high-quality option for working adults that other colleges were reluctant to educate.
For those seeking to maximize profit, the entitlement nature of the federal student aid programs provides a clear path to unlimited growth. Anyone who meets minimal eligibility criteria qualifies for at least a multithousand-dollar student loan. Low-income students — the ones who just happen to be the least likely to go to college and can be recruited with the least competition — can bring thousands more in additional revenue each and every year through federal Pell Grants. As long as companies could find American students, there was little ceiling to the growth possibilities.
The internet pushed that growth ceiling even higher. Digital coursework could reach students anywhere in the country at a substantially reduced cost. Finding sufficient concentrations of students to justify face-to-face investments like classrooms and more professors became totally unnecessary. The recruitment pool had effectively become anyone with a pulse and an internet connection.
Entitlement programs and distance learning provided an opportunity and means for exceptional growth, but it was Wall Street that came in with the motive. The Apollo Group and ITT became publicly traded in the mid-1990s. At Apollo, enrollments rose from 124,000 in the fall of 2001 to 470,800 in the fall of 2010. ITT, meanwhile, grew from 28,600 to 88,000 over the same period.
Enrollments grew even faster from 2006 on, fueled by cheap credit available elsewhere in the economy and constant demands for showing increased student starts. But such growth pressure can coexist with historical standards and missions only while there’s a glut of students who fit that mold. Once that pool is tapped out, either standards or enrollment targets have to give.
Standards and institutional mission lost. Phoenix removed its enrollment requirements and began placing more emphasis on two-year degrees to students regardless of age or work experience through Axia College. A university with over two decades of experience catering to one type of student immediately started enrolling anyone it could. As former Phoenix Senior Vice President John Murphy wrote in his book Mission Forsaken, “It was a money-spinning financial decision, but a cheerless academic disaster.”
The Education Department data show what an academic disaster looks like in numerical terms. Take Phoenix’s associate degree in office management and supervision. It is the second-largest associate degree program offered by any institution in the country. And more than 9,800 of the 27,500 students who started making payments on federal student loans for this program from October 2008 through the following September ended up defaulting on their debt by the fall of 2012. These individuals had their credit ruined and balances inflated through a host of fees and penalties, and will almost certainly never be able to discharge their debts through bankruptcy.
The office management and supervision program is just one of 20 programs at Phoenix with a default rate of 30 percent or higher. This represents over 32,200 individuals — about the same size as the University of Alabama. Every single one of these programs offers an associate degree. It even includes programs that should have direct market payoff, such as network systems administration (default rate of 44 percent) and information technology (42 percent).
By contrast, Phoenix’s graduate programs do not look so bad. None of them had unacceptable results and just one — a doctorate in higher education management — had a default rate over 15 percent. Two doctoral programs (business administration and organizational leadership) even had typical earnings over $100,000. One has to wonder how many students might have been prevented unnecessary financial harm had Phoenix stuck to its core business model and not pursued such expansion.
Unfortunately, Phoenix provided a case study for other companies to emulate, especially for recruitment. For ITT that meant creating an aggressive recruitment machine that used a “pain funnel” tactic to increase enrollment by preying on students’ fears and insecurities. And since many of those students were low-income, it created new debt products for students who needed money to cover the gap between tuition and federal aid.
The high-growth model has created legal headaches and poor student results for ITT. It has the largest share of students in failing programs of any publicly traded company. ITT also has programs like its $47,000 associate degree in visual communications, where a higher percentage of students default on federal student loans (45 percent) than find jobs in their field (30 percent).
ITT has also run afoul of the Consumer Financial Protection Bureau (CFPB), which sued the company in February for the debt it offered to cover tuition gaps. In its lawsuit the CFPB alleged that ITT lured students into high-priced private student loans with default rates as high as 60 percent and “sacrificed its students’ futures by saddling them with debt on which it knew they would likely default.”
Recent efforts suggest that there may be ways to turn back the tide and get some companies to focus again on students over growth. Chastened by regulatory efforts aimed at reshaping recruitment practices and holding institutions accountable for debt, coupled with lawsuits and investigations against the worst behaviors, many companies have had to reduce enrollment, offer trial periods, and freeze or lower tuition. This includes initiatives like the Kaplan Commitment, which lets students test out classes for three weeks without paying tuition. Or DeVry’s Fixed Tuition Promise, which guarantees costs will not go up as long as students stay enrolled and came one year after a tuition freeze. Hopefully, these changes will result in better outcomes for students.
But short-term improvement is not enough. The last 15 years has shown just how Wall Street can trump old values and prompt reckless behavior if their ambitions and actions are left unchecked. Without a stronger accountability structure around them, there’s no promise that growth at all costs will not return.
Ben Miller is senior policy analyst for the New America Foundation's Education Policy Program.
I approach the topic of the appropriate reach of government regulation into higher education in very much of two minds. On the one hand, I am the president of an independent-minded private college that has been in continuous operation for 139 years and delivers strong outcomes in terms of access, persistence, graduation, employment and post-graduation debt. Regulation from the federal government isn't likely to impose higher performance thresholds than we have already established for ourselves (and consistently achieved), or to improve our performance, but added regulations will very likely impose new costs on us related to compliance, in addition to being just plain irritating.
On the other hand, I serve on the Board of Trustees of the Higher Learning Commission, and that service has opened my eyes both to the broad variety of institutions that the Commission serves and, very frankly, to instances of institutions that have gone awry, that are not serving their students well, that are not good stewards of the federal dollars that flow through their budgets, and that are either unwilling to admit their shortcomings or unable to address them.
The investment that government -- both federal and state -- makes in financial aid to students, who then pay that money to us so that we can use it to deliver our programs, is certainly considerable, and we need to be good stewards of it, so that students are well-served and taxpayers' dollars well-spent. If those ends are to be achieved, some regulation will be necessary.
So, how much is just right? Here’s an answer: the minimum amount necessary to achieve the two goals I just mentioned: ensure that students are well-served and that tax dollars are well-spent
As the reaction from the higher education community to the Department of Education's talk about a federal rating system for colleges and universities demonstrates, those seemingly simply goals I just articulated aren't simple at all once you get into any level of detail in specifying what it means to be "well-served" or "well-spent."
Does "well-served" for example tie out to a minimally acceptable four- or six-year graduation rate? What about open-access institutions whose mission is to prepare underserved students to succeed at a different kind of institution? What about institutions in a situation where graduation may not be the most important goal?
"Well-spent" raises similar questions. If you are an institution with a graduation rate in the 90 percents, but the percent of Pell-eligible students in your student body doesn’t reach the number of Pell-eligible students that somebody in an office in Washington decided was minimally acceptable, does that mean the federal dollars that flowed to your budget through student tuition payments weren't well-spent because they weren't supporting certain policy goals, despite evidence that your program is effective?
These problems aren't new. Every regulated industry faces them, and perhaps as we think about proposed increases in the regulation of higher education a wise thing to do would be to study those industries -- if any -- where the right balance between the actors in the industry and government regulation has been struck.
In the meantime, here are a few thoughts about how much government regulation is just right:
It's too much if it imposes compliance costs and burdens on institutions that plainly are serving students well and being good stewards of tax dollars.
It's not enough if there's demonstrable evidence that there are numbers of institutions with clearly articulated and appropriate mission statements that are not delivering on those missions but are nevertheless consuming significant resources.
It's not enough if there is clear and demonstrable evidence that self-regulation, and by that I mean accreditation, is ineffective.
It's too much if regulation requires an institution that is otherwise flourishing to change its mission in response to the policy goals of whoever happens to be running the U.S. Department of Education at the moment.
It's too much if the net effect is to narrow the diversity of types of higher education institutions in America, the diversity of their missions, of their entry points, and so forth.
It's too much if a compliance industry grows up around regulation.
It's too much if it can't be demonstrated that the net effect of the regulations, after the costs and burdens it imposes, has been to make institutions better serve students and steward tax dollars.
Many institutions of higher education in America don't need more regulation to help or force them do their job. Some do. Regulation that starts from that simple fact is most likely to be good for students, good for higher education, and good for the country.
David R. Anderson is president of St. Olaf College, in Minnesota. This column is adapted from remarks made at the panel on “How Much Government Regulation of Higher Education is Just Right?” at the 2014 Annual Conference of the Higher Learning Commission.
On his education bus tour, President Obama is urging, among other suggestions, a new rating system to ensure that more families are able to afford higher education. I think we can all (well, almost all of us) agree that the rising costs of a bachelor’s degree need to be constrained, and we must find ways that facilitate middle- and lower-income students entering and graduating from college. The value proposition matters, and “debt without diploma” is unacceptable.
What is vastly harder to agree upon is how to address the problem, rather than just wringing our hands over it -- which we have been doing for far too long.
Let’s start with the president’s idea of rating colleges based on graduation rates and prospective earnings, among other variables. To be sure, given the president’s reference to U.S. News rankings in his speech today at the University of Buffalo, one wonders whether “ratings” are similar to or different from rankings – apart from using different variables.
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On the surface, these two data points may seem easy to calculate. And advising families on how to compare and contrast college offers seems wise. But devising a quality rating system will require deep insight into how the world of higher education actually works – on the ground, in the trenches. As the president noted, Secretary Duncan needs to garner suggestions from a wide range of educational constituencies.
First, we know that more-elite institutions that serve Pell-eligible students have higher graduation rates than open-access institutions that enroll Pell eligible students. What accounts for this disparity is subject to debate, but arguably, part of the answer is that the richer institutions “cream skim” and only take the “best” among the low-income students.
For example, students who are selected to be Posse Scholars graduate from college (largely highly selective institutions) at a rate of 90 percent -- which is stunningly good. But, it is worth remembering that the 640 Posse Scholars enrolling each year are selected from approximately 15,000 applicants.
This means that elite institutions, absent some adjustment, would rank higher than non-elite institutions on graduation rates without any explanation as to why that is occurring. And the lower graduation rate of less-elite institutions may be at least partially explained by the lack of preparedness of their students. For some students and their colleges, a graduation rate of 40 percent is success, not failure.
Second, if we only calculate graduation rates of true first-year, full-time cohorts, we will be missing the mark in terms of who is actually enrolling in college today. Students with previous credits, transfer students, adults returning, part-time students and veterans would not be counted in the calculation, although at least some of these data points will be included as IPED’s data are improved over time.
Third, earnings are certainly occupation-based. Graduates who become teachers and nurses and police officers earn less than students who are employed by investment banks or hedge funds. Clearly, success in higher education cannot be measured based on earnings alone.
Yes, college graduates should not be underemployed or employed in fields that do not take advantage of their education. But how we calculate “sufficient” earnings is critically important, and more earnings are not necessarily better for the public good.
Finally, there is a built-in assumption that students and their parents will pay attention to and use the ratings effectively. Experience suggests otherwise. Despite transparency in the realm of consumer protection, consumers still make irrational and unwise choices, as behavioral economists have noted.
Indeed, as scholars point out, consumption decision-making is often based on non-economic determiners. And we already have early evidence that the current scorecard has not worked as expected – despite best efforts to share its availability. Moreover, the income-based repayment program – also publicized – has not had the expected uptake among students who could benefit from it, as the president himself noted. We need to make disclosure “smart.” We also need to focus on how to engage families in conversations about money. And educational institutions need to see that their obligations to advise students about loan repayment extends beyond graduation, particularly since initial payments often commence six months post-degree.
So if we proceed with graduation rates and earnings as indicators, we need to be cautious in terms of how we calculate both and be aware that even the best ratings may not help the very audiences we seek to persuade.
Indeed, possible key users of the ranking system are high school guidance counselors. But, as a recent report from the Public Agenda notes, this group of professionals is struggling to counsel students for college effectively. Thus, their caseload and training may make their uptake of any new ratings problematic, absent major changes in their education and training.
As an additive or alternative to the president’s suggestions, I think we would be wise to make change where the “default” position benefits students and their families. So, as one example, what about enacting legislation, through an amendment to the Bankruptcy Code, that enables students and parents to discharge burdensome private and public loans through bankruptcy?
A recent study by the Center for American Progress suggested the dischargeability of select public and private loans (with a robust definition of what constitutes nondischargeable qualified student loans.) The Consumer Financial Protection Bureau and the Department of Education issued a report in 2012 suggesting reconsideration of the nondischargeability of private student loans.
To anticipate the suggestion that easing bankruptcy’s discharge will create a moral hazard, my experience over 30 years of working with debtors and consumer finance suggests that this common concern is not supported by the evidence.
The availability of bankruptcy and the opportunity for dischargeability of specified debt has not led to a wave of abusive bankruptcy filings. As I always have said, most people do not wake up in the morning and say, “Yippee. I get to file bankruptcy today, having failed at America’s rags-to-riches dream.”
Surely the president has latched onto an issue that matters – a college education for the betterment of individuals and their families and society at large. This is because, at the end of the day, we need an educated citizenry to preserve our democracy. The real issue is how we make that accurate idea a reality. As with most difficult issues, the devil remains in the details.
Karen Gross is president of Southern Vermont College. She served as a senior policy adviser to the U.S. Department of Education during 2012 and is now a consultant to the department. The views presented here are her own and do not represent the position of the government, including the Department of Education.