On June 2nd, the US Department of Education handed down new regulation designed to tighten oversight of the for-profit higher education industry. For-profit higher ed has been under considerable scrutiny in recent years — and for very good reason. Default rates on student loans have been dramatically higher among students of for-profit institutions than those among students of their public and private non-profit counterparts while graduation rates among for-profits have been dramatically lower. (This infographic paints a grisly — though heavily biased – picture.)
The short story here is that — in aggregate — for-profit higher ed tends to produce greater debt and lower earning potential for its students than non-profit higher ed. To remedy this, the education department has issued “gainful employment rules” which will now track the ability of graduates to repay debt and whether those repayments make up a sensible percentage of graduates’ discretionary income. Institutions that fail to meet certain metrics will be denied access to tuition payments through federal grants and loans. Given that these funding sources account for up to 90% percent of revenues for these institutions, failure to meet prescribed metrics amounts to a death sentence.
These measures mark a great step forward in curbing abuses by bad actors in the private market. More importantly, though, it attempts to place one simple metric at the heart of higher education: the ratio of debt to earning potential that a college degree produces. This magic ratio is one that has been ignored, manipulated, and glossed over for many years now and if I have one complaint to levy against these new regulations, it is that they are not being extended into the public and non-profit spheres.
Simply because non-profit and state funded institutions perform better than for-profit institutions in relative terms, it should not be assumed that student investment in traditional higher education is necessarily sound. (I have enough friends from my own subpar alma mater carrying $50,000 or more in debt and languishing in unskilled service jobs to know better.)
Several weeks ago, John Cook at the Seattle technology blog GeekWire broke the news that Western Washington University — an important regional state-funded institution — is actively considering axing its Computer Science department in response to budget cuts. This comes on the heels of the state publishing its 2011 Needs Analysis Report [see page 26], which showed that the region faces a dramatic shortage in the tech labor market and predicts the need to produce 2.5 times the number of annual CS graduates by 2016.
Why would a public, non-profit university that supposedly places the interests of its students at the forefront of its mission cut one of the programs delivering the strongest returns-on-investment to its graduates?
The story produced considerable outcry from the Seattle tech community. People wanted answers. In a follow-up GeekWire interview, WWU’s Provost offered incoherent and contradictory explanations for why Computer Science and other science, technology, engineering and math (STEM) programs were being targeted for cuts and elimination. (Seriously, read it. It doesn’t make any sense.)
The real answer, however, is likely to be found in an October 2010 Wall Street Journal article, which exposed what happened when Texas A&M university ran profit-and-loss statements on its faculty. That controversial 265-page report revealed what could as easily have been assumed: that less technical academic programs, like business and the humanities, produce strong financial gains for schools, while more technical programs produce weaker gains or even losses.
Given WWU’s budgetary situation, it makes a lot of financial sense to target STEM programs for cuts and elimination. With less-technical degree programs operating essentially as profit centers, they are perversely incentivized to churn out humanities, soft science and business graduates in disproportion to public need (and in direct conflict with their own mission statement, which includes “addressing critical needs in the state of Washington”). In tandem with rising tuition costs, that seems to spell one thing for students: higher debt and lower earning potential.
The financial interests of any school in a budget crisis (which many presently are) can easily slip into terminal misalignment with the interests of their students and the regional economy, and they are just as hungry for — and dependent on — federal loan and grant dollars as for-profits. Non-profit schools should not be given a free pass simply because they don’t have shareholders or because, on balance, they perform better than their for-profit counterparts. Abuses exist across the spectrum of higher education choices and no one should be given a free pass to be a bad actor.
[Tangentially, with schools like Western Washington University actively cutting economically important programs from their offerings, for-profit institutions may be on the cusp of performing a more vital role in higher ed than many people imagine.]
As long as perverse financial incentives are allowed to persist, higher education institutions of all flavors will continue to encourage students down academic paths that, in too many cases, bleed them of four years of tuition money, four years of professional experience, and four years of income opportunity that will never pay for itself.