Campus Report

How bad are for-profit colleges?

Senator Harkin’s investigation discloses serious problems
but misses the core problem

George Leef / John William Pope Center

For several years, Senator Tom Harkin (D-Iowa) has been making headlines with his investigation of the for-profit college world. Those headlines have revolved around his Health, Education, Labor and Pensions committee’s findings that some for-profit colleges earn large profits by taking advantage of unsophisticated people, talking them into enrolling and signing up for Pell grants and borrowing money, then taking classes of dubious value. The for-profit colleges pocket the money but the students rarely learn much and seldom complete a degree.

You can read the committee report here. It is quite lengthy.

Over the last 20 years, the for-profit college sector has grown enormously. What appears to have triggered that growth is not a great wave of consumer enthusiasm for those schools. Instead it was the realization by executives at the for-profit schools that there was lots of money to be made by cashing in on federal student aid money.

Just as the “gold in them thar hills” drew prospectors to California, the easy money to be had by recruiting students drew companies into the college industry.

Senator Harkin, who at one time seemed to be gunning for the entire for-profit sector, said in his statement accompanying the report that some of the for-profit schools were useful in helping “more disadvantaged and nontraditional students attend college.” He went so far as to single out a few, including Strayer Education and Walden University, for praise. Nevertheless, he said, much of the federal government’s “investment” in higher education is wasted at for-profit colleges.

Although the report has been criticized by some commentators as being exaggerated to score political points (Richard Vedder of CCAP and Cato Institute’s Neal McCluskey among them), it is impossible to deny that Harkin has turned over a rock and we can see a lot of nasty things crawling around. The report documents cases where school recruiters gave out misleading information about accreditation, graduation rates, total costs, and employment prospects. (Except for accreditation, the same charges have recently been leveled at law schools.)

And apparently the old car salesman’s tactic of getting the customer to think only about the seemingly reasonable monthly payment rather than the total cost has been imported into the for-profit education industry. Gullible students aren’t always informed that they will be liable for all they borrow, indefinitely. Their student loan debts can’t be discharged in bankruptcy and can’t be reduced by repossessing their degree or course credits, unlike the situation facing a car buyer who can’t make the payments.

Moreover, the investigation found that recruiters for the for-profits use the same kind of pitch that salesmen for time-shares use to pressure possible buyers: “You have to decide now!”  Turning education into an impulse purchase is at best unseemly.

Harkin’s report also helps to confirm the Bennett hypothesis–although that certainly was not its intention. The investigation revealed that some of the for-profits set their tuition at exactly the amount of the federal grants and loans the students are entitled to and raise it when more government money becomes available. The schools are obviously gaming the system to extract the maximum revenue.

There is a glaring imbalance in the report, however. It analyzed the infamous trio (i.e., waste, fraud, and abuse) solely in the for-profit sector, when non-profit higher education is saturated with them too. Non-profit colleges and universities also recruit students who have doubtful academic ability and motivation, with the idea that good careers await them if they get a degree. They try to fill up their coffers with as much government grant and aid money as possible and many have very low graduation rates – exactly the charges Harkin makes against for-profit schools.

Perhaps Senator Harkin only looked into the for-profit sector because he has been misled by the common perception that if a college (or other kind of organization) is officially “non-profit” it must be on the side of the angels.  Oklahoma State professor Vance Fried debunked that idea in a paper showing that non-profit colleges actually earn profits, but they’re consumed by lots of unnecessary spending. 

Both for-profit and non-profit higher education have a disease, a disease with the same cause: government subsidies. The Senator believes that federal student aid is needed for our national “investment” in education, but he ignores the fact that government investments of all kinds, including non-profit college education, usually turn out to have high cost to benefit ratios.

Harkin’s report sets out an array of solutions to the problems he has identified, but they all involve the opiate of the politicians, namely regulation.

First, he wants to “enhance transparency” by having federal bureaucrats “collect comprehensive student outcome information” and “establish a uniform and accurate methodology for calculating job placement rates.”

Second, he wants to “strengthen oversight of financial aid” by tying eligibility for federal funds to “meeting minimum student outcome thresholds” and prohibiting schools from using federal money for marketing and recruiting.

Third, he wants regulations that “create meaningful protections” for students, such as setting up an online complaint clearinghouse and enforcing “minimum standards” for various student services including remediation, career counseling, and job placement.

Our confidence that additional regulations will stop the shady tactics of for-profit colleges ought to be pretty low in view of the report’s discussion of the clever moves those schools have made to evade one of the current regulations. Under the “90/10” rule, schools may not collect more than 90 percent of their revenues from federal student aid money. However, many of the for-profit schools have figured out how to technically comply while, as Harkin says, “defy(ing) the goal and spirit of the regulation.”

Won’t new regulations lead to the same sort of cat and mouse games? We must assume they would.

Furthermore, because non-profit schools also lure in weak students who will probably derive little benefit from courses just to fill up their coffers, we ought to consider a universal solution rather than more regulations on the for-profit sector.

That solution, the one that cuts the Gordian Knot, is to end federal student aid.

Federal student aid helps to drive up the cost of higher education for everyone. It entices many young people who simply need better basic skills and occupational training into expensive college programs that can put them into a deep debt hole. And, as Harkin’s report shows, it is federal aid money that motivates the educational scams.

Without federal grants and easy loans, students would have to spend their own money, family wealth, or funds they might borrow privately. (For students without good academic profiles and career prospects, there probably would be no loans available.) Having to pay for post-secondary education without government aid would lead to a number of changes, all for the better.

First, since they would be spending their own money, students would look more carefully for good value. If, as if often the case, what they actually need is occupational training rather than the traditional Bachelor of Arts degree, they will search for that. Such programs already exist (here’s one), and more would no doubt be created to fill the demand.

Another change: Employers would stop looking to government to do job training for them. They would either set up training programs themselves (such as Siemens) or help to pay for prospective employees to learn the required skills at schools specializing in that. Keep in mind that employers need capable workers just as much as workers need to have skills. Government subsidies are unnecessary for that market to work.

There would be many other changes too, but I’ll close with this one: Without federal student aid that’s easy to scoop up, the dubious, deceptive, fast-buck sorts of “college” would wither on the vine.

The John William Pope Center for Higher Education Policy is a nonprofit institute dedicated to improving higher education in North Carolina and the nation. Located in Raleigh, North Carolina, it has been an independent 501(c)(3) organization since 2003. It is named for the late John William Pope, who served on the UNC-Chapel Hill Board of Trustees.

To support the organization, click here: Pope Center

 

Where is Keith Fitzgerald?

We have heard all kinds of excuses from elected Democrats who did not want to be seen near their party’s convention in Charlotte this week, but none more brazen than that of Keith Fitzgerald.

And who is Keith Fitzgerald? He gets his paycheck from Florida taxpayers through employment as a professor of political science at New College in Sarasota.

He ducked the convention because “I need to teach my class,” the Sarasota Herald-Tribune reported. That may come as news to his students, who complain that he has been AWOL while campaigning fulltime for Florida’s 16^th District Congressional seat. He’s challenging incumbent Vern Buchanan, a conservative and therefore a thorn in the side of the Herald-Tribune and other area media.

In an Aug. 23 letter to the editor to the Bradenton Herald, New College Trustee John Saputo said Fitzgerald should take an unpaid leave while campaigning for Congress. “To run for political office, especially the U.S. Congress, is a full-time job,” said Saputo. “We do not want students shortchanged. It is my job as a trustee to make sure our college is run like a business and that our professors give our students their undivided attention and best efforts.”

College professors often get poor evaluations from students who are unhappy about actually having to do work. Deans understand this and discount most of the always-anonymous evaluations – except when a clear pattern emerges over an extended period. From 1995 to 2011, Prof. Fitzgerald got negative reviews by 76% of the 713 students who posted them.

Local newspapers could not (or perhaps chose not to) contact Mr. Fitzgerald, who was – late to class this week.

            Sources: Sarasota County Republican Party, Sarasota Herald-Tribune, Bradenton Herald.

 

Romney won’t rock the educational boat

George Leef / The John William Pope Center

On May 23, the Romney campaign released a white paper entitled “A Chance for Every Child.” It sets out Republican candidate Mitt Romney’s thoughts on improving both K-12 and higher education in America. I read through the pages dealing with higher education and found just what I had anticipated – criticism of the status quo coupled with meek changes that won’t rock the boat.

Sadly, the paper’s higher education section begins not with criticism but instead with the boilerplate cheer that American higher education is “the envy of the world” and is our economy’s “greatest competitive strength.” Yes, there are some towering peaks to be found in our colleges and universities, tremendous educational programs that have trained some of the world’s best minds. For the most part, however, our system is one of highly expensive mediocrity. The rest of the world does not envy the United States for the hordes of young people who go to college, enjoy years of partying interrupted by occasional work, then graduate (if at all) with minimal gains in cognitive ability.

Nor is it true that higher education is America’s “greatest competitive strength.” College education is sometimes useful, but many of our great innovators have done their work without a college degree. Actually, our greatest competitive strength has been the greater freedom Americans have had to try new ideas and profit if the ideas work out, compared with people in the rest of the world. (The U.S. has been losing ground to other countries with regard to the degree of economic freedom enjoyed by the people, but this isn’t the time to discuss that issue.)

Now let’s get into the substance of the white paper.

Romney earns an A for challenging the conventional belief that the labor force is changing in ways that require more and more workers to have a college education. The paper correctly states that “the current emphasis on the standard four-year degree may be misplaced” and that most jobs will call for two-year degrees, occupational certificates, or apprenticeships.

That is an important point. Ever since the Johnson administration, federal higher education policy has been built on the premise that the more students who earn B.A. degrees, the better. Romney apparently is willing to deny that and acknowledge that much of the preparation for work is best done outside of formal college degree programs.

The writers of the paper also grasp that the abundant federal aid (grants and loans) to students helps to drive up the cost of going to college. They grasp that many students are left with large debts whether or not they complete their degrees and that, with default rates rising, taxpayers are going to be left on the hook for a lot of unpaid college expense.

What would logically follow from those observations is that federal policy should no longer lure young people into the quest for those standard, expensive four-year college degrees.

Unfortunately, the paper does not call for any serious change in the status quo. Its big summary merely says, “A Romney Administration will address these challenges by improving access and affordability, promoting innovation, and ensuring transparency about performance.” We’re only promised some tinkering with our high-cost, low-efficiency system and as we’ll see, the tinkering isn’t very good either.

Access and affordability—those lovely words trip off every politician’s tongue when the subject is higher education. The essence of our problem is that we have already way overdone it with regard to access and affordability. Due to the ingrained idea that going to college makes everyone more productive, we now encourage even the least academically inclined high school graduates to enroll in college by telling them that with a degree they’ll earn much more money. The federal government helps in that Pied-Pipering by putting plenty of money in students’ pockets, spendable only at accredited colleges.

Getting into the business of financing higher education was one of the country’s worst decisions. Unfortunately, Romney doesn’t show any interest in undoing it, even gradually. His paper proposes to “simplify” the federal student aid system, but the problem is not its complexity but rather that it is so easy for so many students, regardless of their academic ability, to get so much money out of it. Assuming that there are savings from “eliminat[ing] programs that are duplicative, inefficient, or ineffective” the funds would be concentrated “directly on helping students.” Sounds nice, but that’s just tinkering around with a flawed concept.

That Romney doesn’t want anything but cosmetic changes was evidenced in April when he hastened to match President Obama in declaring that the interest rate on federal student loans must not be allowed to rise from the ridiculously low rate of 3.4 percent to 6.8 percent. Rick Hess of the American Enterprise Institute accurately labeled this a bipartisan panderfest.

The only hint of substantive change is that a Romney administration would “refocus Pell Grant dollars on the students that need them most.” It’s true that quite a few Pell grant recipients are not from needy families, as the Pope Center’s recent study demonstrated, but restricting Pell grants only to families making less than $40,000 per year would reduce the cost of the program by only 20 percent.

Tellingly, Romney’s paper does not advocate restricting Pell Grants to students whose weak academic abilities make it unlikely that they would derive much benefit from college studies. That would reduce costs much more, and, crucially, would also attack the main problem of weak students being lured into college.

Another apparent change that the Romney paper trumpets is giving students better information about the costs and benefits of college so they can make more informed choices. We’re informed that a Romney administration would create “consumer-friendly data on the success of specific institutions” so that students would know about graduation rates, future earnings, loan repayment rates, and so on.

Here’s the trouble. At best, doing that might cause some students to choose a different college than otherwise; it does nothing to reduce the overall number of students going to college who ought to be pursuing some other course after finishing high school. Putting that information in front of students and their parents might lead some to make worse school choices than otherwise. Here’s why.

Let us say that a student is considering College A and University B. The federal government’s data show that College A has a 25 percent graduation rate and University B has a 33 percent graduation rate. University B would appear to be the better choice, ceteris paribus.

Not so fast. There are imponderables hidden in the data. What if University B achieves its “better” graduation rate by resorting to grade inflation and relaxing its standards? Perhaps the student is more capable and motivated than the typical student at either school and would probably fulfill the graduation requirements at College A and University B. Deciding not to enroll at the college on the basis of its lower graduation rate might be a bad mistake.

My point is that the choice of a college is so much a matter of individual fit that having a federal website chock full of those supposedly vital data is of very little value and maybe none at all. Further involving the federal government in higher education by providing information about colleges and universities is unnecessary; almost everyone can already find an abundance of such information as it is.

Equally unnecessary is another Romney foray—“to increase the opportunity to save and invest for higher education, particularly for low- and moderate-income families.” There is currently an array of college savings programs available to families no matter what their income level. Each state has a 529 Plan. The federal government has established Coverdell Educational Savings Accounts. Families can put money meant for college expenses into Uniform Gifts to Minors accounts. There’s no apparent reason why a Romney administration needs to reinvent this wheel.

Lastly, the white paper contains some nice rhetoric about moving away from “degrees based on time spent in the classroom” and toward measured competency. That shift, however, is already well under way. The federal government does not force students to undertake lengthy, expensive, and increasingly useless degree programs. Nor are federal regulations doing much to impede the growth of new and more pertinent kinds of education and certification, such as badges.

Summing up, the Romney paper fails to address the central problem of federal involvement in higher education, namely that its student aid programs continue to drive up the cost of college while luring in large numbers of students who ought to pursue some course other than college. Under the Constitution, the federal government has no role to play in education at all. Unfortunately, Romney doesn’t propose any discernable reduction in the large role it has come to play.

Mr. Leef is director of research at The John William Pope Center for Higher Education Policy in Raleigh, N.C. This essay is reprinted here with permission and may be seen with other Pope Center research articles at the Pope Center website.

 

You can’t win an argument this way

A higher education insider tries to respond
to a dead-on challenge to the orthodoxy.

George Leef / The John William Pope Center

As recently as, oh, five years ago, you wouldn’t have seen a column like The Washington Post’s Robert Samuelson’s “It’s Time to Drop the College-for-all Crusade” on May 27. The conventional wisdom that the more Americans who go to college, the better off we’ll all be used to go unchallenged in the mainstream media, but no more.

That signals the growing perception that higher education has been terribly oversold. Samuelson made much the same case that the Pope Center has been making for the whole of its existence: college has been dumbed-down to the point where many students learn little or nothing and even those who graduate are apt to find themselves working in jobs that really don’t call for more than basic skills and trainability. (more…)