Obama proposes changes to student loan programs

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Obama proposes changing income-based repayment and pushing students to consolidate their loans -- part of a campaign to work around lawmakers.

Wait and See

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The broad authority of the deficit "super committee," and its secrecy, have presented challenges for college groups hoping to protect student aid, research and other higher ed priorities.

Serving Soldiers?

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The U.S. Senate is flirting with policies that could harm for-profit colleges' success with veterans and active-duty military students.

Senate Budget Would Preserve Pell

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A Senate panel approved an Education Department budget that would sustain the maximum Pell Grant in part by ending subsidized interest during student loans' grace period.

Fighting the Non-University Master's

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WASHINGTON -- A Senate bill that would encourage the growth of alternative training programs for teachers and principals, some of which would not be based at colleges or universities but would have the authority to give certificates considered the equivalent of master’s degrees, has come under fire from higher education organizations that argue Congress should focus on higher education institutions in efforts to improve teacher quality.

For-Profit Debate Redux

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Senate roundtable features continued criticism of the sector -- and continued pushback against more regulation.

Going After 'Gainful'

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WASHINGTON -- Weeks after the U.S. Education Department issued softened regulations designed to ensure that vocational programs prepare graduates for "gainful employment," House Republicans made abundantly clear Friday that, in their view, the rules had not been eased nearly enough, and that they would continue to oppose them.

Don't Blame the Market

Like ancient Rome in its waning days, American higher education is corrupted by excess. According to a now infamous 2003 New York Times article, for instance, Ohio State University boasts a massive facility its peers call the "Taj Mahal," which features kayaking, canoeing, a ropes course and massages. Washington State University possesses the largest Jacuzzi on the West Coast, a tub that can accommodate up to 53 people. And that just scratches the surface. One reads regularly about tens of millions spent to install new football stadium skyboxes; about gourmet cafeteria cuisine; and even about student rioting to celebrate athletic success.

Examine for-profit colleges, however, and one observes quite the opposite. There are no water parks, skyboxes or Jacuzzis. Typical is a campus of DeVry University, as described by the Berkeley professor David Kirp in Shakespeare, Einstein, and the Bottom Line: The "campus off Highway 88 in Fremont, California ... looks like one of the high-tech companies in the area. It's low-slung and functional, built with an eye to use, not aesthetics. With its long corridors of classrooms and labs ... it could be a community college, though without the gym or student center."

"Market forces" are often blamed for indulgences at traditional universities, as they are in the recent Futures Project report "Correcting Course," and for exploitation of students at for-profit colleges. But how can the market produce such contrasting corruptions: excessive opulence in presumably well-intentioned nonprofit universities, and dirty dealings at essentially amenity-free for-profit institutions? Moreover, how can for-profit schools' opponents continue to smear for-profit institutions as threats to students, as Rep. Maxine Waters (D-CA) did in recent Congressional testimony, while traditional colleges are typically portrayed as ivy-walled treasures dedicated only to seeking truth?

To a large extent, the answer, at least to the second question, is a failure to understand the practical difference between "for-profit" and "nonprofit."

First, look at nonprofit institutions. "Universities share one characteristic with compulsive gamblers and exiled royalty," writes the former Harvard University president Derek Bok in Universities in the Marketplace, "there is never enough money to satisfy their desires." Bok's point is unmistakable: Universities always work to maximize their revenue. Why? Because, like most of us, they always have things they'd do if only they had more money. William F. Massy, a former Stanford vice president, calls it a drive for "value fulfillment" in his book Honoring the Trust, further explaining that "because value fulfillment is open ended, no respectable university will run out of worthwhile things to do." 

That makes sense. The term "value fulfillment," however, suggests that universities use additional money only for altruistic ends, while the reality is that nonprofit universities can be driven as much by greed as anyone else. For instance, as the Ohio University economist Richard Vedder explains in Going Broke by Degree: Why College Costs Too Much, university presidents often indulgently use new revenue "to fund large salary increases, add staff members ... build more luxurious facilities, and expand research projects."

For-profit institutions also try to maximize their revenue. But in addition to maximizing revenue, for-profit schools want to minimize their expenses. That's why they don't have any football stadiums or massage therapists. Simply, maximum revenue and minimum expenses yield maximum profit.

That does not mean, as their critics suggest, that they will necessarily exploit their students. The only way for-profit schools can maximize their revenue, after all, is by bringing in as many students as possible. They can't, therefore, reduce expenses to any point below which they can provide the education students are willing to pay for. Kirp's discussion of DeVry helps confirm this. "Instruction is more intense than in most community colleges and regional universities ... and it is often better as well." Moreover, "graduates do get hired ... DeVry's proudest boast has been that within six months of graduation, 95 percent of graduates are working, and not behind the McDonald's counter but at jobs with a future."

Are for-profit schools perfect? Hardly. As their critics regularly point out, for-profit education's past is checkered by scams and frauds. And it still has troublemakers. In January, "60 Minutes" aired an expose on questionable practices at Career Education Corporation, which runs 82 for-profit campuses. But general hostility to for-profit education, its past, and the ongoing scrutiny it receives as a result force for-profit schools to police themselves.

As Nicholas J. Glakas, president of the Career College Association, told members of the U.S. House Committee on Education and the Workforce last week, his association's members are "committed to and focused on compliance" with the law. "We have to be because of our past." He also explained, though, that accusations against for-profit schools are often sensationalized, noting that the "60 Minutes" piece focused on only "three students out of 100,000" at "2 of 82 branch campuses" of just "one publicly traded company."

So when scams occur in for-profit schools, or traditional colleges purchase ever-grander amenities, has the market failed? No, because a truly free market hasn't even been allowed to exist. 

According to the College Board, almost 60 percent of students in both nonprofit and for-profit colleges receive financial aid, primarily from the federal government. In addition, according to the U.S. Department of Education, more than a third of public universities' revenue comes from state governments rather than consumers. Supply and demand have been crippled. Because a large percentage of their funds come from state governments, public schools aren't bound by students' demands. Moreover, most students use other people's money -- in the form of taxpayer-funded grants and loans -- when deciding what they are willing to pay for at any school. 

The solution to the problem is to let the market work, and with the federal Higher Education Act due to be reauthorized this year, a window of opportunity is starting to open.  

Ideally, the federal government should cease providing grants and subsidized loans to students, and states should no longer furnish block appropriations for their colleges. Such solutions, though, are likely politically impossible.
What would be politically feasible, however, would be for states to do something like what Colorado will begin doing next fall.  Rather than sending funds directly to its colleges and universities, the state will send money to students, who can either take it to the state school of their choice, or use half of it at one of three approved private schools.

The federal government, for its part, should phase out all grant and loan programs for wealthy and middle-class students. For the poor, it could offer loans that students wouldn't have to start paying back until after they graduate and begin earning a college graduate's salary, making them ultimately responsible for paying for their own education, but allowing them to do so when they've begun to reap its benefits.
Making all consumers pay their own way through college would infuse effective demand into college financing. Suddenly, the frills of traditional higher education, or taking a chance on potentially shady for-profit schools, would look a lot less enticing. The market would finally get to work.

Neal McCluskey
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Neal McCluskey is an education policy analyst at the Cato Institute's Center for Educational Freedom.

Why States Shouldn't Accredit

In my work as Oregon’s college evaluator, I am often asked why state approval is not "as good as accreditation" or "equivalent to accreditation."

We may be about to find out, to our sorrow: One version of the Higher Education Act reauthorization legislation moving through Congress quietly allows states to become federally recognized accreditors. A senior official in the U.S. Department of Education has confirmed that one part of the legislation would eliminate an existing provision that says state agencies can be recognized as federally approved accreditors only if they were recognized by the education secretary before October 1, 1991. Only one, the New York State Board of Regents, met the grandfather provision. By striking the grandfather provision, any state agency would be eligible to seek recognition.

If such a provision becomes law, we will see exactly why some states refuse to recognize degrees issued under the authority of other states: It is quite possible to be state-approved and a low-quality degree provider.Which states allow poor institutions to be approved to issue degrees?

Here are the Seven Sorry Sisters: Alabama (split authority for assessing and recognizing degrees), Hawaii (poor standards, excellent enforcement of what little there is), Idaho (poor standards, split authority), Mississippi (poor standards, political interference), Missouri (poor standards, political interference), New Mexico (grandfathered some mystery degree suppliers) and of course the now infamous Wyoming (poor standards, political indifference or active support of poor schools).

Wyoming considers degree mills and other bottom-feeders to be a source of economic development. You’d think that oil prices would relieve their need to support degree mills. Even the Japanese television network NHK sent a crew to Wyoming to warn Japanese citizens about the cluster of supposed colleges there: Does the state care so little for foreign trade it does not care that 10 percent of the households in Japan saw that program? You’d think that Vice President Dick Cheney and U.S. Senator Mike Enzi, who now chairs the committee responsible for education, would care more about the appalling reputation of their home state. Where is Alan Simpson when we need him?  

In the world of college evaluation, these seven state names ring out like George Carlin’s “Seven Words You Can’t Say On Television,” and those of us responsible for safeguarding the quality of degrees in other states often apply some of those words to so-called “colleges” approved to operate in these states -- so-called “colleges” like Breyer State University in Alabama and Idaho (which “State” does this for-profit represent, anyway?).

There are some dishonorable mentions, too, such as California, where the standards are not bad but enforcement has been lax and the process awash in well-heeled lobbyists.  The new director of California’s approval agency, Barbara Ward, seems much tougher than recent placeholders -- trust someone trained as a nurse to carry a big needle and be prepared to use it.

The obverse of this coin is that in some states, regulatory standards are higher than the standards of national accreditors, as Oregon discovered when we came across an accredited college with two senior officials sporting fake degrees.  The national accreditors, the Accrediting Commission of Career Schools and Colleges of Technology and the Accrediting Bureau of Health Education Schools, had not noticed this until we mentioned it to them. What exactly do they review, if they completely ignore people’s qualifications?

The notion that membership in an accrediting association is voluntary is, of course, one of the polite fictions that higher education officials sometimes say out loud when they are too far from most listeners to inspire a round of laughter. In fact, losing accreditation is not far removed from a death sentence for almost any college, because without accreditation, students are not eligible for federal financial aid, and without such aid, most of them can’t go to school – at least to that school.  

For this reason, if Congress ever decoupled aid eligibility from accreditation by one of the existing accreditors -- for example, by allowing state governments to become accreditors -- the “national” accreditors of schools would dry up and blow away by dawn the next day: They serve no purpose except as trade associations and milking machines for federal aid dollars.

The Libertarian View of Degrees

One view of the purpose and function of college degrees suggests that the government need not concern itself with whether a degree is issued by an accredited college or even a real college. This might be considered the classic libertarian view: that employers, clients and other people should come to their own conclusions, based on their own research, regarding whether a credential called a “degree” by the entity that issued (or printed) it is appropriate for a particular job or need.  This view is universally propounded by the owners of degree mills, who become wealthy by selling degrees to people who think they can get away with using them this way.

The libertarian view is tempting, but presupposes a capacity and inclination to evaluate that most employers have always lacked and always will, while of course an average private citizen is even more removed from that ability and inclination.   Who will actually do the research that the hypothetical perfect employer should do?

Consider the complexities of the U.S. accreditation system, the proliferation of fake accreditors complete with names nearly identical to real ones (there were at least two fake DETCs, imitating the real Distance Education Training Council, in 2005), phone numbers, carefully falsified lists of approved schools, Web sites showing buildings far from where the owners had ever been and other accoutrements.

To the morass of bogus accreditors in the U.S., add the world. Hundreds of jurisdictions, mostly not English-speaking, issuing a bewildering array of credentials under regimens not quite like American postsecondary education. Add a layer of corruption in some states and countries, a genial indifference in others, a nearly universal lack of enforcement capacity and you have a recipe for academic goulash that even governments are hard-pressed to render into proper compartments.  In the past 10 days my office has worked with national officials in England, Sweden, The Netherlands, Canada and Australia to sort out suspicious degree validations. Very few businesses and almost no private citizens are capable of doing this without an exhausting allocation of time and resources. It does not and will not happen.

Should state governments accredit colleges?

State governments, not accreditors or the federal government, are the best potential guarantors of degree program quality at all but the major research universities, but only if they take their duty seriously, set and maintain high standards and keep politicians from yanking on the strings of approval as happens routinely in some states. Today, fewer than a dozen states have truly solid standards, most are mediocre and several, including the Seven Sorry Sisters, are quite poor.

If Congress is serious about allowing states to become accreditors, there must be a reason.  I can think of at least two reasons. First, such an action would kill off many existing accreditors without having their work added to the U.S. Department of Education (which no one in their right mind, Democrat, Republican or Martian, wants to enlarge). This would count as devolutionary federalism (acceptable to both parties under the right conditions).

The second reason is the one that is never spoken aloud. There will be enormous, irresistible pressure on many state governments to accredit small religious schools that could never get accredited even by specialized religious accreditors today. The potential bounty in financial aid dollars for all of those church-basement colleges is incalculable.

Remember that another provision of the same proposed statute would prohibit even regionally accredited universities from screening out transfer course work based on the nature of the accreditor.  Follow the bread crumbs and the net result will be a huge bubble of low-end courses being hosed through the academic pipeline, with the current Congressional leadership cranking the nozzle.

The possibility of such an outcome should provide impetus to the discussions that have gone on for many years regarding the need for some uniformity (presumably at a level higher than that of the Seven Sorry Sister states) in standards for state approval of colleges. We need a “model code” for state college approvals, something that leading states can agree to (with interstate recognition of degrees) and that states with poor standards can aspire to.

The universe of 50 state laws, some excellent and some abysmal, allows poor schools to venue-shop and then claim that their state approval makes them good schools when they are little better than diploma mills. We must do better.

Should states accredit colleges? Only if they can do it well. Today’s record is mixed, and Congress should not give states the power to accredit (or allow the Department of Education to give states the power) until they have proven that their own houses are in order. That day has not yet come.

Alan L. Contreras
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Alan L. Contreras has been administrator of the Oregon Office of Degree Authorization, a unit of the Oregon Student Assistance Commission, since 1999. His views do not necessarily represent those of the commission.

Questions from a Provocateur

Somehow I missed the meeting where the nation decided to exit public higher education. I was, after all, chief financial officer of a public university.

This is no fantasy. This drama is under way across the nation.

The story line so far is that healthcare and public safety costs finally have squeezed out higher education. Institutions will always find ways to survive. The casualties are the poor students, with the ability but neither the money nor the savvy to navigate falling student aid and rising tuition.  

The meeting we need, which no one has called, has this agenda: Why aren’t we discussing the fact that scrambled state and federal priorities are shutting down public higher education and strangling access? And preventing creation of a decent work force? 

Some of the leading scholars of higher education – people like Mike McPherson, Morton Owen Schapiro, and Tom Kane, participants in the Forum for the Future of Higher Education -- have clearly shown how soaring costs of Medicaid and infrastructure are pushing higher education out of the food chain of state general funds. Those forces are colliding to shut down the public university system in this nation, preventing thousands and thousands from leading self-supporting lives. We all know this and yet no one has a plan to respond.  

I learned this the hard way when I was CFO of the University of Hawaii system, an $800 million, 45,000-student, 10-campus public system for a few years, during a notorious hurricane between the president, the governor and the Board of Regents. 

The funding issues were the underlying driver of the tensions there. And all 50 states had the same issues. Yet no one state was talking to the other. Or to the federal government. Not for lack of interest. The avoidance arose from fatigue, from lack of skill and, to a large degree, lack of courage.  

No one seems to be focusing on this crisis or crafting a plan to deal with it. The higher education associations are busy fighting for every dollar in current reauthorization bills. Although this is a national problem, it plays itself out most intensely in individual states, And the tension involving Medicaid and state general funds and tuition becomes another zero-sum games at the state houses, where there is no more money.  

My goal is to pose a few irreverent questions to  shake loose better thinking. Here goes.  

Point: Who among us is accountable for those who are not now in college but who ought to be? Those who have the ability but not the money or the savvy to navigate the system? No one. Why not? In education discussions, a balanced institutional budget, public or private, is the operating metric. If the institutions are operating and solvent, no one asks who is not enrolled. As a society, shouldn’t a measure include those able students who are shut out?  

Point:  Some say, looking to the Founding Fathers who left education out of the Constitution, that the U.S. shouldn’t have a national higher education policy. I’d say we already do. 

I’ll illustrate by picking on Williams College and on Yale. My schools. I know they can take it. The implied federal subsidy per student at Williams and Yale is somewhere between $25,000 and $35,000 per year. I get that figure from conservative estimates of the tax-exempt endowment returns and of the tax-deductible donations each year. I am a CFO. Those are the numbers. This is at least twice the cost for a student at any community college.

Our national policy, then, is that the indoor golf-driving nets at Williams, built by tax-deducted dollars, are more important than Pell Grants for community college students working a night shift and going to school. No one has changed the federal tax policy here lately. In federal debate, Pell Grants are always at risk and eligibility changes often.  

Point: Commercial-bank interest subsidies for student loans are also more important than Pell Grants for those community college students. That’s our current national policy.  

Point: Our national policy is that we can’t find more money for student aid. Yet billions appear for Katrina overnight. This may be deficit spending and raises all sorts of questions to debate. It is our policy that Katrina is more important than creating a work force to sustain the nation.

Point: What about indirect-cost reimbursement for federal research?  This varies from 36.5 percent at the University of Hawaii to 60 percent at many fancier schools. This means that the MIT Stata Center, designed by Frank Gehry at who knows what per square foot, is more important than a Pell Grant for community college student. Why not a more modest building in exchange for a few more $350 single-mother childcare Pell Grant payments? So the single mother can stay in school.
I wish I were making this up.  

Next point: This is about money. The debate within higher education is to justify the costs, not to examine the cost fundamentals.  

The drivers, higher education leaders say, are health insurance, wireless Internet fees, premium dining plans. While funding drops, the argument goes, costs have to rise. What, though, is the fundamental cost driver of higher education? Isn’t that the unexamined assumption that a degree must be four years worth of credits? Which most students cannot complete even in five years? Why must a college degree be four academic years and 32 credits, one semester at a time? That model is from the 14th century at the University of Bologna. The pedagogical design constraint in that era was the shortage of books. Would we send an injured or sick child today to a 14th century hospital? Is that what we are doing in higher education?  

Point: The past 50 years have produced what scientists and educators call the cognitive revolution. We know so much more about learning. How could we use that knowledge to show young people all that excites our best scientists and scholars in their research every day? Why do we ignore what we know about knowing?  

Point. Politics. I’ve yet to meet a college president with a plan to improve national funding for higher education. Meetings in Washington are often about specific earmarks (read: pork) for one institution. Higher education leaders, I believe, underestimate what they can accomplish to the good, for everyone. I can cite no better example than from conversations that I’ve had as part of a Federal Reserve of Chicago project. Many of the Midwest’s leaders have expressed concern that there is nothing they can do. The problems are just too huge. I disagree, I’ve said. Look at their Congressional delegation: Michigan. Illinois. Wisconsin.  Indiana. Iowa. Even presidential hopefuls among your senators. 

Good ideas count. Help these senators and members of Congress. Give them something to propose. Other states are missing the same chance to lead.  

Point: As a society, we know how to educate people. But we don’t need a Manhattan Project or all sorts of high-risk research to start. We know what to do. Why not take a swing at it?  

Point -- or question. Have university CFOs, myself included, failed? Miserably so, I’d say. It’s our job to attract sufficient capital to the work. That’s not happening. Operating or long-term. 

Why can’t we CFOs demonstrate the value of higher education in a way that leads to investment? Isn’t this our job? I’ve never met a finer group than those CFO colleagues. As a profession, we have let the job become budget triage, not capital formation. I don’t know why, but I can’t interest the National Association of College and University Business Officers in a talk on why we’ve failed. As a profession, we have to face down this failure. These funding issues are our problem.  

Point: Do we know our customer? If there are any Gallup-type surveys on what students want in education, I haven’t seen them.  I do not mean dropping standards or giving away the store. How can providers, colleges and universities, help? Why do we know more about how much caffeine students want in what form each day than we do about learning preferences? Look at what this young population has done to the music industry. No more albums. They want the music song by song.  

Point: What about innovation? Strong economies need innovators. Educators must set the example. I don’t mean to replace faculty. Again, what’s the opportunity here? Look at the iPod and education. My daughter carries her language lab for Arabic with her. Look at the new short books, No-Nonsense Guides or The Oxford series A Very Short Introduction to dozens of topics, from A -- Ancient Philosophy to W – Wittgenstein, with stops at Darwin, Descartes, Design, Intelligence, Music, Shakespeare and Socrates. What about the Quick Study Bar Charts? At least the new dean of my Yale School of Management ought to be alarmed at how good that $4.95 Management guide is. Why does so much curriculum restate what’s available elsewhere? What about all the new skills we need?  

These tools are not a substitute for a degree. They are not the quality of a seminar with a great teacher. These tools are excellent sources to topics once available by the semester only.  What is the opportunity for liberating faculty here?  

Point:  Where are the students? They don’t seem even to vote.  To every student who came to my office with a complaint, always justified, I asked, “Are you registered to vote?” Never. Puzzled looks at what difference that made. No one has greater direct, immediate interest in voting than a public college and university student, I would explain. A few hundred postcards to the statehouse can get the money for repairs. A few thousand would change the world. Whatever I said was wrong. Only one listened.  And he did, after a year, end up with a million dollar earmark from the governor for dormitory work.

Point: And this one troubles me most of all. Are we talking about education or about politics? Do we really want everyone to have a great education? Cynics might say that as a society we’d rather pay welfare and Medicaid than for an education. This is less competition for the rest of us. Is that where we are? Even a cynic would have to admit that education is cheaper (read: lower taxes) than social services. 

We are stuck. I can’t describe the U.S. higher ed situation better than my colleague Adam Kahane, in his excellent, slim and readable book Solving Tough Problems – An Open Way of Talking, Listening, and Creating New Realities (Berrett-Koehler Publishers, Inc., 2004). 

Problems are tough because they are complex in three ways.  They are dynamically complex, which means that cause and effect are far apart in space and time, and so are hard to grasp from firsthand experience. They are generatively complex, which means they are unfolding in unfamiliar and unpredictable ways.  And they are socially complex, which means that the people, and so the problems, become polarized and stuck.

Point: Last one. So what? Why does it matter if we support national policies that shut out poor students? How can we not support the typical student at a state college and community college? We all know these students. They are 25. They have families. They work the night shift at McDonald's to contribute to the rent for their parents and grandparents. And then still, these students get to school. Every day they display motivation beyond the imagination of anyone at any of my schools. How can we hold them back?  

I know well that my passion can run ahead of the data. I test myself wherever I go. I’ve found that the person serving coffee or pumping gas or bagging groceries is usually a student, regardless of their age. I mean the airport van driver who wants to go to school but hasn’t heard of a Pell Grant. Ask these people. That’s why we have to do better.

Wick Sloane
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Wick Sloane is Chief Operating Officer of Generon Consulting in Massachusetts and a visiting fellow on higher education finance at the Federal Reserve Bank of Chicago. This essay is adapted from a speech he gave at a meeting sponsored by the bank in November. The views expressed here are his own.  


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