As Robert M. Shireman, former deputy under secretary of education, departs for California following his efforts to strengthen regulation of for-profit colleges, those institutions have increased their already significant pressure to make sure that business as usual is not disrupted by new federal rules.
Particularly at issue has been the "gainful employment" proposal, which would require for-profits to tie students' borrowing for college to their future earnings. The process by which for-profit colleges are making the case against such regulations is at once professionally necessary (if you are a for-profit institution) and mildly unseemly (if you are truly interested in helping students).
For the past 11 years, I have regulated for-profit colleges for a state government. My office regulates other kinds of higher-education institutions, too, but these days most of the programs we approve are at for-profits. For that reason I have seen most of the problems that arise in the for-profit sector and have some thoughts as to how the federal government can accomplish its worthy goal of ensuring that students don't waste federal aid, get jobs in fields that interest them, and instantly become taxpayers.
First, the idea that a truly clear, meaningful definition of gainful employment is possible or useful in the context of postsecondary aid regulation is problematic. It is far too complicated, automatically guarantees a slough of litigation and despond, and has minimal effect on college quality. The idea is a distraction and is costing way too much professional energy in the Department of Education. Policy makers should move that one to the back burner, where it can bubble away quietly, but not make it the main battle.
Regulators should also forget ownership. Who owns a college does not matter. Behavior matters. Faculty qualifications, admissions standards, transfer policies, curricular structure, and the awarding of credit for students' work matter.
Debt burden matters, too, but only within the context of program quality. If a program is good enough that its graduates become employed in fields where their college degrees are of value, then debt burden becomes a question of manageability rather than propriety.
That is true at all colleges, not just for-profits, and milking the federal-aid cow is not limited to for-profits, nor is it always a result solely of college actions. For example, in 2009, social-service agencies in Oregon referred thousands of unemployed people to community colleges—not because the unemployed were interested in an education, but because they needed a way to eat, their other benefits were running out, and Title IV aid, under the Higher Education Act, is an entitlement. One of the effects of that lateral transfer of the unemployed was to overcommit the state's own grant program, resulting in a lack of funds for people who did want an education.
The U.S. Department of Education should focus on those things that matter and that can be reasonably regulated for the public good. Here are a few ways that it can improve what happens at for-profit colleges:
Require all colleges that receive Title IV money to enroll students only term by term. Disallow multiterm contracts (say, anything beyond six months) and multiterm financial-aid commitments. That is a simple way to reduce the number of horror stories of students milked of their aid eligibility by unscrupulous operators. Oregon has prohibited multiterm enrollment contracts since 1997, and we have a healthy for-profit sector and relatively few complaints.
Indeed, I see no reason for colleges to have the kind of elaborate enrollment contracts that many for-profits use. Students should be free to come and go each term based on whether the institution is truly meeting their needs. Complex withdrawal requirements entangled with unnecessary separation fees and not-so-veiled noises about lost opportunities and the difficulty of readmission have no place in postsecondary education.
Get serious about student screening. Fake and dubious high-school diplomas and transcripts are so common that any credential issued by a nonpublic high school should be treated as probably false unless proven true. If there is the slightest doubt about an applicant's ability to perform college-level work, the Education Department should require the use of one of the federally approved ability-to-benefit tests that exist for that purpose. The whole idea of open admissions has run its course. With bottom-feeder "schools" recruiting anyone with a pulse, such a policy causes more trouble than it is worth.
Distinguish professional schools from dream schools. The great divide in the world of for-profit colleges is between those that train people for professions that require a license to practice, such as medical fields, and those that offer dreams for sale, like culinary or photography careers. At a minimum, separate the colleges leading to professional licensure from those that do not.
It is easy to determine whether a college is successful in training people for a licensed profession—see how many of its graduates who apply for licensure obtain it. It is also easy to determine what those licensed graduates earn—they can all be identified with certainty and surveyed (along with their employers) with close to 100-percent coverage. Require that to be done.
Such programs need less stringent rules regarding outcomes because the outcomes are in the public record. Performance issues are primarily the province of the licensing boards, not the colleges. In those situations, a reasonable disclosure requirement would place all students on notice as to whether the program's graduates end up employed in the profession.
Chief among the dream schools are culinary programs, where students can dream all they want about becoming the latest TV chef or running their own kitchen at a resort chalet. A few graduates will achieve that goal. Most will end up in routine professional jobs that lack the cachet of Chef Chalet, to say nothing of the income. It is far more difficult for a student or applicant to get a firm grasp on the outcomes of such programs, partly because a culinary school is like a fine-arts program: Technical skill goes only so far, after which imagination, drive, intelligence, and other factors have a significant effect on a person's success in a changing, challenging market. It is reasonable for a regulator to establish stricter disclosure and recruitment requirements for such schools than for those that lead to licensure.
We are hearing all this cackle at the federal level about gainful employment because of both program quality and program cost. A regulator should not be afraid to say out loud that a particular program is not of sufficient quality to justify the expenditure of public funds on it. Bad programs are one reason for bad placement rates and poor success by graduates.
Today, however, such an evaluative function is done almost entirely by states and accreditors, and it is not always done well—witness the laughable "oversight" of for-profits in California. When a state doesn't bother to truly oversee the activity of for-profits for years, there is no source of meaningful information about them. That leaves the Department of Education with little traction on the issue of quality unless it wants to develop its own requirements and emerge from the fog of accreditation standards.
The department has historically relied on third-party accreditors for oversight, and more recently it has expected those organizations to exercise an enforcement function that is foreign to their nature. If the department wants to establish qualitative standards for aid eligibility, it should do so itself.
Right now cost is the only arena where the feds can enter the fray. After all, it is their money. But the era when higher education generally cost far less than its market value—the basis upon which our entire set of regulatory norms rests—is over. Even public colleges, having lost much of their governmental subsidies in recent years, are becoming expensive relative to the value of degrees in the marketplace. If that trend continues, it will do so in a flattened economic landscape that is unlikely to improve for many years, if ever. Cost will continue to approach value more closely, and states will continue to reduce support for public colleges. They will have no choice.
For that reason, all colleges, not just for-profits, are going to face the question of whether their graduates owe more money in student loans than their income can realistically support. The idea that income from "gainful employment" for any student will continue to outpace college costs by the same distance in the years ahead is another dream best left on the pillow.
Comments
1. vdolgopolov - June 14, 2010 at 09:53 am
This is a reasoned, thoughtful, and pragmatic approach to regulation of proprietary colleges, or for that matter, all institutions of higher education. Mr Contreras is right, ownership structure shouldn't matter, but behaviors and outcomes should.
2. intered - June 14, 2010 at 10:19 am
Nice job Alan. Thoughtful, clear, based on evidence, and tied to results rather than ideology.
On some of your points, ED has a private agenda that does not accommodate the facts but I, too, believe that these issues should be blind with respect to a few lines of IRS code that specify how an institution disposes of its surplus revenue.
An additional irrational plank in the platform against the for-profits is taxpayer costs which, net/net, are highest for publics and lowest for for-profits with independents falling in the middle. Our analyses suggest negative taxpayer costs for most for-profit programs, turning positive only for some of the more marginal, as you put it, "dream" programs. These economics include loan default rates by institutional type. - Robert W Tucker
3. gplm2000 - June 14, 2010 at 10:52 am
Interesting comments. However the bottom-line is if the for-profit is recognized by employers as producing credible graduates. Many non-traditional students, using for-profit schools, find upon graduation that no one will hire them for a college graduate position.
4. intered - June 14, 2010 at 11:25 am
@gplm2000,
The view that employers will not hire or prefer not to hire graduates of for-profit institutions is widely held but false. Our firm conducts program feasibility research for colleges and universities of all three institutional types. Last year, we had senior-level in-depth conversations with around 1,500 employers across the nation. This year we will do more and we have been doing this for 16 years. This component of our research strategy has contributed to a nearly perfect record of predicting a potential program's success or failure in a specific market.
What I can tell you based on the largest objective knowledge base of employer data that I know of is: (a) most employers in most employment categories make no distinctions whatsoever as to the educational institution's charter, this is the most significant general finding, (b) some employers have "favorite" education providers, in such cases, they are equally likely to be not-for-profit or for-profit, adjusted for the proportion of institutional types in the market, (c) in about a dozen or so areas of allied health and technology where the degree is associate-level, some employers show a preference for students educated at for-profit career colleges, and (d) employers offering high-end entry level positions (e.g., MBA analysts, software engineers, etc.) have often established preferred relationships with public institutions. It is only this last relationship, perhaps three percent of the employment contexts, in which the generalization that you offer it true. Additionally, half of the nation's college student are now adults. Most of them work and seek a degree not to get a job but to progress in their current role.
Given that the professoriate generally makes its living teaching students how to reason well and to base their reasoning on available evidence, the soundness of which they have carefully assessed, is it not treasonous for the professoriate to abandon these standards of rationality when they contemplate their own profession?
5. director19 - June 14, 2010 at 11:57 am
This ED proposal is a very slippery slope that does not measure outcomes equally. Certainly, the cost of attending a for profit school is more expensive than a comparable community college. But, for profits are not feeding at the public trough. So how do you compare gainful employment? You can't do it. So, once again, all the whoopla is meaningless.
6. intered - June 14, 2010 at 01:57 pm
director19,
These figures are a little out of date but the relations are close.
Per student per year taxpayer costs (all in, including loan default rates) when a student chooses to attend:
Public University: $10,500
Private University: $7,500
For-profit University: ($500)
Community College: (we don't know but would estimate close to the privates)
To most individuals, the high taxpayer cost of the privates is the biggest surprise. The major contributions are forgone taxation contexts, such as land, endowments, COS and COB, etc. We do know that the community colleges are considerably more efficient that the publics (credits delivered per budget dollar to defined standards) so I would guess that a $6,000 per student per year cost might be in the ballpark. Does anyone have any hard data on this? - Robert W Tucker
7. performance_expert2 - June 15, 2010 at 06:22 am
You say: "debt burden becomes a question of manageability rather than propriety.... That is true at all colleges..."
I respond: "The USA is practicing debt slavery."
Your context is local, yet you say "all." The rest of the world does not operate under the same system of education debt slave that is so blindly accepted in the USA, this caste system of graduating university with a house payment before you have a house. If you get a house, you find you have a house payment, an equivilent education payment and out $15. a month left over for food, gasoline, clothes. And no money for the dentist.
The real truth of the matter and what is left out of your essay is who gets the billions in interest money paid on this new minted money from the "Federal Reserve" that supplies newly made money to privately owned central banks at a nominal 1%? rate of interest, and these central banks then use this money to make students into long term debt slaves. And then there is the matter of inflation due to the newly created money. A gallon of milk is $5. A jar of mayonaisse is $4. And your article is junk because you leave out the conspicuous reality of US debt slavery.
8. performance_expert2 - June 15, 2010 at 06:30 am
Where is all of the money in US society getting suck to? Health Care Corporate complex? Industrial Military corporate complex?
9. satin - June 19, 2010 at 02:27 am
Such programs need less stringent rules regarding outcomes because the outcomes are in the public record. Performance issues are primarily the province of the licensing boards, not the colleges. In those situations, a reasonable disclosure requirement would place all students on notice as to whether the program's graduates end up employed in the profession.
American Universities
10. prof_truthteller - June 23, 2010 at 03:22 pm
Intered, if you don't yet know about Grapevine, you should, given your line of business. Here is a link to state expenditures, http://www.grapevine.ilstu.edu/tables/index.htm, you will have to go elsewhere for the number of students served, but they likely have it at NCES-IPEDS, and then do the math.
Your assertion that, "these issues should be blind with respect to a few lines of IRS code that specify how an institution disposes of its surplus revenue," is laughable and just plain weird. For-profits have more than 'surplus revenue' to be 'disposed' of. They actively seek out revenue generation strategies to satisfy stock holders, and those activities take priority over all other needs or interests, including those of the students, the employees, and the community in which they are based and which they serve.
Of course public institutions cost more for the taxpayer than private or for-profit. Duh. That's why they are called "public" and one advantage they have over private is that they must be held accountable for use of those public funds. I am not aware of any privately held company in any industry or business that is required to report anything to the public on a similar scale or scope. It's their money, they can do what they want with it, answerable only to the IRS. Publicly traded companies must of course also answer to the SEC but, we've seen how good that is at stopping corruption, abuse and misuse of funds.
I totally agree that using an employability standard is impossible and even unreasonable, and have commented on that in a previous article on this topic.
11. breppe - June 24, 2010 at 09:49 am
What matters in this industry is responsible borrowing supported by common sense Title IV policy. Student debt could be managed by not allowing part-time students (or students fully covered by the GiBill) to borrow above their direct cost of tuition and fees for so called living expenses. Students who get over their head in debt get that way because the current Title IV policy allows even part time. or otherwise already fully covered students to borrow the max each term even though we know that student is very likely to hit the aggregate loan limit before finishing (longer enrollment equals more debt) and/or borrow far more than is needed to cover direct cost (Graduates can borrow $10,250 per semester even if their tuition is only $4000). Anytime someone deep in student loan debt tells you how much they owe, find out how much of it actually went to the school and how much went to them as living expenses.
Why should a part time student need living expenses if they work full time? If they aren't working full time, why aren't they attending full time, especially given that classes are delivered online or onsite with convenience in mind? Undergraduates can borrow up to $6250 per term (on top of their GiBill, Grants and Scholarships) even if their tuition is only $3500 and Graduate students can borrow as much as $10250 per semester even if their tuition is only $4000.
As a financial aid advisor in this industry I see students borrow 2 and half times their actual cost of tuition at the Graduate level ($90,000 borrowed for a $38,000 program) or nearly double their cost for an undergraduate degree ($57,500 for a $35,000 Associates degree) because they borrow the max term after term and do not take enough classes to finish sooner. In every case, this could have been prevented through a hard and fast policy of no living expeneses for less than full time enrollment. There should be no doubt as to why so many students can not pay back their loans when this excessive borrowing is allowed.
Until the Department of Education makes this limitation, we are fighting a loosing battle. Students push until they get what they want even it is not in their best long term interest and a school can not deny a student their eligibility. All we can to is advise.
Borrowing for living expenses only makes sense when someone is sacrificing working full time to go to school, but this is not the case, especially at the for profit schools. Either someone has income to pay their living expenses because they work full time, or they should be attending full time. Full time enrollment means finishing sooner and much less debt.