Category Archives: Education (higher ed)

Tax Credit Scholarships Educate 1,400 Kids and Save Virginia $3 Million

St. Andrew's School in Richmond provides free educations to low-income students, predominantly minorities with a boost fro the Education Income Scholarship Tax Credit Program.

St. Andrew’s School in Richmond provides free educations to low-income students, predominantly minorities, with a boost from the Education Income Scholarship Tax Credit Program.

by James A. Bacon

When backers of the Education Improvement Scholarship Tax Credit were promoting their idea of giving philanthropists a 65% tax credit for donations to scholarship foundations, they predicted that the program would spur private-school scholarships and save the state money. Their logic was simple: For every 65 cents it lost in tax revenue, the state would save 90 cents in state aid to localities it didn’t have to pay.

But simple ideas often clash with messy reality. Among other potential complications, some recipient students might have enrolled in private school even without a scholarship. Other students might receive scholarships from more than one foundation. Now that the scholarship program has been in effect for three years, how does theory compare to actuality?

Pretty well. In 2014-2015 the tax credit helped nearly 1,400 kids from low- and moderate-income families attend private school. At the same time, it saved the Commonwealth of Virginia nearly $3 million in funding to localities. Those are the conclusions, based on actual donation, tax-credit and scholarship reports, reached in a legislative policy analysis by Christian Braunlich, past president of the Virginia  State Board of Education and vice president of the Thomas Jefferson Institute for Public Policy.

Here’s what the key numbers look like:


But the Old Dominion can do better. While Virginia has raised $6 million in scholarship money through its tax credit, Florida raised $358 million to help nearly 27,000 low-income students, Georgia has raised $58 million to assist 13,000 students, and Pennsylvania has raised $100 million to benefit 38,000 students. True, all three states are more populous than Virginia, but the key differentiator is that they offer tax credits of 90% to 100%.

Hiking Virginia’s tax credit from 65% to 90% would generate an additional 3,800 scholarships in Virginia, and increase the size of the scholarships, Braunlich projects. The state still would fare no worse fiscally than if the tax credit didn’t exist. Meanwhile school districts would be able to devote the same local and federal funds to a smaller number of students.

Bacon’s bottom line: Let’s expand the tax credit. I’d be interested to hear arguments against it, but I suspect critics will sing the old refrain that helping children attend private school will hurt public schools by depriving them of resources (downright false) or “cherry picking” the best students (highly debatable and irrelevant). The underlying motive, of course, is to preserve the public school monopoly and protect the interests of all those who feed at that trough. Commitment to the educational establishment trumps the welfare of low-income children.

Slaying the Debt Dragon – or Feeding the Beast?

slaying_debt_dragonby James A. Bacon

There aren’t many things that almost everyone across the ideological spectrum agrees about, but one of them is that indebtedness from student loans is out of control. Here in Virginia, about one million students owe roughly $30 billion, according to the Richmond Times-Dispatch — or about $30,000 each on average.

The loan burdens can be difficult enough for students who graduate with degrees, but the debt can be devastating for those who don’t complete their degree requirements and don’t achieve the earning power they expected. Commenting on the Richmondsunlight website, Ruth Hall asks:

What about a person who becomes disabled before completing their education? Where is the concern for them regarding paying back student loans when their only source of income is social security disability? My daughter has a rare disease (as defined by the NIH) that struck her in her early 30’s. She is unable to work, but her social security disability check is garnished to pay her outstanding student loans. Already living in poverty with an income of $1000 a month, losing $150 a month to student loans affects her ability to provide for herself. Student loans never go away and she will never be able to finish college or return to earning a living due to this rare disease.

But not all debtors inspire the same degree of sympathy. The Times-Dispatch quotes one student griping about the $250,000 cost of his education, including the interest on the $190,000 he borrowed to attend the University of Virginia and the University of Richmond Law School. Is his complaint really with the debt and interest — or with the outrageous cost of higher education? The young man worries that he might have to sacrifice his career in public interest law. Perhaps he should have considered the consequences such a massive debt before embarked upon that particular goal!

Another student said she didn’t realize she owed $32,000 for a nine-month medical assistant diploma from Corinthian College, which she says turned out to be worthless, until it showed up on her credit report. She said she had been told grants and scholarships would cover her costs. “I still to this date have never received a bill” or documentation, she said. Either she was defrauded, in which case she should collect damages in a civil suit, or she was negligent in understanding the obligations she was incurring, in which case it’s hard to muster much sympathy.

Regardless of the circumstances of individual loans, it’s clear that thousands of Virginians have a problem. The question is, what do we do about it?

Sen. Janet Howell, D-Reston, and Del. Marcus Simon, D-Falls Church, are lead patrons of SB 52 and HB 400 respectively, identical bills that would create a Virginia Student Loan Refinancing Authority. The Authority would be tasked with creating a program in which Virginia students with educational loan debt “may receive a loan from the Authority to refinance all or part of his qualified education loans.”

Where would the money come from to refinance the student loans? The Authority would issue bonds. However, the Commonwealth of Virginia would take on no financial risk. The bills explicitly state: “No bond of the Authority shall constitute a debt or pledge of the full faith and credit of the Commonwealth or any political subdivision of the Commonwealth and each bond shall be payable solely from the revenues and other property pledge for such payment.”

Bacon’s bottom line: Howell and Simon deserve credit for devising an innovative approach to the problem of student indebtedness. I have major reservations, but I think their idea deserves deserves thorough airing and debate. The devil, of course, is in the details.

Investor appetite for the Authority’s bonds will determine how much money the Authority will have to work with and how many students it can help. I would like to know how prospective bond underwriters would evaluate the quality of the debt, what interest rates they would demand, and what flexibility the Authority actually would have to offer students better loan terms. I presume that the bonds would be classified as tax-free municipal debt, which would be cheaper than private-market financing. On the other hand, participating students , presumably those with the greatest need, pose a higher-than-normal risk of default, which could push interest rates higher.

Currently, the federal government assumes the risk for student loans gone bad. A Virginia student loan authority would assume that risk for the debt that it restructures. The transfer of risk needs to be examined very carefully. Even if the state’s full faith and credit weren’t on the line, bond defaults by the Authority would be a debacle for the state.

Otherwise, my main reservation is that creation of a Virginia Student Loan Refinancing Authority is only a palliative. This proposal would not address the underlying causes of the problem — out-of-control costs at Virginia colleges and universities, and indiscriminate lending by the federal government regardless of a student’s likelihood of repaying their debt. That’s what got us into this predicament, and anything that dulls our laser-sharp focus on those realities only delays addressing them.

A Moral Choice: Economic Development or Lower Medical Charges?

cfphby James A. Bacon

Building on its plans to establish a Center for Personalized Health, Inova Health System is forging a partnership with George Mason University that will allow physicians, researchers and clinicians to work together on personalized medicine research, the two institutions announced yesterday. (See the Washington Business Journal article here.)

Inova will contribute $2.5 million in seed funding to the partnership and work with GMU to raise more money over the next few years. Much of the activity will take place in the former Exxon Mobil campus in Merrifield that Inova had previously purchased for $180 million. Inova’s plans also include a $250 million cancer institute, to be funded in part by a large donation by real estate mogul Dwight Schar. The larger vision is to build a health “ecosystem” devoted to the research, education and treatment of complex disease therapies tailored to an individual’s genetic make-up.

Meanwhile, GMU has unveiled a $40 million Advanced Biomedical Research building, rebranded its Prince William County location as its Science and Technology Campus, and started construction on a $73 million health sciences building.

These developments represent a welcome diversification of the Northern Virginia economy, which has been overly dependent upon defense, intelligence and homeland security spending by the federal government. Governor Terry McAuliffe understandably praised the latest announcement as a step in developing the “new economy” in Virginia. With characteristic enthusiasm, he said the new personalized-medicine campus could become a world leader. ” I love it because this agreement here is going to take us to the next level. … I want this facility to be the greatest in the globe.”

But the investment spree raises moral questions. For the most part, Inova Health System’s funding comes from its hospital operations. The not-for-profit Inova, which exercises near monopoly dominance in the Northern Virginia health care market, generated operating income of $218 million in 2014 on $2.7 billion in operating revenue. That’s a profit margin of about 8%, more than twice the profitability that non-profits normally need to maintain healthy operations. That translates into about $109 million in what one could classify as excess profit.

Unlike a for-profit company, Inova is not obligated to maximize profits. To the contrary, insofar as the company is exempt from taxes and has a community mission, one could argue that it is morally obligated to (a) reduce charges to patients afflicted by ever-escalating medical bills or (b) provide more care to low-income patients not covered by Medicaid.

To be sure, Inova does provide a significant volume of charity care. Its flagship hospital, Inova Fairfax Hospital, provided $151 million in 2014, according to Virginia Health Information. But the company’s high level of profitability suggests that it could do more.

Instead, Inova has chosen to plow its excess profit into economic development. I have no doubt that the personalized medicine initiative will benefit the Northern Virginia community in the long run by creating a new economic pillar in the region. The funds to do that are not likely to come from any other source. But it’s important to understand the trade-offs that Inova’s board is making here. It is extracting wealth from the community to bulk up the profits that grow the Inova empire. The people paying higher medical bills are not necessarily those who will benefit from the investment in the Center for Personalized Health.

Would I make the same decision if I served on the Inova board? Perhaps I would — I don’t know. But I’d like to hear all points of view presented. It’s a decision in which the public should have a voice.

The Revolution in Online Education Nearing Takeoff

Well, you don't get the ENTIRE Georgia Tech experience with an online degree. The $31,000 cost differential has got to buy you something.

Well, you don’t get the ENTIRE Georgia Tech experience with an online degree. For an extra $31,000, the bricks-and-mortar experience has got to buy you something.

by James A. Bacon Jr.

The revolution in online education continues. It’s just taking longer than it should.

Two years ago, the Georgia Institute of Technology partnered with Udacity, a company that runs massively open online courses (MOOCs) and ATT to launch an online masters degree in computer science charging a fraction the cost per credit hour. Georgia Tech was staking its academic reputation on its ability to deliver a quality education online. (Here was my spin on the story at that time.)

So, how is the program working two and a half years later? According to a Wall Street Journal update, the online program has evolved but looks like it has staying power. The program is “relatively massive” with 2,789 students enrolled this semester compared with 312 in the campus-based program. And it’s on track to turn a profit by May.

If there are any drawbacks, it’s that students are moving through the program at a slower pace than the school predicted. “It’s not like they’re not making progress,” said Charles Isbell Mr., senior associate dean at the College of Computing. “They’re making progress at a more leisurely pace than we expected.”

But that should come as no surprise given that many students are juggling their online courses with full-time jobs. Sandip Agrawal, didn’t want to leave San Francisco or his job as a Google software engineer so he enrolled in the Georgia Tech program to build his technical skills and professional credentials, said the WSJ. The alternative to the Georgia Tech degree would have been stringing together a few massive, open online courses and forgoing an accredited degree. That George Tech degree, by the way, will cost $7,000 compared to $38,000 for the bricks-and-mortar version, and Agrawal continues pulling in a salary.

Little wonder that Georgia Tech’s Isbell says it wouldn’t surprise him if in three years from now the program will be enrolling 10,000 students. Says he: “This is sustainable and this is scalable.”

Bacon’s bottom line: Here in Virginia, tuition and fees are still rising faster than inflation and incomes. A generation of students is agreeing to a life of indentured servitude in order to obtain a college degree (all too often, never even completing the degree requirements). There will always be a market for the four-year “residential” experience with football games, face-to-face interaction with professors, tossing frisbees on the quad, drunken frat parties and kvetching about racism and the rape epidemic on campus. But the residential experience, which seems so distressing to so many, is increasingly becoming a luxury product for the affluent classes. It is not a viable alternative for hundreds of thousands of Virginians. Something has got to change — and it will.

$1 Billion in Bonds for R&D Initiatives

Virginia Tech robotics competition team

Virginia Tech robotics competition team

by James A. Bacon

Governor Terry McAuliffe has unveiled a $2.43 billion bond package, about $1 billion of which will go to Virginia colleges and universities for technology initiatives.

“The bond package represents the largest research-oriented capital investment in the Commonwealth’s history as well as the largest state investment,” states the press release issued by the governor’s office. “The chief focus of this bond package will be strengthening research and workforce development in high-demand fields at Virginia’s four-year institutions of higher learning and community colleges.”

Stated McAuliffe in making the announcement at the Virginia Commonwealth University (VCU) Medical Center yesterday: “If we are going to build a new Virginia economy, we must make smart investments in research, higher education, veterans, public safety, tourism and environmental stewardship that will yield returns for decades to come.”

The proposed bond issue will allocate $100 million over two years in “competitive grants for research activities,” and $40 million over two years “in cash incentives for research and matching funds to secure federal grant funding.” Funds will be used to renovate research labs, purchase equipment and attract top talent to higher education institutions. The state will leverage the funds through public-private initiatives and by focusing on centers of excellence.

“The goal of the research component of this initiative is to put Virginia on the map as the best place in the nation for entrepreneurs to start their businesses and design the next generation of revolutionary products,” states the announcement.

Another $850 million will go to new buildings, labs, classroooms and renovations at VCU, VirginiaTech, Old Dominion University, the University of Virginia, Longwood University and several community colleges.

Bacon’s bottom line: The top priority of any bond package is to fit within the financial parameters — debt service accounting for no more than 5% of total revenue — required to maintain Virginia’s AAA credit rating. I presume that McAuliffe scaled the size of the $2.4 billion proposal to the bond-issuing capacity that will be freed up by retirement of old debt and the anticipated growth of state revenue projected over the next two years.

As for funding priorities, McAuliffe’s instincts are right — we need to invest in the industries of the future, not prop up the industries of the past. The assumption underlying his initiative is that pumping money into university buildings, labs and research programs will help build the industries of the future. Such a conclusion seems intuitively obvious but bears examination. As we move in for a closer look, questions arise:

(1) To what degree is R&D lab space and equipment a constraint on recruiting research scientists (and the grant money they bring with them) to Virginia universities? Is McAuliffe proposing the R&D equivalent of shell buildings used to entice manufacturers? Build it and they will come?

One could make the argument that the hard part in building an R&D program is recruiting star scientists, not building buildings and labs for them. Say Virginia Tech, UVa or VCU could land a research scientist who would bring $10 million in federal or industry research dollars with him. Surely it would be a relatively modest a challenge to find him (or her) lab space and equipment in short order. Might there be other ways to recruit star research scientists — to pay them more, for instance, as Texas has used a bond issue to do.

(2) To what extent will higher R&D spending at Virginia universities result in the local commercialization of technology, creation of opportunities for local entrepreneurs and local job creation? Tech, UVa and VCU all can point to anecdotal success stories, and each can point to research parks that have filled up with tenants. But add it all up, and what does it amount to? Do Blacksburg, Charlottesville and Richmond have the support resources — tech-savvy management, early-stage capital — required to leverage R&D into spin-off jobs in the local economy?

Northern Virginia has Virginia’s most advanced technology sector, the deepest technology management bench to recruit from, and the most advanced venture capital sector. If spinning off entrepreneurial opportunities is a key part of the mission, wouldn’t it make sense to build the R&D capacity of Northern Virginia’s largest institution of higher ed, George Mason University? GMU doesn’t even get broken out in the list of universities receiving funding support. What the heck is going on? Continue reading

The “Anti-College”

MIT drop-out Jeremy Rossman moved to California and started an “anti-college.” Students don’t pay tuition — they pay a percentage of future earnings. They don’t get grades or take exams. They make stuff.

Will it work? Who knows. But wild-and-crazy experiments like this are both a symptom of the higher ed crisis and an indicator of the disruptive change that the crisis will engender. If higher ed were a stock, it would be time to start selling short.


Hosing the Middle Class: Campus Edition

UVa college bookstore

UVa college bookstore. Don’t get me started…

by James A. Bacon

Paige Taul, a 19-year-old University of Virginia student, earns $8.25 as a cashier at a college bookstore. Assuming no taxes were taken out of her paycheck, she would have to work about 80 hours to earn the $657 that UVa charges its students through fees to support the athletic program.

“Wow, that doesn’t seem fair,” Taul told the Washington Post, in an article about the cost of college sports. The irony is that Taul, who expects to graduate with about $30,000 in debt, doesn’t go to football games. As the Post dryly observes, “She’s too busy working.”

“Athletics is a common good, bringing people together, developing relationships, unifying the institution, bringing fantastic exposure,” said Virginia Athletic Director Craig Littlepage. While UVa’s football team is nothing to brag about, its basketball team last year flirted with greatness, and the university is a perennial powerhouse in lacrosse, tennis, soccer and golf. But maintaining those programs is expensive. In 2014, $70.5 million in athletic department revenues had to be supplemented by $13.2 million in student fee income to keep the programs going.

That $657 fee is a not-insignificant contributor to the cost of attending the University of Virginia, where in 2015 total tuition, fee, room, board, textbooks and miscellaneous expenses amounted to about $28,800. (The cost is about $10,000 higher for out-of-state students.) The problem of escalating costs has gotten so bad that the Board of Trustees approved a new plan that will jack up tuition by $2,000 over two years to raise money for financial aid for the lowest-income students… but makes education even more unaffordable for middle-class students.

Here’s my question: Why does the Board of Trustees require students like Taul to subsidize the athletics program? Why can’t the athletic program support itself? Does UVa really need to field nationally competitive teams in tennis, golf and soccer that generate next-to-zero revenue? It strikes me that the university’s priorities are severely out of whack.

Higher ed has lost its moorings. Virginia needs a new kind of higher ed institution that provides a stripped-down service — an education without the bells and whistles — for an affordable price. Actually, that’s not a new idea. That’s the kind of education once provided by the old “commuter colleges” like George Mason University and Virginia Commonwealth University before they reinvented themselves as residential institutions aspiring to national status, and it’s the kind of education that many European universities provide today.

Middle-class families are in desperate straits, squeezed by stagnant incomes, soaring medical bills and the ever-escalating cost of a higher education (the entry ticket for a middle-class occupation). Higher ed has failed the middle class miserably. UVa’s top fiscal priority at present is to help low-income students and high-income faculty. The “Affordable Excellence” plan will ensure that no low-income student accrues more than $4,000 in need-based loans over four years. The plan also aims to make the salaries of full professors, which average $156,900 this year, more competitive with those of other elite institutions. The goal is to achieve a Top-20 ranking faculty salary ranking among institutions in the Association of American Universities.

What’s in the Affordable Excellence plan for Virginia’s middle-class students? Free football tickets! … Assuming they can make it to the games.