Category Archives: Education (higher ed)

The Tricky Issue of Bad Debt and For-Profit Colleges

ati_profile

Source: College Scoreboard

by James A. Bacon

State higher education officials are scrambling to deal with the fallout if a federal agency votes to terminate the Accrediting Council for Independent Colleges and Schools (ACICS), an accrediting agency for for-profit colleges. ACICS-accredited institutions, which include Stratford University and the Bon Secours and Sentara nursing schools, among others, enroll 9,000 students in Virginia.

A loss of accreditation would drop a guillotine blade on most of these institutions, whose students overwhelmingly depend upon federal grants and loans to pay their tuition. In a separate regulatory action, the recent shuttering of ITT Technical Institute stranded thousands of students around the country.  ITT had five locations in Virginia.

longwood_profile

Source: College Scoreboard

In a meeting yesterday, the State Council of Higher Education for Virginia (SCHEV) approved a contingency plan that would give an 18-month grace period to ACICS-accredited colleges, reports the Richmond Times-Dispatch. The measure is designed to let the colleges time to find new accreditation.

The Obama administration has cracked down on for-profit colleges, many of which report low graduation rates and low earnings upon graduation, while saddling students with high debts. For-profit institutions have contributed disproportionately to the mounting problem of borrowers unable to repay their student loans.

Bacon’s bottom line: The Obama administration is right to address the problem…. which it helped create in the first place by declaring a goal of helping every American who wanted to attend college to do so. The U.S. Department of Education undertook a massive expansion of federal grants and loans. Some of the “colleges” responding to the new opportunity, I suspect, were founded by quick-buck artists to capture student aid dollars with little regard to the quality of education they were providing. Indisputably, many educational institutions have shamefully low graduation rates and offer poor job prospects even when students do graduate. But in moving to correct the abuses, the administration is moving ham-handedly.

south_university_profile

Source: College Scoreboard

For-profit colleges are a mixed bag. Some do a commendable job. For instance, the Advanced Technology Institute in Virginia Beach, which has 717 undergraduates, has a graduation rate of 70%, and an average salary of $38,000 ten years after attending. That is comparable to, say, Longwood University, with a graduation rate of 65% and $39,600 average salary, according to the U.S. Department of Education College Scorecard.

ECPI University, also in Virginia Beach, has graduation and earnings metrics roughly comparable to Virginia State University, while American National University in Salem shows results similar to those of Mountain Empire Community College in far Southwest Virginia.

At the bottom of the heap, there are ten for-profits that can’t even report complete information to the College Scorecard. Among those that do report graduation rates, Stratford University in Fairfax and the University of Phoenix in Henrico matriculate only 12% of their students. But any comparison gets tricky. The graduation rate for John Tyler and J Sargeant Reynolds community colleges in the Richmond region is only 13%. Are the for-profits really any worse? It’s impossible to say from a superficial review of the data.

The fact is, some for-profit colleges provide an educational option geared to people working full time, and programs that provide specific job-related skills such as criminal justice, dental assistance, auto mechanics, message therapy, HVACs, and the like. Moreover, career colleges cater disproportionately to blacks and Hispanics. Shutting down legitimate for-profit colleges destroys a potential avenue of upward mobility for minorities.

From a high-altitude perspective, however, helicoptering easy money to students has led to a misallocation of hundreds of billions of dollars — encouraging millions of students to pursue educational programs that either they were academically unprepared for or, for reasons of personal circumstance, were unable to complete. The result has been the rise of an indebted class, whose obligations many politicians now want to transfer to the taxpayer.

As a nation, we need to bring the student-debt bubble under control. The question is, what is the best way to accomplish that goal? Do we target the worst-performing for-profit institutions, even while some community colleges show comparable graduation and earnings metrics? Or do we focus on the individuals taking out the loans, recognizing that some have academic backgrounds and life circumstances putting them at higher risk of failure and eventual default? In the old days, lenders evaluated applicants on the odds of getting their money repaid. The federal government appears to be unwilling to take that step. Instead, it sets no standards of credit-worthiness, lends money to anyone, and puts for-profit colleges out of business when the results get ugly.

DeSteph’s “Relentless” Search for the Truth at UVa

uva_fog_smallby James A. Bacon

The controversy over the University of Virginia’s $2.2 billion Strategic Investment Fund may have settled down since a state auditor determined in August that the controversial pot of money was in full compliance with Virginia law. But William R. DeSteph, Jr., R-Virginia Beach, isn’t satisfied. He has released correspondence expressing his ire at university officials for keeping legislators and the public in the dark.

“My confidence in the forthrightness of the University’s leadership has been undermined by its own contradictory statements and numerous private conversations about public matters,” DeSteph wrote in a Sept. 14 letter addressed to UVa President Teresa Sullivan. It was a matter of “grave concern,” he said, that she continued “to refuse to provide the public records requested by my colleagues and me.”

“If you and the University’s leaders persist with obvious disingenuous efforts to keep the doors closed and Virginia in the dark,” he wrote, “you will only reinforce the nation that something’s amiss.”

DeSteph’s sentiments echoed those of a Sept. 8 letter that Del. Terry G. Kilgore, R-Gate City, had addressed to Sullivan and Rector William H. Goodwin Jr.: “Our concerns have always been that not only did the public not know about [the fund], much less where to look, but also that clearly neither did your Board of Visitors nor we as legislators charged with keeping a tight rein on the public’s purse.”

The existence of the fund was revealed by former Board of Trustees member Helen Dragas in a Washington Post op-ed shortly after she left the board this summer. She charged that board members had been coaxed into raising the tuition for incoming first-year students by 10% without understanding that income from the fund, estimated to be about $100 million per year, could have been used to offset tuition increases. University officials planned to use the money to recruit star faculty, enrich the student experience and provide financial aid for lower-income students as part of a longer-term plan to boost UVa into the ranks of the Top 10 universities nationally.

Critics contend that, while what UVa did was legal in setting up the Strategic Investment Fund, the process was opaque to the public, the legislature and even some members of the Board of Trustees. They also charge that the first full explanation to the board of the purpose to which the fund would be put was held in a closed session in likely violation of Virginia’s Freedom of Information Act.

A joint Senate-House subcommittee of the General Assembly held a hearing last month to look into the matter. A state auditor showed how UVa had consolidated various reserves and other restricted funds and handed them to the University of Virginia Investment Co. (UVIMCO) to invest, which it did successfully. The actions were legal, properly accounted for, and fully disclosed in university documents, the auditor said.

In pursuing their inquiries, DeSteph and his legislative allies have asked for voluminous information from the university. In a Sept. 2 letter to DeSteph, Sullivan referred to “thousands of pages of document that we have already provided in response to your requests.”

According to a Sept. 9 letter to DeSteph, Senate Majority Leader Thomas K. Norment Jr., R-James City, had advised Sullivan that “any and all legislative requests for information on this matter would come either through the Joint Subcommittees or the respective Committee Chairs. … It is important that any requests for information be focused and pertinent to the use of the Fund to advanced the University’s mission.”

However, DeSteph, Kilgore and others were not satisfied. As DeSteph wrote to Senate Majority Leader Thomas K. Norment Jr., R-James City:

The issue has never been the legality of the fund. Instead, the issues have always been the University’s administration disguised the money, had private conversations with just a handful of the Board of Visitors’ leadership about how to spend public money and the investment income off of this public money, and convinced the Board to go along with its plans in an illegal closed session while simultaneously instructing members to keep them a secret from us and the public. …

Rector Bill Goodwin has been far less than candid over the course of numerous conversations, I’ve been given the run-around by President Terry Sullivan, and plainly told by Pat Hogan, the University’s chief operating officer, that what’s gone on is none of my business. Continue reading

Boomergeddon Watch: Student Debt Relief

debt_reliefby James A. Bacon

It should surprise no one that Hillary Clinton is advocating free college tuition and  loan forgiveness for millions of students in an attempt to appeal to the Millennial vote. But the pandering of presidential candidates doesn’t begin to plumb the depths of perversity in the American political system. Now industry is joining the cause. Reports the Wall Street Journal:

Real estate agents, farmers, architects, startup lenders, lawyers, tech companies, benefits administrators — even podiatrists — have sent lobbyists to Capitol Hill over the past two years to push for legislation to forgive or at least reduce what workers and consumers owe on their student loans. … Many industries argue that freeing up student debt, even for well-paid workers, would help the economy.

The proposal with the most traction, says the WSJ, would allow employers to contribute up to $5,250 a year toward an employee’s student debt without it being taxed.

The bald self-interest of these industries is appalling. To be sure, forgiveness of all or part of the $1.3 trillion in student debt would stimulate consumer spending — Millennials could buy more houses, more cars, more consumer goods. But such measures would pass on the cost to taxpayers, and it would ratchet up moral hazard to unprecedented levels.

It is mind-numbing to me that anyone is considering massive debt relief that would reward the profligate and irresponsible while punishing those who dutifully paid off their obligations. But why not? After all, we bailed out Wall Street after the real estate crash. We bailed out Detroit. We hand out tax breaks to big business like John D. Rockefeller tossed out dimes. We allow affluent home owners to deduct mortgage interest from their taxes. Now Donald Trump wants to hand out billions for a day care entitlement. There’s no end to the goodies we dispense, so what’s one more multi-billion-dollar giveaway?

The blindness is breathtaking. Despite sequestration, despite the expiration of the Bush tax cuts, despite a zero interest-rate monetary policy, despite continued (though tepid) economic growth, the Congressional Budget Office says that the post-recession trend of declining deficits is over, and that spending shortfalls will continue to increase every year, pretty much forever, and so will the national debt.

projected_deficits

Adding another entitlement — a higher-ed entitlement — rather than addressing the underlying problem of rising college tuition will only accelerate America’s march to Boomergeddon. This cannot possibly end well.

Bacon Bits

bacon_bitsThere are so developments today in stories that Bacon’s Rebellion has been following that I am compelled curtail my usual bloviating and turn the commentary over to readers.

A wise policy. The University of Virginia’s College at Wise has earned a worthwhile distinction: It is ranked 1st nationally in public liberal arts colleges for graduating students with low debt (based on the latest US News & World-Report annual college guide data). “More than half of the UVa-Wise Class of 2015 graduated without any debt, and the average amount of debt for UVa-Wise graduates who used student loans totaled $14,424 in 2015,” says the university.

How did the university manage the feat despite having a student body in which three-quarters qualify for financial aid and one-third come from families that make zero contribution toward tuition? Well, its annual tuition & fees, at $9,220 this year, are the third lowest in the state. And it dedicates about 60% of its $80 million endowment to scholarships. (Hat tip: Marvin Gilliam.)

VDOE steps in. Responding to a Norfolk school scandal, the Virginia Department of Education will review a measure to curtail the practice in which schools move students with low grades into different classes to avoid having them take their Standards of Learning test, reports the Virginian-Pilot.

Steven Staples, Virginia’s superintendent, said he supports schedule changes to help the student but not to avoid testing. “The department has tried to clearly communicate to all divisions that manipulating schedules or changing courses for the purpose of avoiding accountability is not acceptable,” he told the Pilot.

Dueling protocols. Tests conducted by the James River Association and the Southern Environmental Law Center show elevated levels of lead and arsenic in sediment and water samples near the Chesterfield Power Station. “One thing this tells us is that we should be getting more data,” said SELC attorney Brad McClane.

The findings follow tests that the Department of Environmental Quality (DEQ) conducted in July that raised no red flags. “DEQ found no violations of the water quality criteria in the sampling locations that SELC,” spokesman Bill Hayden told the Richmond Times-Dispatch. … The data presented to DEQ do not conform to the testing regimen used in Virginia.”

Results can vary depending upon tidal conditions, the depth of the water column sampled, and how far from the station the samples are pulled, McLane said. “We’re performing sampling in a way to find problems if they exist.”

Dominion Virginia Power, which operates the Chesterfield station, is still reviewing the law center tests, a company spokesman said.

Universities as Economic Engines

Source: "The Economic Impact of Universities: Evidence from Across the Globe"

Source: “The Economic Impact of Universities: Evidence from Across the Globe”

by James A. Bacon

The world’s first university was founded in 1088 in Bologna (in what is now Italy). The idea of bringing scholars together in a dedicated institution caught on. In time, universities were established throughout Europe, the United States and the rest of the world. Almost every country has a university today, with Bhutan in 2003 being the latest nation to open its first. The proliferation of universities has coincided with the accumulation of knowledge and growth of the global economy. Scholars (most of them employed by universities, as it happens) have debated the extent to which universities have contributed to that growth.

Drawing upon a 60-year database of nearly 15,000 universities in 1,500 regions across 78 countries, Anna Valero and John Van Reenen with the London School of Economics think they have an answer. “Doubling the number of universities per capita,” they say, “is associated with 4% higher future GDP per capital.”

Perhaps most significantly for readers of Bacon’s Rebellion, universities appear to have positive spillover effects to neighboring regions. In other words, the effect is felt locally and regionally, not just nationally.

Writing in “The Economic Impact of Universities: Evidence from Across the Globe,” Valero and Van Reenen posit several channels by which universities affect growth.

Perhaps most obvious and easy-to-measure impact is the demand created by students, staff and universities’ purchase of local goods and services. Like any other primary industry, universities provide a service (higher education) that pumps income into the region where it resides. The effect is especially positive when costs are financed through national governments from tax revenues raised mainly outside the region in which the university is located.

But there are other channels. Universities produce human capital, nd skilled workers tend to be more productive than unskilled workers. Universities also spur innovation. The innovation effect is both direct, as when university researchers themselves produce the innovations, and indirect, as graduates enter the workforce and innovate. A third channel is by fostering pro-growth institutions. “Universities,” write the authors, “[provide] a platform for democratic dialogue and sharing of ideas, through events, publications, or reports to policy makers.”

None of this is earth-shattering stuff, although the computation that a doubling of universities per capita results in a 4% increase in wealth is interesting. And there is ample room to refine the conclusions. The authors concede that their methodology does not adjust for the size or quality of universities. All other things being equal, one would expect that a large, prestigious university would have a larger positive impact on the regional economy than an obscure, als0-ran institution.

Bacon’s bottom line. But the study provides a useful reminder as Virginians think about what they expect from their public education system — especially the flagship institutions of the University of Virginia, the College of William & Mary, and Virginia Tech. On the one hand, we want to make high-quality higher education affordable and accessible to Virginians. On the other, we like it when universities function as engines of local and regional economic growth. Insofar as it takes money for universities to generate bigger payrolls, R&D contracts, business spin-offs and other economic benefits, institutions that most effectively extract revenue from whatever source, including their students, will tend to be more powerful economic engines.

The trade-off is most clearly evident at UVa where administrators devised a way to cobble together a $2.2 billion pool of capital capable of throwing off roughly $100 million a year in unrestricted funds. The Board of Visitors voted to dedicate that money to enhancing the prestige of the university, indirectly stimulating economic growth, rather than lowering tuition & fees in order to make a UVa education more affordable.

I have criticized the board’s decision; I think the university has lost its way by embracing the Ivy League high tuition/high aid financial model that exploits its student body, especially middle-class students who struggle to pay the massive bills but don’t quality for student aid. But I also acknowledge that the UVa approach does have the advantage of creating economic growth. If the university were a company that, to pick a fanciful example, developed and manufactured leading-edge smart phones, for which it charged ever-higher prices and plowed revenues back into growing its business operations, Virginians would applaud it as an economic champion.

The higher ed affordability crisis is very real. But so is the economic contribution of Virginia’s universities. We need to strike the right balance between the two.

Highlighting the Higher Ed Dropout Factories

Mobility_metric2

Click for larger, more legible image.

by James A. Bacon

The affordability crisis for American four-year colleges and universities is in part a problem of high tuition and fees, but it’s also a problem of low graduation rates, contends a new study by Third Way, a centrist think tank.

“A typical four-year public college graduates only 48.3% of first-time, full-time students within six years of enrollment,” states the report, “What Free Won’t Fix: Too Many Public Colleges Are Dropout Factories.” “That means first-time, full-time students that enter the average public institution are more likely to NOT graduate than they are to graduate from the school where they first enrolled.”

Among other key findings, based upon the Department of Education’s College Scorecard data:

  • At the average four-year public college, nearly four in ten loan-holding students are unable to earn more than $25,000 (the expected earnings of a high school graduate) six years after enrollment.
  • At the average four-year public college, 22.2% of students who had taken out loans were unable to begin paying down their loans three years after leaving school. By comparison, the mortgage delinquency rate peaked around 10% during the height of the 2010 housing crisis.
  • Price has little relationship to outcomes. Low-performing schools actually charged higher net tuition than schools with superior outcomes.
  • The worst-performing schools tend to have higher concentration of Pell grant recipients.

Third Way compiled a “mobility metric” for 535 public, four-year institutions incorporating a variety of factors: net price (the amount paid after financial aid has been factored in) for students from families making less than $48,000 a year; the percentage of students who receive Pell grants (typically from families earning less than $50,000 a year); completion rates within six years; percentage of students receiving financial aid earning $25,000 annually six years after enrollment; and the repayment rate on federal loans three years after students leave school.

“With outcomes like these,” concludes the report, “it is clear that simply addressing the rising cost of college isn’t sufficient to ensure students are being equipped with the degrees and skills they need to succeed.”

Bacon’s bottom line: I highlighted the Virginia public institutions in the table above. Overall, Virginia’s public college system fares well by this set of metrics, with the University of Virginia the No. 3 performer in the country. Eight of 15 institutions rank in the top quintile. However, two rank near the bottom, and several others have nothing to brag about.

I have criticized the University of Virginia for its aggressive tuition increases, but Mr. Jefferson’s university does deserve credit for making tuition more affordable for poor students and ensuring that its students graduate on time.

By contrast, the track record for Norfolk State University and Virginia State University, two historically black universities, is abysmal. The completion rate is low, post-graduation salaries are low, and the loan repayment rate is low. On the one hand, NSU and VSU provide an educational option for students from poor black families seeking to better their condition through higher education. On the other hand these institutions are hobbling thousands of students who fail to graduate, or fail to earn good jobs even if they do graduate, with thousands of dollars in debt that will haunt them for years.

We should ask whether these two institutions, as well as some for-profit “career schools” not listed here, do more harm than good. We should ask whether the federal government should be encouraging students to borrow heavily to attend four-year colleges when many would be better off earning community college degrees or not attending college at all. We should ask whether handing out lots of free money (Pell grants) and easy money (college loans) is alleviating poverty or making it worse. Finally, we should ask whose interests are being served — the higher ed establishment’s or the student’s — by perpetuating this massive wealth transfer.

The New Idle Class: Men

fat_guyby James A. Bacon

Earlier this week, I noted that employers in Martinsville, a city with one of the highest unemployment rates in Virginia, have 1,400 unfilled jobs. Many jobs require skills that locals do not possess. But few aspiring workers are enrolling in courses at the region’s New College Institute that would equip them with those skills. Local officials bemoaned the lack of motivation of those out of work.  “We don’t have an employment problem,” said City Manager Leon Towarnicki. “We have a participation problem.”

It turns out that the phenomenon of unfilled manufacturing jobs is hardly unique to Martinsville. Openings for manufacturing jobs this year have averaged 353,000 a month nationally, but manufacturers struggle to find workers to fill them, reports the Wall Street Journal today. The Journal article emphasizes the mismatch between job requirements and worker skills.

In 2000, 53% of manufacturing workers had no education past high school. By 2015, that share had fallen 9 percentage points, while the share with college or graduate degrees increased 8 points. … The “upskilling” in manufacturing mirrors a broader bias in the economy toward more educated workers. …

Companies say education and training systems haven’t evolved with industry needs.

Perhaps there is something grievously wrong with the U.S. system for educating and training workers. That’s not hard to believe: The federal and state governments fund more than a dozen job training programs, which are notorious for their overlap, administrative inefficiency and lack of effectiveness. But, then, the nation does have a strong system of community colleges. And as the Martinsville case shows, many people out of work are unwilling to avail themselves of the opportunities to re-tool themselves.

In a separate WSJ piece, “The Idle Army: America’s Unworking Men,” Nicholas Eberstadt with the American Enterprise Institute focuses on the decline in workforce participation among American men. The fraction of American men age 20 and older without paid work rose from 19% to 32% over the past 50 years. “For prime working-age men,” Eberstadt wrote, “the jobless rate jumped to 15% from 6%. Most of the postwar surge involved voluntary departure from the labor force.”

Who are America’s new cadre of prime-age male unworkers? They tend to be: (1) less educated; (2) never married; (3) native born; and (4) African-American. But those categories intersect in interesting ways. Black married men are more likely to be in the workforce than unmarried whites. Immigrants are more likely to be working or job-hunting than native-born Americans, regardless of ethnicity. …

What do unworking men do with their free time? Sadly, not much that’s constructive. About a tenth are students trying to improve their circumstances. But the overwhelming majority are what the British call NEET: “neither employed nor in education or training.” Time-use surveys suggest that they are almost entirely idle. .. For the NEETs, “socializing, relaxing and leisure” is a full-time occupation, accounting for 3,000 hours  a year, much of this time in front of television or computer screens.

Part of the problem can be attributed to the workforce barriers encountered by America’s huge pool of ex-prisoners and felons, who account for one adult male in eight in the civilian non-jail population. Another is the increase in nonworking men who draw from disability and other means-tested benefit programs.

Meanwhile, writes Eberstadt, “the male retreat from the labor force has exacerbated family breakdown, promoted welfare dependence, and recast ‘disability’ into a viable and alternative lifestyle. Among these men the death of work seems to mean also the death of civic engagement, community participation and voluntary association.”

The assumption that “everybody wants to work” is no longer founded. That is an ethnocentric notion of U.S. elites, projecting their own values through an ideological filter upon an expanding underclass of all races. Economic policies that fail to recognize the new workforce reality, no matter how well intentioned, are a waste of time. Indeed, insofar as such policies distract us from the real issues and squander precious resources that our decreasingly affluent society can no longer afford, they do an actual harm.