On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Ben Boychuk to discuss how new regulations from Washington will make it harder for the next generation to go to college, the impact of for-profit colleges and the future of higher education.
June 16, 2011
Jackson: On the show today, Ben Boychuk, Associate Editor at the City Journal is here. We’ll discuss how new regulations from Washington will make it harder for the next generation to go to college, the impact of for-profit colleges, and the future of higher education. Since we’re talking about college today, I would be remiss if I didn’t include a nod to my alma mater, the University of Texas. Ladies and gentlemen, the June 16, 2011 edition of Coffee and Markets, kicked off by the Eyes of Texas.
Domenech: Ben, thanks so much for joining us. It’s a real pleasure to have you on.
Boychuk: It’s an honor to be on the award winning Coffee and Markets podcast.
Jackson: Thank you.
Domenech: Yes. It’s a major award. I wanted to first off, thank you for taking the time to do this. I’m sure I’m interrupting you sampling a wonderful Whiskey or Rye of some kind, since my impression of your life is that this is what actually takes up your daily time. It is a renaissance for Rye and at some point we will have a show simply devoted to your analysis of the spirits.
Jackson: Oh, absolutely.
Boychuk: Oh, that would be great.
Domenech: But for now we’re talking about something which is sort of incidental for most people, and that’s education, which is obviously kind of a big issue for things going forward. There’s been all sorts of debates. When it comes to the arena, particularly of for-profit colleges in recent years, and I wonder if you could maybe frame for people who aren’t familiar with the different players involved, what sort of the issue really is here and what the debate is going on over these for-profit (unintelligible).
Boychuk: Sure. Well, for the past about a year and a half the Federal Government has taken a keen interest in relating for-profit colleges and universities which have been a sort of growing share of the education, of the higher education marketplace in the past decade or so. And we’re talking about schools like DeVry Institute of Technology, you know, Phoenix University, things like that. And you know, these are the schools that advertise on daytime TV and they’re big business. And they’re big business in part because they rely heavily on their students obtaining state and federal loans. And so, the Federal Government has been keenly interested in reigning in some of what our perceived excesses and abuses of some back actors in that particular sector.
And so the Department of Education has put out some new regulations requiring for-profit colleges to essentially guarantee that their graduates get jobs and don’t default on their loans. And the reason this is controversial, of course, is because it isn’t just students at for-profits that don’t get jobs or default on their loans. There’s a lot of, a lot of that among graduates of public schools.
Domenech: Yeah, I mean, there was somebody last week standing out in front of Dupont Circle’s Metro Station handing out resumes, you know, as an ivy league graduate, because they couldn’t find –
Jackson: They were literally handing out resumes at the Metro station?
Domenech: Yes. They were literally handing out resumes. And the sad part about it is I’m pretty sure it was a communications major –
Jackson: Which is what I was.
Boychuk: I was going to say, you know, the unemployment line is not just for philosophy majors any more.
Domenech: Exactly. Exactly.
Boychuk: So, but yeah. So these new rules come out and they’re not as bad as some people had feared they would be, but they’re bad enough. And basically starting July of 2012 the feds will deny federal aid to programs that fail to meet three tests of gainful employment over a four year span. Are at least 35% of former students actively paying down their loans? Are graduates spending about 30% or less of their discretionary income on loan payments? And are graduates spending 12% or less of their total income on loan payments?
And so the thinking there is that, you know, a lot of, I guess you would call them diploma mills would be put out of business this way. But what some of the bigger schools have said is, you know, they’ll be just as badly impacted by this as anybody else. I mean, the legitimate two year and four year program schools that are actually doing a pretty good job, especially in this context of, you know, with President Obama saying we want to have more kids go to college. Well, you know it’s harder and harder to get into a public university these days in part because states are cutting back on the budgets to some of those schools even though they are still heavily, heavily subsidized. They’re still cutting back on classes, and enrollment, and that sort of thing. And so for-profit schools kind of fill in, you know, the gap. And when you put pressure on, you know, that particular group of schools while at the same time making it more difficult to get into a traditional public university of college, you’re leaving a lot of people out. And most of the people that you’re leaving out are poor people, minority students, the very people that the administration wants to get into college presumably, and wants to have, learn skills that are useful in the marketplace.
So, it’s kind of, you know, it’s kind of a Catch-22 for those guys. And it will be interesting to see what happens, because I mean, the one compromise that the Education Department did make was they delayed the implementation of these rules, and in particular when the hammer will come down on some of these for-profits, I mean the idea was these rules were supposed to go into effect originally this summer. They’ve booted it back to next summer and then they’re giving them about four years to comply. So, there may be some opportunity to fine tune, but it’s still not a very good situation for the for-profits.
Domenech: I have a couple of questions. First off, was this just a decision within the Department of Education by the Administration? Was there any legislation involved that factored into this?
Boychuk: Yes. There’s been some, well the regulation stems from, there was a Higher Education Act passed in 2007 that sort of got the ball rolling on this. But the Senate Democrats, in particular, have taken a keen interest in this. And Tom Harkin has really taken the lead. And Tom Harkin has been on the warpath against for-profits and has held several hearings really sort of show trial type hearings where he’s dragged presidents of these various large colleges up to the Senate and grilled them. And what’s interesting about that is, you know, the basis for a lot of the rancor here was a Government Accountability Office report which came out last summer which found, basically purported, you know, to find wide spread fraud among for-profit colleges.
But as it turns out the GAO had to withdraw that report, or withdraw substantial portions of that report, in December because the methodology was bad. Several of the anecdotes didn’t hold up. And yet Senator Harkin continues to cite this report as sort of gospel as to why we need to have legislation in extensive regulation cracking down on for-profits. So, you know, the fix was kind of in. You know, there’s really sort of an ideological component here. I mean, you hear it all the time in K-12 education, right, this idea that education shouldn’t be left to the whims and caprices (phonetic sp.) of the market. And I think that extends to higher education as well. There’s just a distaste for the ability of the private marketplace to meet the needs that the public education system, whether it’s K-12 or higher ed, you know, really can’t meet. And so I think there’s a resentment there that you see from guys like Harkin and in the Education Department propagating these rules.
Domenech: The other thing that I think sticks out to me about this whole thing, and this sort of fits into your overall conversation about the changing nature of higher education, you know, obviously President Obama has said that he wants more people to go to college. I think just about every politician everywhere says they want more people to go to college. But as a general rule the economy and the way things are going, the real need within the marketplace is for more people to fill skilled positions –
Domenech: — which often times require, you know, only two years of education or apprenticeship operations, or you know, skilled based training as opposed to, you know, a comprehensive four year degree education, which is what most politicians seem to be referring to when they talk about college. The unemployment rate for college grads is the highest it’s been since 1970s.
Domenech: And when you look at the unemployed as a whole, again and again you see people who have college degrees. Don’t the for-profits, as a rule, aren’t they adapting more quickly to the changes of the economic demands of the marketplace than necessarily the non for-profit schools, which I think is kind of a shady definition anyway. And we can get into that maybe, but the real question I guess is this. Aren’t they actually more likely to adapt to the real scenarios and needs of the marketplace within the short term at least?
Boychuk: Well, that’s the thing. The for-profit schools do a great job with those two year degrees. Most community colleges have a much higher dropout rate in part because students are sort of coming and going, but also because classes are so cheap. You know, in California for example I think it’s about, now it’s about, the fees just went up. But I think it’s about $2,500 a year to go to a community college in California. And the reason why is, of course, it’s heavily, heavily, heavily subsidized compared to a for-profit two year program which is in the $20,000 range. But these are for things like nursing, and you know, which are high demand, you know, we’re importing, you know, Filipino nurses to fill nursing jobs in places like California. So, the for-profit schools do a great job with that. They have a much lower dropout rate in part because, you know, when you’re expending that kind of money, you’re going to stay with it, and the rewards are much greater. So yeah. I mean, they’ve done a wonderful job tapping into that market in a way that, you know, in a way that the community colleges simply just cannot, cannot do and don’t do a very good job of.
The other thing though, I think it’s interesting to note is that yeah, I mean, there really does need to be a kind of reemphasis on those, on those skilled programs. And, you know, and these two year programs. Our friend, Richard Vetter (phonetic sp.) at Ohio University has pointed out that about 60% of the 20 million college graduates between 1992 and 2008 are in jobs that don’t require any college education at all. And so guys like Vetter, and Charles Murray writing his book Real Education a couple of years ago said, you know, maybe we should rethink the traditional four year model and go more towards this idea of, you know, of certificates. And more vocational training, because that’s really where the needs are right now. And that’s really how the for-profits are kind of filling that need.
Jackson: Ben, let’s talk about that definition between for-profit and we’ll say not for-profit schools. That seems to be a very blurry line. If you look at a lot of the major universities today they make quite a bit of money on things like athletics, et cetera. Let’s talk about that definition. How do you see that actually? How is that actual definition? Is it, do you think that’s going to change?
Boychuk: Well, I mean, a lot of these, I mean, all these private for-profit schools, they’re like in many cases, some of them are publically traded companies. The Apollo Group which owns University of Phoenix is, I think, the largest in the United States and that’s a publically traded company. You can buy shares of it. So, you know, they’re beholden to stakeholders. Or excuse me, shareholders. They’re beholden to shareholders. And in ways that, you know, the University of California, for example, is supposed to be beholden to taxpayers, to some extent. A private university like Stanford has a Board of Directors that, you know, presumably hold the university accountable. I mean, they have large endowments and that sort of thing, but you know, I think, you know, you look at a private company like the University of Phoenix or DeVry and they have a bottom line that they need to make. And to some extent the public schools don’t have to worry about that. They’re interested in going and getting their funding. They go to Sacramento and they have very high paid lobbyists in Washington, D.C. lobbying for –
Jackson: Yeah. Absolutely.
Boychuk: — for research. I mean, you know, the research funding alone is, you know, in the tens, and hundreds of billions of dollars. So, you know, that’s the difference I think. Is that the private schools need to really be able to sell their wares whereas the more traditional model, I guess you would say, you know, are more interested in really hustling for a lot of public subsidy, and that’s a big business for them in its own right. As you pointed out, as you rightly pointed out, I mean, that’s in a way, you know, there are some distinctions without the difference. But yes, I think you’re right about that.
Domenech: Now Ben, I think that there’s also another, you know, sort of subtext of this. Obviously there’s a lot of ownership interests on the part of for-profits that drive, I think, a lot of the coverage. You can’t tell me that the New York Times is paying so much attention to this issue without acknowledging, you know, the reality that the Washington Post exists today thanks to for-profit colleges and their investment in Kaplan.
Boychuk: Kaplan. Right. Right.
Domenech: I wonder actually if you could break that down a little bit for us, because I think people don’t quite see that behind the, you know, behind a lot of the media coverage of this are pretty significant interests, in terms of investment.
Boychuk: Well, yeah. Kaplan is the big one. And yes, I don’t think most people realize that the Washington Post company owns Kaplan, and most of their profits, since, you know, they’re not making any money any more on the newspaper, is coming from tutoring and, you know, all their test taking businesses and things like that. To be honest with you I’m not sure about DeVry and a couple of the others, but I do know that, I mean ultimately what you’re seeing with the, the concerted effort by a lot of the traditional public schools and some of the older private schools in lobbying for these regulations, you know, the current chairman of California’s Community Colleges is on this 15 member panel that is coming up with rules and regulations for the way these private for-profits are going to comply with the 2012 regulations. So, you know, there is some conflict of interest there.
But the thing is the for-profits create competition for one thing, and they’re also pulling away federal grant and loan money that their students would otherwise get. I mean, there’s a limited pool of this money. And so, you know, as it turns out a fair amount of, for example in California I think about, so a student at the University of California is eligible for up to about $11,000 in CAL grants, for example. A student at a private for-profit is eligible for about $9,000 in CAL grants. And a student at a community college is eligible for some factor, much less than that. I think it’s closer to $1,800 or $2,000. So, the private for-profits are presumably taking away money that the public colleges believe that they should be entitled to first. And I think a lot of that is playing a part in motivating, you know, these regulatory efforts. You know, these guys are trying to protect their funding.
Jackson: Ben, I am about to have my first kid, well I am not, my wife is, in a few months. By the time my kid goes to college, will these for-profit colleges be a bigger part of the college experience? Will it be a more diverse set of people who are going there than currently are?
Boychuk: Well, I mean up until now the for-profit sector had been growing like crazy. And right now it’s about 10% of the market. Twenty years ago it was less than 2 or 3% and that’s in part because those things originally grew, you know, they began as a way to, you know, for people who, you know, adults who had jobs already who wanted to get additional skills and they’ve expanded from there. And so it’s easy to imagine that they would continue to grow unless of course these rules become so onerous that they simply can’t comply. And so, you know, I’d be hesitant to say I mean, my guess is that the bigger ones will be just fine. Your DeVrys. Your University of Phoenix, that sort of thing. Your ITT techs, even your Kaplans. You know, they’ve got to keep the Washington Post up and running. Those will probably be okay.
It’s going to be harder and harder for start-ups to come in and make a go of it if they only have a couple of years to really show that, you know, if you’re starting up and part of your model kind of depends on your students being able to obtain state and federal aid and you need to be able to show within a certain period of time, two or four years, that your graduates are able to make enough money to pay that money back. Well, you know, a lot of those start-ups aren’t going to be able to meet that threshold. And so that’s going to put a damper on the growth of that sector, and it’s going to make it very hard for, you know, new ideas and for entrepreneurs to come in and make a go of it. So, you know, I would say that’s kind of, it kind of bodes ill the more meddling we get. You know, as long as guys like Tom Harkin are on the warpath, I would be hesitant to predict just how much growth you’ll see.
Jackson: Does that mean that in the end less people will get a college degree?
Boychuk: Well, it could. Yeah. And it’s, you know, in some respects that’s both good and bad. You know, as we were saying earlier, it may be the case that you don’t, you could see a transformation, really the transformation you might see over the next 20 years is that, you know, we decide that the traditional college degree is not as important as it once was. Or you’ll see alternate models appear that sort of exist outside the system that maybe businesses are able to accommodate. That maybe they’ll come, businesses will just come up with their own pending and certification programs that kind of supplement or supplant the traditional college model. And that wouldn’t necessarily be a bad thing as far as the free market goes. The problem will be, you know, just too much top down. Too much top down rules and regulations kind of crowding this stuff out. I mean, that would be a real problem.
Jackson: Well, thanks again for coming on today, Ben. It’s been great having you here.
Boychuk: Thanks so much for having me. I appreciate it.
(End of Podcast)