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[Apr 10, 2015] Tyler Cowen's Three-Card Monte on Inequality Beat the Press

cepr.net

Tyler Cowen used his Upshot piece this week to tell us that the real issue is not inequality, but rather mobility. We want to make sure that our children have the opportunity to enjoy better lives than we do. And for this we should focus on productivity growth which is the main determinant of wealth in the long-run.

This piece ranks high in terms of being misleading. First, even though productivity growth has been relatively slow since 1973, the key point is that most of the population has seen few of the gains of the productivity growth that we have seen over the last forty years. Had they shared equally in the productivity gains over this period, the median wage would be close to 50 percent higher than it is today. The minimum wage would be more than twice as high. If we have more rapid productivity growth over the next four decades, but we see the top 1.0 percent again getting the same share as it has since 1980, then most people will benefit little from this growth.

The next point that comes directly from this first point is that it is far from clear that inequality does not itself impede productivity growth. While it can of course be coincidence, it is striking that the period of rapid productivity growth was a period of relative equality. At the very least it is hard to make the case that we have experienced some productivity dividend from the inequality of the post-1980 period.

And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.

While Cowen talks about immigration as being a question of low-paid workers who might drive down the wages of the less-educated, they are millions of bright highly educated professionals in the developing world who would be happy to train to U.S. standards and compete with our doctors, lawyers, and other highly-paid professionals, many of whom populate the one percent. This policy would also lead to both more rapid growth and greater equality. (We can repatriate a portion of the earnings of these professionals to their home countries to ensure they benefit as well.)

And, we can have a modest financial transactions tax that would eliminate waste in the financial sector while also reducing the income of many of the richest people in the country. Were it not for the political power of Wall Street, we undoubtedly would have put in place financial transactions taxes long ago. (We do still have very small taxes that are used to finance the operation of the Securities and Exchange Commission and the Commodities and Futures Trading Commission.)

It is also important to remember that the well-being of children depends to a large extent on the well-being of their parents. If the minimum wage had kept pace with productivity growth since 1968 (as it did between 1938 and 1968) it would be over $17 an hour today. The children of a single parent earning $34,000 a year would have much better life prospects than the children of a single parent earning $14,500 a year. In this sense there is a very direct relationship between inequality and mobility.

The long and short is that we know of many measures that can both reduce inequality and increase growth. And, if we want to make sure that everyone's children have a shot at a better standard of living in the future then we should make sure that their parents have a better standard of living today.

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Financial predators produce nothing of value
written by RandallK, April 05, 2015 10:49

The "take-over and loot" artists of Wall Street produce nothing of value and are burdensome to taxpayers - we support the agency which partly funds the stolen pensions - yet rake in more money annually than most wage earners.
What did collateralized debt products produce? Nothing, or close to nothing would be my answer.
We not only need to tax the sales of stocks and bonds, we need to bring back Glass-Steagall(sp?) and make a number of financial products illegal.
Then there's the matter of "too big to fail and too rich to jail," to correct.

Mobility for Whom, to Level What Playing Field Where - For Winners Take All
written by Last Mover, April 05, 2015 11:41

The concept of mobility helps us distinguish between "good inequality" and "bad inequality." Reductions in inequality can follow from a leveling in either direction - by elevating the poor or pushing down the wealthy. It is the plight of the poor that we most need to improve.
Somehow these discussions never get to the part where MNCs used their newfound global mobility to pit workers in different nations against each other in head to head competition and drive wages to subsistence levels in some cases.

That really gave workers a chance to perk up with new mobility opportunities to be more productive as they earned what they were worth, didn't it. After all, it wasn't like MNCs had a lock on the market and overpaid themselves with productivity gains they didn't actually earn, instead extorted with market power. LOL.

These discussions also conveniently ignore the intentional immobility of white collar professionals designed to shield them from competition, especially from abroad, like doctors and CEOs. Cowen would rather talk about reducing regulations on barbers, hairdressers and interior decorators so they can be more mobile and productive. LOL.

Upshot
written by loneract, April 05, 2015 1:14

The Upshit seems to contain outright lies 2/3 of the time. Usually when Leonardt or Cowen is writing.

Marko, April 05, 2015 4:42

Tyler Cowen is right up there with Laffer , Mankiw , et al in his diligence at defending the perks of the 1%.

The goal is to shift the focus of attention away from anything involving those elites , typically by concentrating instead on poverty or mobility. They can imagine a system of high mobility and low poverty ( as measured relative to median income ) among the 99% in which the 1% captures an even larger share of the income pie than they do currently. Think of plantation slaves as the 99% and plantation owners as the 1% and you get an idea of what their ideal "win-win solution" looks like. High relative mobility and low relative poverty among the 99% , continued concentrated income and wealth flows to the 1%. Problem solved.

Summers is right , for once. The big action in inequality is in the trillion dollars of current gdp that used to flow to the bottom 90% of income-earners that now flows to the top 1%. Similar dynamics apply for wealth.

Ignore the misdirection and focus on the big problem : big money.

watermelonpunch, April 05, 2015 8:16

I'm not sure what that Tyler is rooting for here.

Is he saying that everyone ought to start at the bottom?
For example, someone with a science aptitude born into a wealthy family, ought to be forced to put off their education to mop floors for 2 years, to "earn their chops"?

Because that's the only way I can see his argument having an internal logic at all.

Otherwise, it just sounds like he's saying that people with various disabilities or other limitations, should rightfully (in his mind) be relegated to substandard living conditions struggling for survival with limited access to the benefits our civilization affords "their betters" ... as long as if a child born into that penury has some bit of a chance to "strike it big" if they have enough smarts & ambition & luck.

I fall back to the obvious ... that we - CIVILIZATION AS A WHOLE - NEED people operating the sewage treatment plants, fixing the roads, collecting the trash, cleaning hospitals, working on the farms, packaging & transporting foods etc., and wiping butts when people get too old & infirm to do it for themselves.
Civilization as a whole should be GRATEFUL there are those people who are willing & able to do those things, and recognize that people who do these vital things in society by paying them a fair wage.

In fact, I'd argue that some of these jobs are HARDER and require more aptitude that a lot of "higher jobs" Cowen thinks pay more out of "good inequality".

I'd like to see the branch manager at my bank try to swing the trash cans on my block like my city's garbage crew. (Or live in a neighborhood where the rubbish is piled up for that matter.)

How many accounts department managers would last 2 minutes on a roofing job?

I can think of one manager I knew at a company who would leave her dirty oatmeal dishes in the little bathroom sink all day. Under NO circumstances do I think that woman should ever be trusted to work in a hospital or kitchen.

And then the story I heard from someone about a warehouse manager who would throw fits yelling & start throwing things around when he'd get stressed out. Is that the guy you want alone with you wiping your butt in your hospice room when you're 92?

Would any of us want to buy food sold in a dirty grocery store? And how much luck is a doctor going to have to save your life in a filthy operating room?

Tyler Cowen's shell game is an insult to every citizen.
And it's a injury to every citizen with limitations whether they're born with them or acquire limitations by tragic accident or simply aging.

Richard H. Serlin, April 05, 2015 10:59

High Inequality and High Mobility = Very High Risk Lives

Well, Cowen is always happy to mislead for the libertarian/plutocratic cause, and he has to, as the truth gives no chance to his side in a democracy.

But this extreme inequality is fine of we have high mobility is so wrong, because high mobility is high chance to go up, and high chance to go down. If it's just high chance to go up, that's just growth (which is decreased when you don't invest in the 99+% to give as much as possible to the 1%, or 0.1%).

High inequality with a high probability of plunging into the abyss because of high mobility? That's just a terribly risky life for you and your family, and risk decreases utility and welfare. Who wants to live in a world made that dangerous. And certainly the high mobility that the rich will allow is among the 99%, not among the 0.1%.

bakho, April 06, 2015 5:33

If Cowen is truly concerned about mobility, he would promote policy to encourage mobility.
Improve childhood nutrition
Universal PreK
Health Coach Programs
Programs that would give teens facing double digit unemployment, their first job and on the job training.
Programs that would improve the skill set of youth who are not college bound.
Free Community college, etc.
Raising the MinWage
Less inequality in distribution of resources among communities

I have yet to see him promote any of these measures.

A little parity perhaps?
written by Kat, April 06, 2015 8:34

I just read an AP story about the plight of some poor, poor Americans that had property confiscated under the Castro regime. Congress is on the case-- after all the descendents of these "victims" are so poor they cannot even afford to repair their concrete steps. I did not see skills training mentioned as a fix for their plight.
I think if you thought really, really hard you might be able to come up with a few examples of the US government using its force to confiscate property or support the confiscation of the value of labor from a person. In these cases training is the key to redistributive justice.
And I have yet to see skills training as an answer to all the job creators who simply cannot make a go of it without subsidies and tax breaks.

written by Bloix, April 06, 2015 9:57

"We want to make sure that our children have the opportunity to enjoy better lives than we do."

I have never met an upper middle class parent who wants his kid to have "the opportunity" to have a better life. These parents do not say, "I want my child judged fairly on his merits, and if he winds up as a barista that's fine with me."

written by urban legend, April 06, 2015 2:19

All wage workers need to be organized. The elite forces have spent 200 or so years trying to give the public ill thoughts about labor unions, with but a very brief reprieve roughly between roughly 1934 and 1947 -- with Taft-Hartley "right-to-work" reinforced by the anti-union propaganda film, "On the Waterfront," signalling a return to corporate and corporate media-bashing of all collective bargaining activities. Those toxic forces are really feeling their oats right now, having even compromised the Democratic Party with fundamentally anti-worker people like Rahm Emanuel and Arne Duncan. Only the unions themselves, a few stalwart Democratic office-holders and some bloggers are offering resistance.

There have been embers of recognition that the engineered weakness of labor has coincided with -- and almost surely played a huge causative role in -- the disconnection between productivity and labor compensation. It is going to be a long and continuous, never-ending slog to start the country in the other direction. It's a simple story to make: labor union weakness = low wages = poor demand = weak economy for almost everyone, including small businesses. Hillary Clinton could campaign on that equation, even without attacking Wall Street (other than the dishonest players, whom she must make clear she will not defend), and present herself as the true champion of business because she, unlike the Republican candidates who pretend to be pro-business but actually are the opposite, will follow policies that will promote the growth of demand for their goods and services.

FDR proved you could talk common sense economics like this to the American people. Obama looked like he was campaigning on the equation, but it turned out he was only a little for it and was even actually against it in some respects. He made virtually no push-back against the negative propaganda about unions that has prevailed for three generations. Let's hope this time can be different. But it won't be different unless the people who understand the equation put heavy pressure on all Democratic candidates to think and talk that way.

written by Bob Hertz, April 06, 2015 7:45

I fully support all the posts that call for greater bargaining power for workers.

However, I do wish to point out that many many workers with tiny or nonexistent productivity gains have seen very nice increases in their incomes in the past two decades.

College professors and senior nurses and federal statisticians do very valuable work.
But most of them work fewer hours than they did 20 years ago and have fewer students or patients than 20 years ago.......yet this "EdMed" complex has had very nice wage gains, to say nothing of benefits that private sectors workers can only dream of.

If you rented a meeting hall and had a gathering where the only attendees would be those whose incomes had gone up faster than inflation, I do NOT think that the hall would be filled with persons who increased their productivity. I think it would be filled with persons who had credentials and connections.

accelerating inflation
written by Dishwasher, April 07, 2015 2:01

And many of the policies that would most obviously promote equality also promote growth. For example, a Fed policy committed to high employment, even at the risk of somewhat higher rates of inflation, would lead to stronger wage growth at the middle and bottom of the wage ladder, while also likely leading to more investment and growth.
I agree with you on doctors, lawyers, and other highly-paid professionals.

On minimum wage, to me a minimum wage is a second best solution, a wage subsidy or a basic income guarantee better distributes the burden of helping low income workers.


written by Dishwasher, April 07, 2015 2:23

Above I should have said isn't it accelerating inflation that helps debtors and wage earners and not just inflation? And it cannot continue to be accelerated without very bad consequences.

[Dec 20, 2010] The Golden State Adrift by New Left Review

The higher learning?

California's three-tier public university system is by far the largest in America and in the past has been one of the best in the world. The nine-campus University of California (uc), with Berkeley the flagship, is widely acknowledged to be the finest public university in the country. The open-access, two-year California Community Colleges (ccc) serve almost three million students a year on 110 campuses, while the 23 campuses of the California State University (csu) enroll almost half a million. The latter two serve the bulk of California's working-class students of colour, as they try to make their way into a hostile labour market.

Higher education has felt the cold winds of fiscal decline for twenty years. The csu and ccc systems have fared the worst. They have taken major cuts in recessions and received little in return during the boom times. At least half the teaching staff at the csus and two-thirds at the cccs are now adjunct lecturers, rather than regular faculty-in line with national trends. [25] The Great Recession has cut a swath through all college budgets. In the summer of 2009, the uc authorities imposed a 20 per cent cut in the operations budget, a 5–10 per cent cut in pay and a 32 per cent increase in tuition. Faculty recruitment came to an abrupt halt, and hundreds of staff were laid off. The csu and ccc systems, faced with similar cutbacks, have eliminated hundreds of courses, made lecturers and staff redundant and halted new construction, while raising fees and turning away hundreds of thousands of students.

Within the universities, there is a growing class divide. Administrators and top uc faculty have lined their pockets with hugely inflated salaries, while lecturers, junior uc faculty and csu/ccc professors find themselves hard pressed to pay the rent. One study shows that in the last decade, administrative hires at uc have doubled, while other employment has risen only by a third. At Berkeley, a consultant's report identified tens of millions of dollars that are spent inefficiently in procurement and on extra layers of management; yet no managerial heads have rolled, the main burden instead falling on lower-level employees through organizational restructuring and layoffs. [26] Departmental cutbacks leave teaching staff with little time to think and students with less support in navigating college life. At the same time, the raising of tuition fees has become a regular ritual; though uc has maintained a decent system of grants for needy students, annual fees of over $11,000-likely to rise inexorably-are driving many others, especially students of colour, away.

The uc administration is eager to restructure the university in order to increase revenues. Among the proposals they favor are a three-year undergraduate degree to run students through the mill more quickly and bringing in more foreign students, who pay at least double. Another idea involves offering more online courses and degrees, as a means of selling the uc brand around the world. Meanwhile, the professional schools within the uc system-medicine, law, public health and so on-are being allowed to price their 'product' at the level of their choosing. All of these moves undermine the ideals of the public university. The notion of education as a social investment, contributing to the advancement of human knowledge, is being replaced by a money-making activity, in which academics produce patentable inventions and students make a personal investment in their 'human capital', to be financed by taking out massive loans. On current trends, we may be witnessing the end of liberal education for all but the elite. [27]

Students up and down the state rose up in anger against the cutbacks and fee increases last year (one slogan read: 'Raise Hell, Not Costs!'). From Santa Cruz to Berkeley to Los Angeles, they held public debates and protests and occupied buildings, in a show of strength not seen since the 1960s. Starting in late September 2009, mass walkouts of staff and students took place across the uc system, and a group of students at Santa Cruz began the wave of occupations, which then spread to ucla, Berkeley and uc Davis in November. [28]uc administrators responded by repeatedly calling out the cops-both the uc force and local police-to break up protests and end the occupations. The uc Regents went ahead with the fee increase all the same.

In January 2010, in response to the turmoil, the governor offered a greater share of the state budget to higher education. Then, on March 4, tens of thousands of students and teachers across the state, from primary schools to universities, staged a massive walkout and demonstrations to defend public education; these then spread to campuses around the country. State allocations did rise a bit in the final budget passed in early autumn, but the Regents were soon raising tuition by another 8 per cent––despite a new round of protests on October 5 and violent confrontations between demonstrators and police at their meeting in San Francisco on November 17. But the students face a Sisyphean task in trying to face down a recalcitrant government and administration at the same time. There are also divisions within the student movement, along three fault-lines: between the inert mass and more activist student organizations; between the latter and the radical 'occupationists'; and between white left and radical students of colour. While not hard and fast distinctions, they are long standing and debilitating in their own right.

Among the faculty, the strongest opposition to budget cuts comes from the California Faculty Association in the csu system and from the cft, which represents a mix of csu and ccc faculty, uc lecturers and K–12 school teachers. A minority of uc professors still care deeply about the purposes of the public university and have rallied to the cause, notably under the banners of saveuc at Berkeley and the Faculty Organizing Group at Santa Cruz. [29] But the elite professoriate is mostly in denial-hunkering down in their labs, relying on the good faith of administrators, pursuing corporate research grants or offering their services in lucrative consultancies.

[Nov 21, 2010] How Are the Kids Unemployed, Underwater, and Sinking

While it appears everyone is hurting since the financial collapse, young adults bear a disproportionate burden, constituting just 13.5% of the workforce while accounting for 26.4% of those unemployed. Situation is really alarming and I hate self-satisfied know-it-alls recommendations like "Just go out and get a job, you lazy bum." It shows a complete ignorance and lack of empathy for the plight of young people today.
The Baseline Scenario

with 258 comments

This guest post is contributed by Mark Paul and Anastasia Wilson. Both are members of the class of 2011 at the University of Massachusetts-Amherst.

In some cultures asking how the kids are doing is a colloquial way of asking how the individual is faring, acknowledging that the vitality of the younger generation is a good metric for the well-being of society as a whole. In the United States, the state of the kids should be an important indicator. Young workers bear the significant burden of funding intergenerational transfer programs and maintaining the structure of payments that flow in the economy. Today, the kids' outlook is almost as bleak as the housing market; they are unemployed, underwater on student debt, and out of luck from a reluctant political system.

Currently, even after a slight boost in jobs growth, unemployment for 18-24 year olds stands at 24.7%. For 20-24 year olds, it hovers at 15.2%. These conservative estimates, using the Bureau of Labor Statistics U3 measure, do not reflect the number of marginally attached or discouraged young workers feeling the lag from a nearly moribund job market.

The U3 measure also does not count underemployment, yet with only 50% of B.A. holders able to find jobs requiring such a degree, underemployment rates are a telling index of the squeezing of the 18-30 year old Millennial generation. While it appears everyone is hurting since the financial collapse, young adults bear a disproportionate burden, constituting just 13.5% of the workforce while accounting for 26.4% of those unemployed. Even with good credentials, it is difficult for young people to find work and keep themselves afloat.

If companies are unwilling to hire bright young college graduates even at a relatively low salary and minimal benefits, will they ever be willing to hire anybody at all?

Jobs aren't the whole story. Recent college graduates, those in the labor force with the freshest batch of knowledge and skills, are currently underwater and sinking fast with unprecedented student loan and personal debt. Average student debt for the class of 2008 was $23,200, an increase over four years of about 25%, meaning that students are knee deep in negative equity between their educational investment and actual earnings.

Between inflated student debt and the lack of available jobs for qualified graduates, students are defaulting at an all time high level of 7.2%. From 2008 to 2009, student debt defaults jumped about 30% to $50.8 billion. This earning-to-debt gap not only hurts lending institutions, but also may affect students' future abilities to borrsignificant hurdle in our credit driven economy.

If student debt and job stagnation continue, younger workers will face real structural unemployment (as opposed to the fake kind that had been suspected by some economists, but was recently debunked by the San Francisco Fed). The more time these young workers spend unemployed and underemployed, the greater chance for future structural unemployment due to deteriorating human capital.

High debt, high defaults, and low family earnings will prevent many students from finishing college at all. High unemployment for those who do manage to graduate with a degree will create barriers for those unable to start their careers. As economists have shown, most current deficits can actually be attributed to the decrease in tax revenues ­­- a debilitating trend that will continue without well-targeted action.

In order to combat such structural problems, the need for investment in education and jobs is clear. This investment will act as an insurance policy against persisting future structural unemployment and subsequent government revenue declines. This investment can take the form of direct funding for public higher education, increased financial aid to students, and expanded federally guaranteed loan and grant programs. As many states have slashed and burned public higher education budgets, as in Massachusetts, federal attention should be directed towards this crisis. The 2009 stimulus funding provided only two years' worth of support to sustain public higher education in the Commonwealth, where universities have historically been a top priority. The need for a long-term restructured investment plan in public higher education is obvious, not just in Massachusetts, but the other forty-nine states as well.

At the same time, insurance against the impending doom of climate change could be taken out in the form of a green jobs bill, providing work and an outlet for innovation for recent college graduates. As Robert Pollin and Dean Baker have suggested, long-term investments in rebuilding a green energy industrial base, complete with manufacturing and R&D, could revitalize the entire economy if funded as part of a 10-year plan to the tune of $50-100 billion. Such investment could create 660,000-1.3 million jobs per year – the kind of growth that seems to have escaped our collective memory.

Green collar industry would naturally target the young workers who are up to date on the high-tech nature of green jobs, and much research and development would, as with most budding industries, take place at academic research institutions like public universities – a two-for-one stimulus in both jobs and education.

In order to solve future structural problems in the United States and ensure a future for the sandwich generation, fiscal policy focused on educational and job growth is crucial. While deficit hawks may squawk about the costs, the burden of repayment is on younger people Without adequate education and careers for students, we will never be able to balance the budget. In the long run, it makes more fiscal sense to create jobs and collect tax revenue than to rely on a model that merely waits for the private sector to invest.

While the political feasibility of such a measure is questionable, the incentives are there no matter on what side of the aisle you may sit. Jobs investment will improve employment. Education will increase productivity (and profits too), increasing tax revenues from businesses and personal incomes and helping balance the budget. Crisis is not the time for austerity, and these types of investments in the viability of the U.S. economy should be done when money is at its cheapest.

In a dire job market, facing imminent climate change, and lagging aggregate demand, keeping the younger generation afloat will inevitably be a decision to sink, swim, or at least throw out some life jackets.

[Nov 12, 2010] The Sole Purpose of Education

November 12, 2010

In 1914, John Alexander Smith, Professor of Moral Philosophy at Oxford, addressed the first session of his two-year lecture course as follows:

"Gentlemen, you are now about to embark on a course of studies that (will) form a noble adventure…Let me make this clear to you. ..nothing that you will learn in the course of your studies will be of the slightest possible use to you in after life – save only this – that if you work hard and intelligently, you should be able to detect when a man is talking rot, and that, in my view, is the main, if not the sole purpose of education."

Cynic_FA:

I had an Economics instructor explain the Economics of Education. Contrary to all economic theory, the consume of college education chooses to pay as much as possible and receive the bare minimum in return.

Paying $50,000 a year is clearly superior to paying $20,000 a year. Attending class and doing homework would be optional at the best universities ( as are grades at some liberal arts colleges)

Estragon:

Your instructor has misidentified the product being sold. What is actually being sold is the ability to become peers with an elite group of fellow students. The education, from an economics perspective, is simply packaging.

Kris Dannon:

Even a fool is thought wise if he keeps silent.

Proverbs 17:28

[Oct 28, 2010] Beyond Crazy by James Kwak

The Baseline Scenario

with 58 comments

Daniel Hamermesh points out a Wall Street Journal article on how colleges and universities are trying to increase accountability and productivity by measuring costs and benefits quantitatively. The "star" example is Texas A&M, which created a report showing a profit-and-loss summary for each professor or lecturer, where revenues are defined as external grants plus a share of tuition (if you teach one hundred students, you are credited with ten times as much revenues as someone who teaches ten students).

Let's not argue about whether our colleges and universities are doing a good job. Let's not even argue about whether we need more transparency and accountability in higher education. Assuming we do, this is just about the most idiotic way of doing it that I could imagine. No, wait; there's no way I could have imagined something this stupid.

The "professor P&L" is an attempt to bring private-sector "efficiency" into higher education, but I can't believe anyone who actually worked in the private sector could think this could work. At my company, we* thought a lot about the problem of software productivity and how to measure it. And the problem is, there really is no way to do it on an individual level. Measuring lines of code is crazy, because ideally you want to solve a given problem in as few lines of code as possible. Measuring classes or methods is equally crazy. Measuring what some people call "function points" is crazy, because they depend on what you call a function point. Most fundamentally, measuring quantity of output is crazy, because quality is much, much, much more important than quantity. It's better to write a little bit of software well, in a way that doesn't break anything else, can be tested reliably, and can be expanded on in the future, than to write a lot of software badly. So instead, we look at whether the software does what it is supposed to do, whether it can be tested, and whether it does what our customers want it to do. That's how the private sector works.

And if you can't measure software productivity, how are you going to measure educational productivity, which is much more complicated? What is the unit of output you are going to measure? More fundamentally, what is the output you are trying to produce?

What is Texas A&M measuring? The fact that you are teaching someone–not what you are teaching, or how well. In some fantasyland, you might think that the "free market" for college classes will make students flow toward the professors who teach useful things well. As anyone who has ever gone to a university knows, however, students flow toward (a) required courses and (b) professors who give easy grades. And they are measuring the grant dollars you bring in, not what you do with those grant dollars. So, for example, computer science will do worse than mechanical engineering, simply because it is less capital-intensive.

If you're going to measure outputs, the places to look are whether students graduate from college knowing things, whether they are satisfied with their educations, and whether they are able to do the jobs employers need them to do. We could have a reasonable debate about whether those things can be measured, and whether they are worthwhile to measure. There is a lot of evidence that this kind of testing has harmful unintended consequences at lower levels, and it seems even more inappropriate for college, but that's something that could be debated and tested.

So where did this idea come from? The Texas Public Policy Foundation, a conservative think tank. Apparently they didn't even finish first-semester economics. They got the bit about how market forces are driven by profits and losses. But they missed the bit about why markets work: markets only increase social welfare if the prices of things reflect their value, not if they are completely artificial.

Ted K
Great post.

It really is so difficult to quantify what it is that makes a good teacher. My father was not only the first person in his family to get a University degree, but also went on to get his Master's. He then worked in Public education for over 20 years. So this is one thing he drilled into us growing up (frankly over-killed to the point I almost grew to hate institutional education because of his incessant harping on it).

Later on I performed the duties of a teacher for some relatively lengthy period of time, although I never really considered myself a "real" teacher because I wasn't certified. The exact details aren't important to this particular point, so you'll just have to take my word on it. I nonetheless took it as an almost sacred thing because of my father's influence. I spent many a day pondering what made a good teacher. I basically came up with 2 answers:

1) Your students should know that you genuinely and sincerely care for them and their lives. The feeling that you care for them should "emit" from you in some form or fashion (of course depends on your personality, but they should somehow know this. And that you are available for them, within reason, when they need you.

2) To give them the maximum amount of useful knowledge in the time allowed. "Useful" here being defined as something they didn't know before they entered your class, and would be most probable to use in their life after they left your class.

I spent many hours literally thinking about in my off duty hours during the time I was teaching. To this day I have no idea if those were the proper goals, and even if they were the appropriate goals, how close I came to achieving them with my methods. I know I did some very good things in individual circumstances, but how much better I could have done generally, I have no idea.

When I read this story in the LA Times it touched me very very deeply.
http://www.latimes.com/news/local/la-me-south-gate-teacher-20100928,0,1261367.story

Are we to think this guy would have performed better with "Incentives" and bonuses for students' performance or bonuses for meeting other benchmarks this guy would have been a better teacher??? I don't think so.

Philip H

In the federal government we are infected with the same thinking, and it was codified into law under President Clinton as the Government Performance and Results Act (GPRA). Every quarter, federal agencies have to report on their "Progress" under numerous GPRA measures, all of which are supposed to somehow measure the societal outcomes of the things government does nationally. For those of us who do GPRA work, its our biggest challenge. Why, because counting widgets – benefit checks delivered, Endangered Species Act consultations completed, students reached by curriculum innovations – is easy. But measuring outcomes can be nearly impossible because many of the outcomes take decades to become apparent.

And none of this is used to actually decide where and how money flow sin the government, nor does it have any connection with personnel practices, etc.

jbmoore

Ritholtz has an interesting link about how we think of education: http://www.ritholtz.com/blog/2010/10/changing-education-paradigms/ .

Colleges and universities are essentially diploma and research mills. Their structure hasn't really changed since the Enlightenment. The age grouping of primary education is gone, but much else is the same. Agreed that this is stupid.

It's a shame that Aggies are living down to their stereotype. The Aggies I've met are usually a notch above the average college graduate in intellect. They sure are a confident bunch.

Ben

Ugh, this is so retarded. A part of the bigger debate on education in the U.S., which, thank God at least is starting to happen. All this crap talk about quantifying the work of teachers. Haven't any of these people ever worked for a normal company? Your boss gives you a performance review every year. There are quantitative factors and subjective factors. Do people complain about performance reviews? Sure, all the time, but you have them. What else are you going to do? Not have them and base your salary on time served? Ugh. You just hope your company is smart enough to have a decent performance review system. Many are not. --[this guy does not understands that in companies performance reviews is such a joke that they cannot be discussed without using expletives]

But I digress. . . Most of this crap talk about education is just the old trick of people trying to remove themselves from the chain of responsibility. God forbid a teacher's boss (Principal, Head of Dept.) gives them a performance review and that performance review influences the raise and bonus they get. What's wrong with these people in our educational system? Of course, these are all rhetorical questions.

We know what's wrong – it's basic competence.--[ This guy does not understand that reviews are actually tool to hide incompetence as good relations with the boss can do wonders] You get someone competent in charge (eg, Michelle Rhee) in DC and you see what happens. Same thing happens at really bad companies in the private sector – in the rare case that a competent person gets to be in charge they usually don't last long. But most companies that have to answer to shareholders don't have this problem. Wow, Michelle Rhee was such a revolutionary – a tough, demanding boss that tried to hold people accountable. But hey, you can't complain about the incumbents. If I were a mediocre teacher (and by definition, most people in any profession are mediocre and below) I'd fight tooth and nail against meritocracizing (yeah, I just made that up) the profession.

And for full disclosure, I am teacher part time. Do it 'cause I love it; certainly not for the meager pay.

progressus

Seemingly it is believed-erroneously I might add-that popular business practices are effective. For example, Arne Duncan's (Secretary of Education) The Race to the Top is fashioned after what leaders of business organizations often do-create competition, manage by results, incentivize and devise pay-for-performance schemes. However the popularity of these practices is not sufficient evidence to support their effectiveness. Yes they get people to do something, but getting movement is not quite the same as realizing lasting systemic improvement. These tactics have never proved to be lastingly effective even in business.

The educational system is not performing as desired and it appears consistent in this regard. It seems reasonable to conclude that the system is designed and managed to produce what it is delivering. What it produces are people who (for the most part) enter the system eager to learn and exit the system not knowing how to learn and not finding learning joyful.

The issue should not be whether the learning experience provided returns a profit or whether it is materially productive, but rather whether it is a meaningful and humanly productive experience. This is why throwing money at the educational problem we face or treating it as if it is a mechanical process is just misguided.

In education we shouldn't spend anything, yet we must invest everything-hearts, minds and money. You don't get proper investment by treating people-teachers and students-like cogs in the education machine. You don't get it by seeking efficiencies at all costs-learning, like creativity, is not a efficient activity. This is not to suggest that we ought to be carefree and careless in employing the resources we have.

We must seek to make the learning experience a value-added human experience-materially and humanly productive-and one that engenders joy in learning.

Learning is foundational to our viability as a society (and as a species). We must learn to embrace it. The better we are at learning the better we are poised to sustain our viability.

tippygolden press

It was refreshing to find the philosopher Michael Sandel arguing that it is - improper - for free markets to be the exclusive arbiter of the common good.

Check this out: Michael Sandel, Harvard Professor of Government, delivers four lectures about the prospects of a new politics of the common good.

http://www.bbc.co.uk/programmes/b00kt7sh

Bayard Waterbury

James, I am stunned that a university would actually do this. Talk about mismanagement. The best way to determine if a professor is teaching well would be to have an independent expert in his area of taaching conduct oral spot exams on randomly selected students at various times during his tenure to determine if students are learning the material effectively. Standardized testing doesn't work for obvious reasons. However, this method would be so expensive that it would only serve the professor and not the school. Schools might want to do this to help professors understand their weak areas, but for no other reason. Not to mention the fact that only required courses must be taken, but, since the entire college educational experience is voluntary, it should not be subject to scrutiny except to determine if the students are getting their money's worth, and that is something that an objective third party would do, in order to assist students in determining the best place in which to spend their money, and, in fact this actually happens now.

Actually, the same logic applies to all education, except that the public education yardsicks are and should be much simpler. Sadly, though, the success of our education system is largely reliant on student motivation. Unless schools and teachers in public education can motivate and inspire successfully their success will be limited. In the case of higher education, there actually should be classes on appropriate motivation (like picking fields based on interest and talent, as opposed to earning potential).

Bruce E. Woych

so next step = censoring?

Supermarket classrooms that herd information into market efficient money mills for the academic service sector. The factory corporate model of mass production becomes a threat to the sensitivities of the established academic fortress? Does anyone remember that the 50s revolt was agains the financing of colleges by big business to create product? Does anyone remember that the revolt of the anti-intellectual establishment was essentially not anti-intellectual at all…that it was against the strait jacket shirt and tie business cloning of american individualism into individuated market zombies in black and blue suits of conformity?

The issues are clouded and the questions are rigged. You raise concerns about the mass production of students because the student to Professor ratio is now hitting a leveraged proposition against the quality of the teachers' lifestyle…NOT the quality of this mass profiteering business model of brokered exploitation? The bias is insidiously and the priorities are skewed towards vested interests and the dumbing down of America. So censure all you want!

Bruce E. Woych

AAUP: AMERICAN ASSOCIATION OF UNIVERSITY PROFESSORS

http://en.wikipedia.org/wiki/American_Association_of_University_Professors Contingent Faculty

In recent decades, the AAUP has added a focus on addressing the dramatic increase in faculty positions off the tenure track. An increasing percentage of faculty has become "contingent," or non-tenure track. Many are hired into part-time positions, often multiple part-time positions which together equal a full-time load or more, but with dramatically lower pay, little job security, and few or no fringe benefits. As of 2005, 48 percent of all faculty served in part-time appointments, and non-tenure-track positions of all types accounted for 68 percent of all faculty appointments in American higher education [12].

The AAUP has released a number of reports on contingent faculty: in 2008 a report on accreditors' guidelines pertaining to part-time faculty and a report of an investigation involving alleged violations of the academic freedom and due process rights of a full-time contingent faculty member; and in 2006 an index providing data on the number of contingent faculty at various colleges. also in 2006, the AAUP adopted a new policy dealing with the job protections that should be afforded to part-time faculty members. in 2003, it released its major policy statement Contingent Appointments and the Academic Profession. The statement makes new recommendations in two areas: increasing the proportion of faculty appointments that are on the tenure line, and improving job security and due process protections for those with contingent appointments.

Quality considerations indeed belie the Texas P&L balderdash. An earnest of the quality that they appreciate is furnished by (if memory serves) our current secretary of "defense," an imperialist hack of an altogether unremarkable sort, fetched from the presidency of Texas A&M. Using "business methods" to rate our professors of culture is ludicrous, given the mass culture otherwise inculcated by business society in this twilight period of US capitalism. Texas, like the South generally, is a leader of the race to the bottom–witness their recent right-wing mugging of textbooks to provide a nicer image for greed, racism, etc. –- They used to be called the Ugly American. They're still ugly (and fat), but now add Stupid American. Unfortunately, the rest of the world must pay for American stupidity, given the lethality of same (from nuclear weapons to environmental destruction to a culture of mendacious greed).

[Oct 21, 2010] "BC Law Student Asks for Money Back,"

A third-year Boston College Law School student facing dismal job prospects and a mountain of student loan debt has offered the prestigious Hub institution a unique deal: Keep the degree ... and give me back my tuition!

In an open letter to BC Law's Interim Dean George Brown posted on EagleiOnline- an online student-run newspaper at BC's law school - the anonymous dissatisfied customer said soon-to-be grads are about to enter "one of the worst job markets in the history of our profession" and an "overwhelming majority" of them can't find jobs.

"We are discouraged, scared, and in many cases, feeling rather hopeless about our chances of ever getting to practice law," the student wrote.

The law school student's missive then proposed a "solution to this problem."

The student offered to leave law school without a degree at the end of the semester in exchange for a full tuition refund - a move the erstwhile aspiring attorney says would help BC's US News ranking because it wouldn't have to report another graduate's state of unemployment.

BC Law is not warm to the idea.

[Oct 21, 2010] Stern Foreclosure Factory $260 Million in 2009 Revenues

October 21, 2010 | The Big Picture

JerseyCynic

great link ! great piece

I see Mr. Wallace at the ethical spectacle has the same fears as I do about the impending student loan bailout
http://www.spectacle.org/1010/rags.html

"Banks which lend these amounts of money for education are engaging in many cases in exactly the behavior of banks which loaned absurd amounts of money for real estate purchases by people who would never be able to repay it unless a miracle occurred. Such lending is doubly irresponsible, putting the bank at risk and ultimately forcing bail-outs with public money, but also encouraging individuals to engage in risky behavior. The spectacle of young people starting their adult lives as much as a quarter million dollars underwater is very disturbing. The role of government in sponsoring, encouraging and guaranteeing student loans also needs to be re-examined. A government role which made sense when people were graduating with $20,000 in debt looks entirely different when the number is ten times as much."

[Sep 24, 2010] "Against Homework"

Economist's View

This is from an 1860 edition of Scientific American:

Against Homework, Scientific American: A child who has been boxed up six hours in school might spend the next four hours in study, but it is impossible to develop the child's intellect in this way. The laws of nature are inexorable. By dint of great and painful labor, the child may succeed in repeating a lot of words, like a parrot, but, with the power of its brain all exhausted, it is out of the question for it to really master and comprehend its lessons. The effect of the system is to enfeeble the intellect even more than the body. We never see a little girl staggering home under a load of books, or knitting her brow over them at eight o'clock in the evening, without wondering that our citizens do not arm themselves at once with carving knives, pokers, clubs, paving stones or any weapons at hand, and chase out the managers of our common schools, as they would wild beasts that were devouring their children.

kharris:

This is what somebody associated with "Scientific American" thought 150 years ago (wish we knew who), and is also apparently the finding of at least some recent academic research (see "The Homework Myth" by A. Kohn, for instance). So why is there so much homework? How, in the face of evidence, did we get from the right answer to the wrong answer?

Eddbrowne:

Some comments here confirm the need for more homework. If the schools do a great job, homework can be less, but independent work in a separate environment is still crucial.

The U.S. veneer shields decay in a workforce and voter base that has little idea of what it does not know.

From three decades in various engineering operations, I can say that we better start running scared, even about basic reading skills.

fred:

People aren't stupider today than in the past, nor in the US than elsewhere. They learn what they need to know and that's it. What we have is a culture that rewards stupidity and doesn't reward intelligence. The stupid poor get welfare, the stupid tea-bagger rentiers get deflation, bailouts for bond-holders and no cuts to medicare or social security for existing recipients (and damn the future recipients).

Chumps who make the mistake of studying technical subjects (but not at the internationally competitive level of a phd in bioengineering or whatever from Stanford or MIT) get a pink slip because their jobs have been shipped to China. All things considered, they'd have been better off figuring out how to game the welfare system or get a job in one of the industrial complexes (military,, prison, education, healthcare, etc).

cm :

"how to game the welfare system or get a job in one of the industrial complexes (...)"

What's the difference? Welfare isn't what it used to be - these days it is state subsidies for favored "industries". Maybe one welfare queen or another gets to buy an old Caddy, but I'm not sure.

According to etymonline.com:

**industry late 15c., "cleverness, skill," from O.Fr. industrie, from L. industria "diligence," fem. of industrius "industrious, diligent," used as a noun, from early L. indostruus "diligent," from indu "in, within" + stem of struere "to build" (see structure). Sense of "diligence, effort" is from 1530s; meaning "trade or manufacture" first recorded 1560s; that of "systematic work" is 1610s. **

JeffF:

Reminds me of a glorious moment I had in high school. The intersection of a good history teacher and a bad English teacher.

In history we were studying John Dewey (of Dewey decimal system fame), who was an educational reformer. Part of the reforms were related to reducing the amount of rote memorization.

My English teacher gave vocabulary tests which were graded on exactly replicating the definition for various words given to us on some kind of study sheet. Word for word identical meant success, anything else meant failure.

During class he happened to speak approvingly of John Dewey. I raised my hand and asked, "John Dewey. Isn't that the guy who campaigned against rote memorization in class, you know like memorizing vocabulary definitions word for word?". Can't remember if he said yes or if the few seconds of deathly silence started immediately.

That teacher was certainly a man of integrity, however, I got an A in the class.

Anyhow the type of homework is also quite important and I suspect that 150 years ago, other than straight book reading, the type of homework generally given was not very useful.

NJL -> JeffF... Melvil Dewey decimal system John Dewey progressive educator and reconstructor of philosophy

Still, a great anecdote.

Reply Thursday, September 23, 2010 at 02:11 PM

JeffF -> NJL... Heh.

Anecdote, brutally murdered.

Reply Thursday, September 23, 2010 at 03:38 PM

JeffF -> JeffF... Now I was the fool, heh.

Oh well. My whole world is turned on its head. I think the history teacher is now the bad one. I mean the English teachers definitions were at least correct...

Helen Wheels:

"I suspect that 150 years ago, other than straight book reading, the type of homework generally given was not very useful."

Are you saying that homework assigned now IS useful? If so, why aren't our kids able to write grammatically or cipher without a calculatin' machine?

Homework is just another product of the reductive approach to education. More numbers on a spreadsheet to track = good. And somewhat subjective things like coherent writing don't turn into numbers all that well. Quantity substitutes for quality because quality cannot be easily defined or reduced to a number.

Lawrence:

I could not imagine learning mathematics without having 120 problems to solve, 4 nights a week.

Things like leadership skills and autonomy are learned on the playground.

cm:

As the Russians say, "repetition is the mother of learning (study)".

Lawrence:

The prof for my math courses was a Russian, and it was all repetition. Like he said, "It's how we do it back home." Sergey is a great man, and his story of how he got here will bring anyone to tears.

[Sep 06, 2010] The Unstoppable Rising Cost of Tuition

September 5, 2010 | The Mess That Greenspan Made

It's funny how, in recent years, the cost of domestic services such as college tuition and health care – services that can't be outsourced or purchased from abroad – have been two of the few items in the consumer price index that have risen relentlessly. The Economist looked at how college costs stack up with inflation and wages in this story the other day.

They note that college fees have been rising far faster than incomes. Perhaps if all higher education could be conducted somewhere in Asia where salaries are lower and benefits are not so generous, a college degree wouldn't be so expensive.

notjonathon

I was a professor at a small liberal arts college in Japan for sixteen years. We had about two thousand students overall, a faculty of a hundred or so and administrative staff of less than fifty. We received some government support, but tuition and fees for our students are less than ten thousand a year (higher for the new nursing school).

A bubble lesson: After attrition and pay cuts amounting to about 20% of our salaries, the personnel costs for faculty were cut by almost 50%. However, mismanagement, deflation and low birth rates meant that we were forced to eat another concession; retirement age was cut by two years (another feature of Japanese employment lets a faculty member retire once and be rehired at half pay–second retirement was moved up three years, as well).

Savings to the school were enormous–I calculated my total loss (real vs. originally promised income) at somewhere around four hundred thousand dollars. Multiply that by a hundred!

Salaries were also pegged to the pay scale of public employees. This was great during the boom years; as the CPI rose, so did salaries. Came the budget crunch and salaries began to fall. Soon after I retired, there was a 10% across the board salary cut for public employees in the Prefecture, so my former college peers took another hit. For some of the younger faculty, the lifetime losses will easily amount to seven figures (that's ten figures in Yen).

Is this the future for the US?

The capture of the universities by administrators is another feature of US higher education that needs to be addressed. Even as more and more faculty are reduced to adjunct status, administrators proliferate. This non-educational burden will eventually sink the entire system.

The idea of for-profit education might have shown initial promise, but these school corporations were founded on a flawed premise: profits first, education second. Their growth was in turn fueled by the insane student loan bubble (a part of the mess that Greenspan made) that transformed them into mini financial institutions (or should I say casinos). Instead of lowering costs and providing better education, they proved to be just another method of putting the already disadvantaged further in debt.

Sorry for jumping all over the place.

Ben :

The problem of education is a big one.

To notjonathan's point:

No where is Pournelle's Iron Law of Bureaucracy more prevalent than in education – from the University level on down:

"In any bureaucracy, the people devoted to the benefit of the bureaucracy itself always get in control and those dedicated to the goals the bureaucracy is supposed to accomplish have less and less influence, and sometimes are eliminated entirely."

That is a major source for rising costs – those are the folks who make the decisions to build the Taj Mahal's of education (and there seems to be one in every city nowadays). They are also what makes organizations top-heavy, increasing costs without increasing effectiveness.

What else? Credentialism is rampant, and many solutions that worked for decades (if not centuries) such as apprenticeship (particularly in law) are no longer an option, even though a case can be made that that particular solution produced better results.

Who knows what will happen with higher education. What is absolutely certain is that the present system cannot go on forever. And as Stein said "when something can't go on forever, it will stop."

Perhaps there is some kind of analogy between the higher education and housing situations, in which "customers" are taking on increasing amounts of debt for an "asset" (diploma) which has increasingly limited or questionable returns. The debt is the debt, and it stays forever until you pay it off or go bankrupt (and sometimes even after you go bankrupt). Eventually there will be a huge market for "renters" – those that don't want to or can't afford the high costs, and they'll need to go elsewhere, because credentialism is not going away soon. My bet is on distance learning, which is becoming more accessible and convenient. Unfortunately at most universities, its still a big cash cow (they charge the same tuition as a regular class) but there are a few exceptions.

[Aug 22, 2010] Why do I expect the unemployment rate to increase?

Aug 14, 2010 | CalculatedRisk

TagsByzantine_Ruins:

LOL. What if you're born in America?

In 'merica the gig is to become indentured to the Education Industrial Complex with the promise of a living wage J-O-B. The truth is :

Student-Loan Debt Surpasses Credit Cards, Americans owe some $826.5 billion in revolving credit, according to June 2010 figures from the Federal Reserve. (Most of revolving credit is credit-card debt.) Student loans outstanding today - both federal and private - total some $829.785 billion, according to Mark Kantrowitz, publisher of FinAid.org and FastWeb.com.

"The growth in education debt outstanding is like cooking a lobster," Mr. Kantrowitz says. "The increase in total student debt occurs slowly but steadily, so by the time you notice that the water is boiling, you're already cooked."

By his math, there is $605.6 billion in federal student loans outstanding and $167.8 billion in private student loans outstanding. He estimates that $300 billion in federal student loan debts have been incurred in the last four years.

Birthrates among indentured educated populace are going down

[Aug 07, 2010] Undercover Probe Finds Widespread Deception in Marketing by For-Profit Colleges - Government - The Chronicle of Higher Education By Kelly Field

A link to Senate's hearing "For-Profit Schools: The Student Recruitment Experience."
August 1, 2010 | The Chronicle of Higher Education

A government investigation of 15 for-profit colleges found that student recruiters at four of the colleges encouraged undercover "applicants" to commit fraud and that representatives of all 15 colleges made deceptive, or otherwise questionable, statements to the applicants.

The Government Accountability Office's report on the investigation, which will be made public at a U.S. Senate hearing on Wednesday, describes instances in which recruiters and admissions officers encouraged students to falsify their financial-aid forms and misled them about the colleges' costs, accreditation statuses, and graduation and job-placement rates.

In one instance, an admissions representative encouraged an undercover applicant not to report $250,000 in savings. Another suggested that an applicant claim three dependents when the applicant had none.

Representatives from 13 colleges gave applicants false or misleading information about graduation rates, guaranteed applicants jobs after graduation, or exaggerated their likely earnings. In other cases, representatives reported the annual cost of attendance for only nine months of classes, even after describing the program as year-round.

Six colleges told applicants they could not speak with a financial-aid representative about their eligibility for aid until they had completed an enrollment form and paid an application fee. One representative told an applicant that student loans were not like car loans because "no one will come after you if you don't pay," despite the fact that student loans can't be discharged in bankruptcy.

The report does not identify the 15 institutions by name but does provide some information about them, including whether they are privately held or publicly traded companies, which state they are located in, and whether they are two-year or four-year institutions. In the report, the GAO says it focused on institutions that receive 89 percent or more of their revenue from federal student aid (the allowable maximum is 90 percent) or are located in a state that is among the top 10 recipients of federal student-aid funds.

The report also describes a handful of instances in which admissions and financial-aid officers provided the undercover investigators with accurate and helpful information about the transferability of credits and prospective salaries, among other things.

In addition to the visits, four government investigators filled out online forms expressing interest in for-profit educational programs. After submitting their information, they began receiving calls from recruiters within five minutes. One fictitious student received more than 180 calls in one month, some of them coming as late as 11 p.m.

Wednesday's hearing, being held by the Senate Committee on Health, Education, Labor and Pensions, comes amid increasing government scrutiny of the rapidly growing for-profit sector, which is highly dependent on federal student aid. While for-profits enroll fewer than 10 percent of American college students, they accounted for almost a quarter of federal student aid in 2007-8. At a previous committee hearing, in June, the panel's chairman, Senator Tom Harkin, Democrat of Iowa, said he would offer legislation to crack down on "bad actors" in the sector.

bearjimmy - August 03, 2010 at 05:56 am

To keep their respective pipelines full of wannabe interior designers, graphic artists, chefs, as well as allow others who want to study from the comfort of their homes instead of at a traditional brick and mortar campus, to ensure their stockholders get dividens, and the parent company's stock sores, for-profit colleges have no alternative but to do whatever it takes. They are, after all, helping Americans pursue the spectral image formerly known as the American Dream.

feudi - August 03, 2010 at 08:12 am

I agree with many of the comments here regarding the conflict of msiions in for profit schools. Anyone who disputes that need only compare the salaries of the executives of for profit companies versus that of not for profit schools. The differences are staggering, no astonishing! Arne Duncan should have Kenneth Feinberg look at the compensation of these people as he is doing with Wall Street executives. Capitalism without equity is tyranny.

jacqx27 - August 03, 2010 at 08:53 am

Having worked for several "for-profit" schools in admissions I can tell you there is deceit in everything they do. Sexual harassment (and subsequent coverup) is rampant, as are QUOTAS (some call them goals, now I think they're moving to "budget" and depending upon the type of the school the seedier it gets, who cares if they don't have a high school diploma. If they don't have the money for the application fee, suggest they pawn something. Class acts all the way through and not one infrastructure can say they do things any differently.

bhp35 - August 03, 2010 at 09:15 am

In the wider picture, the abuses noticed in the article can be found in both the for-profit and the non-profit sectors. I suspect that the adult learner programs operated by non-profit institutions sometimes demonstrate the same behavior as noted at these for-profit schools. The abuse incident rate may be higher at for-profits but some non-profits need to reform their business practices as well. I agree that too many schools see themselves as businesses without giving sufficient attention to their civic and social responsibilities

leemaxey - August 03, 2010 at 10:21 am

In terms of the mission discussion, the mission of a for-profit is not to just make money. All businesses do that to survive. However most businesses have missions, values, and guiding principles. Sometimes these are just wall posters and sometimes these a lived by the employees. Likewise, many schools have lofty missions that are unrealized.

No one has mentioned that there are different kinds of educational needs during a person's life. Focused certificate courses that enable someone to get a job or hold a job are very different from most degree programs. Just as a student who can take a four sabbatical is different from a wage-earning single parent who needs a certificate to get a leg up.

Online can be terrific and awful just like in-person classrooms. Corporate America has been dealing with appropriate delivery methods for student needs much longer than Higher Ed. It might be helpful to learn from them and from the gaming community where passion and learning meet entertainment.

mchag12 - August 03, 2010 at 12:18 pm

what the report doesn't mention, charlie gross and others, is that these for-profits, along with being almost universally fraudulent hand out automatic A's for classes in order to keep the students sucked into the system. It is just another example of what is happening to higher education in this country, where students are customers and full time faculty have become a relic of the past. Non-profits are not doing much better in letting students know that they will be taught by adjuncts with no commitment to the students or the institution, for their poverty pay does not allow their spending time actually thinking about how higher education should work. And betterschools, I have no idea what numbers you are looking at, but of course on-line education is about profit. More students, less requirements and checks coming in. We have known this way before 1995. Who do you work for? And it is not the minority as you suggest. The report shows that it is in fact almost all of them. It is spin to say it is not.

dburton - August 03, 2010 at 02:39 pm

Tell me that a small liberal arts non-profit university that is struggling to survive isn't "hyping" and bending the truth to get students.

I wish the investigation could have sampled both for-profit and non-profit using the same criterion. I tend to not like only looking at part of the problem. Based on the comments so far, it appears that the problem is "who is gaurding the hen house" not which hen stepped on the egg.

cwinton - August 03, 2010 at 03:24 pm

The elephant in the room is the federal student loan program. Without it we wouldn't be having this discussion. Basically, it is a means of taxing students' future earnings by saddling them with an enormous debt to repay upon graduation. The rather shaky assumption that a college degree (in anything) will provide the excess means necessary to pay off the debt makes possible the marketing of degrees of dubious value in this regard, something both profit and non-profit are apparently doing with abandon. Face it, there have always been diploma mills seeking to sell the naive a credential they purport is the equivalent of one earned from a reputable institution (where reputation is based in part on past history). In providing the loan program, the government has simply provided a candy jar for these same operators, and their ilk, to wallow in. The first step is to revisit the student loan program, and in particular, change the assumptions upon which it is based.

fiscalsense - August 04, 2010 at 09:54 pm

The biggest fraud on the taxpayer is done when schools allow students to borrow two or three times their actual direct cost for "living expenses" (e.g. borrowing $138,000 for a $40,000 degree), then have the students enter the Income Based Repayment (IBR) plan, where the student will never fully repay their loans. Master's level students can borrow $10,250 per semester even if the actual cost of the classes are only $4000, meaning roughly $6000 of the loans goes in the student's pocket. Students end up leaving school with $100,000 or more in loan debt for a degree which actually cost $40,000, using all the excess to pay their mortgage, credit cards and any other debts they have, then are let of the hook by the IBR plan. No sane investor would lend money on such loose terms, yet we have these loose lending and repayment terms which assume that all borrowing was necessary and done in good faith. If Title IV regulations were rewritten to force schools to limit funding to direct cost only, most of this problem would be eliminated. Debts would be cut at least in half and students would fully repay their loans. Schools can do this now voluntarily, but unfortunately most do not under the guise of "living expense" allowances.

[Jul 24, 2010] FRONTLINE college, inc. join the discussion PBS

Carmineappice

These for-profit colleges mislead the gullible, who often cannot get in to more established schools, into thinking that a glamorous career in fashion design, cullinary arts or recording engineering is just a few classes away.

There is no cost to the student, as he borrows from the government. And, before he ever gets the first statement on his loan, he will receive a substantial (several thousand dollar) refundable tax credit for his "expenditures" on higher education. The government gets burned in the current year and again when it has to write off the loan. I wish I could figure out how to buy credit default swaps against this debt, but I'd feel bad profiting on the back of my fellow tax payers.

Everyone does not need to go to college. Perhaps the existence of these schools is a reflection of the lack of publicly funded vocational schools or the constant media mantra that only those with college degrees can achieve the American dream. I would propose that these schools should either be cut off from federal loan funding, or, better yet, be put out of business (although the former would insure the latter).

Damajah

First of all, there's no real difference between the for-profits, and the public institutions, except where the money finally ends up. What Frontline fails to mention, is the abysmal graduation rates for traditional colleges, the added fees and scheduling nightmares, commuting, textbooks, parking, crime, housing, trying to get to the library, or get to a computer in the lab.

Sure...the for-profits charge 2-3 times as much, but a lot of students get tuition assistance from their employers, VA benefits, or promotions and pay raises based on accumulated college hours. Second, try learning someting in your typical foundations course in a typical brick-and-mortar institution, with 300 other undergraduate students. Third, traditional education institutions are in a turf battle against the for-profits. The traditional schools will give a student a degree, and then won't hire them...talking about adding insult to injury. Let's get realistic. Government funding and endowments are drying up. Traditional institutions can no longer afford to offer obscure poorly subscribed courses, and the "Floutie Effect," or the hope that having a good football or basketball team will increase student enrollment, is diverting precious resources away from higher education's original purpose. While the cost of a for-profit education is high, the traditional public and private colleges are also pricing themselves out of the market, and the current research shows, that on-line learning is equal to, and in many cases, better than what is found at brick-and-mortar institutions. It is no accident, that nearly every college and university in this country has a distance learning component, but too little, too late.

As soon as the University of Phoenix restructures it's tuition rates, it will be able to undercut many local colleges and universities, especially community colleges, and drive them out of business. The final component for the U of P to achieve dominance, is a practicum/intern program, that gives students actual experience in contemporary job setting. Experience trumps college brand name in many cases, and also trumps GPA.

Truth123

I have been teaching for UOP Online for about a year now at the graduate level. I am shocked at the low caliber of students and their work. Out of a class of 10-12, there are always 2-3 that are exceptional and are there to learn and "earn" every grade they have made while in attendance.

However, I am VERY frustrated with being told over and over when I give a B or C for an assignment that I am the first instructor to not give them an A during their entire graduate studies.

Some students would not be able to pass high school English, however they are being given A's at the graduate level at UOP.

Many of the adjunct professors that grade "too hard" by UOP standards are not asked to continue. Although they are never told this outright, they are not requested to teach other courses.

I ran into the exact same thing with South University. Aside from the 2-3 really bright students that give 100% and expect to earn their grades, I have run into many issues of quality, plagiarism, basic composition, etc. and I usually teach a class that is within 1-2 classes left before they graduate. They are doing these students an injustice and many would never be able to pass regular college classes at a traditional university.

Talon139, I teach at UOP and can back up this claim with experience, both as a current instructor at UOP and a past student at four different traditional universities graduating with an undergraduate, two master degrees and a doctorate.

ramonaeb

I have taught at University of Phoenix, and I believe it is much worse than Frontline uncovered. They could do a whole show about the poor quality of the courses and the incredible problems of plagiarism. I strongly believe the University of Phoenix should not be accredited.

There are no tests in the science class I taught. Students, therefore, do not need to know any information very thoroughly. They have no lectures either, so the information is not even explained to them. Many students learn just enough by surfing the web for random unreliable websites. Questions are very vague and non-specific. The combination of no testing and poorly worded assignments allows students to go through entire courses without hardly needing to open a book (or go to its online equivalent).

Instructors are given a syllabus which has been used for years without updates. Students can download the entire course-work written by previous students on "tutoring" websites. These websites probably exist because of the University of Phoenix. I believe the University has a lot of "talk" about stopping plagiarism, but the courses are setup in such a manner that cheating is inevitably easy to do and too much of a hassle for poorly paid instructors to catch and report. Students do not know how to write a simple research paper and many lack basic skills that would be needed to do well at a traditional university. Grading ends up to be lenient due to the poor quality of the students. Nevertheless, at least half of the students in the classes that I have taught fail or drop out by the end of the course. They don't fail because they are doing so poorly, but simply because they do not get assignments in on time. This indicates to me that these students do not have enough focus to be in an online college. If someone was there face to face, maybe they would have pressure to work. If they had tests and lectures, they might be forced to have more focus. But the way the system is set up is not working.

The University does not allow instructors to tell students to drop a class, even if that student is failing. In addition, if a instructor keeps a high percent of the students in the class (no matter what their grade), the instructor will get a bonus.

student

went to unversity of pheonix for a year. i can't believe that was teaching. they posted questions and you didn't hear from them except for a short message every day or two and when they graded your homework and they said good paper and you got a grade. i never know how good i was doing. then after a year i got a teacher that told me i was ileterate.

Public CC employee

I believe that your comment, "Another factor is what brick and mortar faculties are paid ..." isn't balanced. You should distinguish between public/private university faculty and public community college faculty. Public CC faculty don't have tenure (which is what you were describing) and they teach 4 - 6 classes a semester (which include online and overload classes) plus committee work, community interaction and provide leadership for student organizations. I have worked at both types of institutions and found the for-profit to be lacking in true student support. Yes there are some good faculties in these companies but overall this isn't a good turn for education in America. They aren't putting down online education (commercial or non-profit) in this video program only shoddy and barely regulated programs that make too much profit and return too little product to a naive public.

Let them build it and let them come but make sure that someone creditable is watching out for the students consumers as we do in many other vital areas of consumer protection. My son has worked at a home improvement center where some of the staff had degrees (and debt) from these education businesses and were unable to find and employment in their field. They were stuck in $7-8 dollar an hour jobs with no benefits. This was 6 years before the recession hit.

How many of these education businesses have the best interest of the student's involved? What they have really done is mine the holes that should have been addressed long ago by our slow moving, stodgy and tradition bound universities and colleges. Public community colleges have begun moving in this direction over the past decade and now they educate many more of America's students for this reason. But they are watched over by accrediting bodies and didn't 'buy' their certificates of accreditation.

Public CC's do offer about 20% of their classes online and supply support 24/7 so that non-traditional students can get their education asynchronously. This area in public CC's has been growing rapidly and is only slowed by our concern that it be a quality experience. I think that online education has some very valuable points to offer (and this has been proven by experience and research) but the U.S. mustn't go head long into this model for every subject. Chemistry labs online using household chemicals in a student's kitchen? Come on!

Nursing practicums in daycare centers and nursing homes? Come on! If you haven't already then I suggest you teach an online course at your local public community college to contrast and compare your experience with for profit education business classes. What course management software do you use? Blackboard? What streaming video content do you have access to teach your course? Does your library offer access to hundreds of online full-text databases and to millions of articles for student research? Can an online student receive library eBooks and print books delivered to their home? Yes there are public libraries but why do for profit students end up doing some of their research at our institutions? Or are students handed a canned package of course materials as their research material? Easier yes, more convenient yes, but good for student learning? Questionable.

As long as prospective students understand that what they are getting is a very focused vocational level education (and that it is guaranteed to be on the level of public institutions) and are educated to the true costs involved great go for it. As long as these businesses are tied vocationally to getting a job and not selling themselves as providing a higher education it's okay. And some students of yours will succeed and some of ours will fail. I work with an administrator at my institution that graduated with BA and master's degrees from Phoenix and is a fan but he is an exceptionally bright and motivated individual who would have succeeded in his career no matter what path he took. But for too many of the students who enter this educational path it is a disaster ending with little to show but a huge student loan and no job in their field. This program does reveal the under belly of the education business as I have experienced it. There is a need for your business. But let the sun shine in and accept regulation to remove the bad guys who are scamming innocent citizens who want to better their lives.

[Jul 24, 2010] For-profit colleges Monsters in the making

Jul 22, 2010 | The Economist

IT SEEMS too good to be true, at least for companies. Customers arrive at for-profit colleges by the million. With them comes billions of dollars of federal student grants and loans, to be poured into corporate coffers. Public subsidies may provide up to 90% of revenue; the government bears the risk of loan defaults. This business model has served firms rather well. Its effect on students and taxpayers is less clear. This summer, however, a brawl over for-profit colleges has exploded at last.

On May 26th Steven Eisman, a big shorter, warned investors that for-profit colleges could echo subprime mortgages. June brought a Senate hearing (including testimony from Mr Eisman, to the industry's horror) and proposed regulations from the Education Department. As The Economist went to press the department was expected to release another, even more controversial rule. Behind this fight lies a new, rather uncomfortable urgency. For-profit colleges have happily depended on government support. Now education may increasingly come to depend on for-profit colleges.

Proprietary colleges have morphed into behemoths, some of them publicly traded companies that reach hundreds of thousands of students in classrooms and online. Enrolment jumped by 225% between 1998 to 2008, more than seven times the rate for all post-secondary programmes. The recession has accelerated this trend. The Apollo Group's University of Phoenix, the biggest proprietary college, now enrolls 476,500 students. With more students comes more public money. In 2008-09 $24 billion in Pell grants and federal loans went to for-profit colleges.

The return on investment is harder to calculate. The industry is shrouded in fuzzy numbers. Reliable graduation rates and earnings data do not exist. More certain, however, is that the debt burden and default rates for graduates are particularly high. In 2009 the average yearly tuition was about $14,000, compared with $2,500 at a community college. Critics claim that misleading recruiting lures students into programmes that leave them with heavy debt and flimsy skills. Of post-secondary investigations by the Education Department, 70% are related to proprietary schools. Litigation is common. In 2009 Apollo agreed to pay $78.5m to settle a suit over pay schemes for recruiters.

The Education Department is trying to fix these problems. It has proposed requiring schools to give more information about fees, graduation rates and job placement. Schools would not be able to tie recruiters' pay to their enrolment numbers. The most controversial idea, to cap students' yearly debt obligations to a small share of income after graduation, will be formally proposed any day now. Harris Miller of the Career College Association contends that such a change would force thousands of good programmes to shut.

Final regulations are expected by November. Further legislation may come from Tom Harkin, who is leading Senate hearings on the industry. Changes are needed-and soon-not merely to protect students and taxpayers. For despite all the criticism, proprietary colleges look likely to become ever more necessary.

Barack Obama has set a goal of having the world's highest share of college graduates by 2020. Proprietary schools offer flexible classes for those with jobs, children or remote homes. More important, community colleges are severely strained. Though federal student aid has risen, a plan to support community colleges was all but gutted in March. States are overwhelmed by growing demand and shrinking budgets. California estimates that tight capacity forced community colleges to turn away 140,000 students this year. It is no coincidence that Kaplan, a for-profit college, has signed a controversial agreement to tap the state's glut of students. Mr Miller is defiant. "No one wants to talk about how the capacity expansion has to come from somewhere," he says. In 2008 for-profit colleges accounted for 7.7% of all post-secondary enrolment. For better or worse, that share is likely to grow.

Studentloanjustice:

While I agree with this piece, I have to say that after two years of seeing hugely important stories sit on the shelf while stories about for profit colleges sucked all the air out of the room, It is time to recast this story in the correct light. The for profits are bad, no doubt...but default data shows clearly that community colleges, and even 4 year schools are not at all far behind. A 2003 Inspector General estimate predicted that the default rates of 4 year colleges, community colleges, and for profits would be 25%, 35%, and 45% respectively. My best guess is that these might be a tad high, but not by much if any.

This is a systemic, academia-wide problem, folks, and the sooner we look honestly at it, the sooner we can find a timely fix. Cutting to the chase, I will simply say that ultimately, the federal student loan system has become systemically corrupted, predatory and inflationary due in large part to the unprecedented removal of fundamental consumer protections that have caused the motivations of the relevant players to be terminally misdirected. The fact that even the federal government and its agents realize a healthy return, not loss, on defaulted loans, the fact that all the players (schools, lenders, Department of Education) have somehow failed to inform the public that the default rate for federal loans exceeds that of even sub prime home mortgages, provide ample evidence that this is the case, but there is far more data to point to than what I've just said.

Barry0325:

The federal government subsidized houses for millions of people who could not afford them. People of both good will and bad will took advantage of this, and we got the housing bubble. Look for something similar here.

Obama wants to subsidize college educations for everybody, even people who can't make use of them (since our colleges are academically oriented, and not everybody needs or wants an academic education). This benefits a tight group of education "professionals," employs more teachers, administrators, etc., but does very little for many of the people who are run through the mill.

It's not surprising that entrepreneurs seek to take advantage of all this government largesse. On current trends, government is the only sector of our economy that will prosper in the future, and a smart businessman goes where the money is. This is only an expression of that trend. Certainly, the current administration has made its hostility toward private enterprise clear. This government/big business mashup (corporatism) is exactly the future that the Democratic party stands for.

[Jul 24, 2010] Subprime goes to college By STEVE EISMAN

Some colleges are no longer educational institutions, but are really loan sharks in disguise...
June 6, 2010 | nypost.com

Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.

The for-profit industry has grown at an extreme and unusual rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk, and the for-profit industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.

In the past 10 years, the for-profit education industry has grown 5-10 times the historical rate of traditional post secondary education. As of 2009, the industry had almost 10% of enrolled students but claimed nearly 25% of the $89 billion of federal Title IV student loans and grant disbursements. At the current pace of growth, for-profit schools will draw 40% of all Title IV aid in 10 years.

How has this been allowed to happen?

The simple answer is that they've hired every lobbyist in Washington, DC. There has been a revolving door between the people who work for this industry and the halls of government. One example is Sally Stroup. In 2001-2002, she was the head lobbyist for the Apollo Group - the company behind the University of Phoenix and the largest for-profit educator. But from 2002-2006 she became assistant secretary of post-secondary education for the Department of Education under President Bush. In other words, she was directly in charge of regulating the industry she had previously lobbied for.

From 1987 through 2000, the amount of total Title IV dollars received by students of for-profit schools fluctuated between $2 billion and $4 billion per annum. But when the Bush administration took over, the DOE gutted many of the rules that governed the conduct of this industry. Once the floodgates were opened, the industry embarked on 10 years of unrestricted massive growth. Federal dollars flowing to the industry exploded to over $21 billion, a 450% increase.

At many major-for profit institutions, federal Title IV loan and grant dollars now comprise close to 90% of total revenues. And this growth has resulted in spectacular profits and executive salaries. For example, ITT Educational Services, or ESI, has a roughly 40% operating margin vs. the 7%-12% margins of other companies that receive major government contracts. ESI is more profitable on a margin basis than even Apple.

This growth is purely a function of government largesse, as Title IV has accounted for more than 100% of revenue growth.

Here is one of the more upsetting statistics. In fiscal 2009, Apollo increased total revenues by $833 million. Of that amount, $1.1 billion came from Title IV federally funded student loans and grants. More than 100% of the revenue growth came from the federal government. But of this incremental $1.1 billion in federal loan and grant dollars, the company only spent an incremental $99 million on faculty compensation and instructional costs - that's 9 cents on every dollar received from the government going toward actual education. The rest went to marketing and paying executives.

Leaving politics aside for a moment, the other major reason why the industry has taken an ever increasing share of government dollars is that it has turned the typical education model on its head. And here is where the subprime analogy becomes very clear.

There is a traditional relationship between matching means and cost in education. Typically, families of lesser financial means seek lower cost colleges in order to maximize the available Title IV loans and grants - thereby getting the most out of every dollar and minimizing debt burdens.

The for-profit model seeks to recruit those with the greatest financial need and put them in high cost institutions. This formula maximizes the amount of Title IV loans and grants that these students receive.

With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters (and I mean that literally), the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable of society.

If the industry in fact educated its students and got them good jobs that enabled them to receive higher incomes and to pay off their student loans, everything I've just said would be irrelevant.

So the key question to ask is - what do these students get for their education? In many cases, NOT much, not much at all.

At one Corinthian Colleges-owned Everest College campus in California, students paid $16,000 for an eight-month course in medical assisting. Upon nearing completion, the students learned that not only would their credits not transfer to any community or four-year college, but also that their degree is not recognized by the American Association for Medical Assistants. Hospitals refuse to even interview graduates.

And look at drop-out rates. Companies don't fully disclose graduation rates, but using both DOE data and company-provided information, I calculate drop out rates of most schools are 50%-plus per year.

Default rates on student loans are already starting to skyrocket. It's just like subprime - which grew at any cost and kept weakening its underwriting standards to grow.

The bottom line is that as long as the government continues to flood the for-profit education industry with loan dollars and the risk for these loans is borne solely by the students and the government, then the industry has every incentive to grow at all costs, compensate employees based on enrollment, influence key regulatory bodies and manipulate reported statistics - all to maintain access to the government's money.

In a sense, these companies are marketing machines masquerading as universities. Let me quote a bit from a former employee of Bridgepoint Education, operators of Ashford University:

"Ashford is a for-profit school and makes a majority of its money on federal loans students take out. They conveniently price tuition at the exact amount that a student can qualify for in federal loan money. There is no regard to whether a student really belongs in school, the goal is to enroll as many as possible. They also go after GI Bill money and currently have separate teams set up to specifically target military students. If a person has money available for school Ashford finds a way to go after them. Ashford is just the middle man, profiting off this money, like milking a cow and working the system within the limits of what's technically legal, and paying huge salaries while the student suffers with debt that can't even be forgiven by bankruptcy. We mention tuition prices as little as possible . . . this may cause the student to change their mind.

"It's a boiler room - selling education to people who really don't want it."

How do such schools stay in business? The answer is to control the accreditation process. The scandal here is exactly akin to the rating agency role in subprime securitizations.

In order to be eligible for Title IV programs, the universities must be accredited. But accreditation bodies are non-governmental, non-profit peer-reviewing groups. In many instances, the for-profit institutions sit on the boards of the accrediting body. The inmates run the asylum.

The latest trend of for-profit institutions, meanwhile, is to acquire accreditation through the outright purchase of small, financially distressed non-profit institutions. In March 2005, Bridgepoint acquired the regionally accredited Franciscan University of the Prairies and renamed it Ashford University. On the date of purchase, Franciscan (now Ashford) had 312 students. Bridgepoint took that school online and at the end of 2009 it had 54,000 students.

So what is the government going to do?

Most importantly, the DOE has proposed a rule known as "Gainful Employment." The idea behind the rule is to limit student debt to a certain level. Specifically, the suggested rule is that the debt service-to-income-ratio not exceed 8%. The industry has gotten hysterical over this rule because it knows that to comply, it will probably have to reduce tuition.

I cannot emphasize enough that gainful employment changes the business model. Gainful employment will cause enrollment levels to grow less quickly. And the days of raising tuition would be over; in many cases, tuition will go down.

By late 2004, it was clear to me and my partners that the mortgage industry had lost its mind and a society-wide calamity was going to occur. It was like watching a train wreck with no ability to stop it. Who could you complain to? The rating agencies? They were part of the machine. Alan Greenspan? He was busy making speeches that every American should take out an ARM mortgage loan.

Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can't afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back?

If nothing is done, then we are on the cusp of a new social disaster. If present trends continue, over the next 10 years almost $500 billion of Title IV loans will have been funneled to this industry. We estimate total defaults of $275 billion, and because of fees associated with defaults, for-profit students will owe $330 billion on defaulted loans over the next 10 years.

Steven Eisman is the portfolio manager of the FrontPoint Financial Services Fund, and one of the first people to predict the subprime mortgage crisis. Adapted from a speech he gave to the Ira Sohn Investment Conference.

BIG BUSINESS OF COLLEGE

In 2002, the government changed regulations banning colleges from providing "any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid." Since then, there has been an explosion of advertising for ITT, DeVry, Phoenix University and other for-profit universities, which aggressively recruit students and help guide them to federal student aid. Investing expert Steve Eisman estimates that for-profit students will default on $275 billion in taxpayer-backed, federal student loans.

* Tuition and fees at private for-profit institutions averages $14,174, $859 (6.5%) higher than in 2008-09. Though average federal aid isn't available, 80%-90% of funding for many for-profit companies comes from federal aid.

* At for-profit institutions, 96% of bachelor's degree recipients had student loans in 2008, and their average debt was $33,050. At public and non-profit colleges, 65% of bachelor's degree recipients had loans, and their average debt was $22,750.

* Nearly one in four Pell Grant dollars went to students attending for-profit schools in 2008-09 (24%, or $4.3 billion), almost double the share a decade earlier, according to the National Consumer Law Center.

* Though for-profit students account for 10% of all college students, they represent 44% of all loan defaults, according to the Department of Education.

Major for-profit educators include . . .

Apollo

Schools include.................... The University of Phoenix

Enrollment............................. 320,000-plus

Revenue................................ $2.7 billion

Profit margin........................... 28%

ITT Educational Services

Schools include....................... ITT Technical Institute

Enrollment................................ 70,000-plus

Revenue....................................$1.32 billion

Profit margin............................. 37%

Strayer Education, Inc.

Schools include......................... Strayer University

Enrollment................................. 55,000-plus

Revenue.................................... $512 million

Profit margin.............................. 34%

*Profit margins based on an UBS analysis

What the Obama administration is considering . . .

* The Department of Education is mulling a "Gainful Employment" rule that would limit student debt. A proposed limit would be a debt service-to-income ratio of no more than 8%. This would force universities to lower their tuition, or face declining enrollment because fewer students could afford school. After a discussion period, the rules will be issued in November and go into effect summer 2011.

[Jul 21, 2010] Thoughtful Advice from One of My Favorite Thinkers

In "Action List for the Newly Unemployed," Charles offers some thoughtful advice for those who suddenly find that the rose-colored recovery they've been promised by the experts in Washington and on Wall Street is little more than a nightmarish illusion:

Here is a basic, common-sense list of actions to consider should your household income fall drastically for any reason. It is based on the concepts I laid out in Survival+.

  1. Cut expenses immediately. Middle-class households seem especially prone to thinking they can weather a radical drop in income without any real change in lifestyle until a new job appears. Some even resort to pulling money out of IRAs and retirement accounts (and paying penalties to do so) to maintain the lifestyle to which they have grown accustomed.

    The better strategy is to perform immediate triage on the household budget and eliminate all extraneous spending. Cut expenses in every way: unplug zombie appliances and chargers, stop buying snacks and convenience food, stop going to high-priced yuppie markets, borrow films from your library rather then rent them, etc.

    Write the budget down and track your actual expenses monthly. Reward yourself with a small treat if you stay within the new budget.

  2. Look at your biggest expenses and reduce them to your "new normal" income by whatever means are necessary. Typically, the biggest expenses are housing, healthcare and perhaps education.

    There is abundant evidence that when it comes to unsustainable mortgages, The wealthy strategically default as a business decision. If a mortgage is completely out of line with the household's reduced income, then the wealthy may have the right idea: it's just business. Anyone considering defaulting on debt should of course do what the wealthy do and consult experienced, licensed real estate and tax attorneys before making any decisions.

    Some people have found that renting out rooms in their house allows them to align their income with their mortgage costs. Either expenses must be cut or income increased, or both. Hoping to find a high-paying job in the near future is not a strategy, it is just a form of denial.

    Many people we know who have seen their small business income suffer have already cancelled their health insurance--$1,000+ a month is a lot of money. There may be professional organizations which offer cheaper catastrophic-type insurance to members; those seeking to slash their health insurance costs will have to look around for creative ways to do so.

  3. Keep productive. All work has dignity. Base your pride in being productive, not on your position or title. It is very easy to fall into feeling lousy about oneself when unemployed, and the best way to counteract that natural diminishment is to stay productive. Find an organization who needs your energy and skills; yes it is "working for free" but you get value for your efforts: you keep your skills sharp and maybe add new ones, you have self-worth by contributing to a worthy organization, and you network with others in ways which might lead to some paying work.

    One value we have lost in the U.S. is the inherent value and dignity of all work. Too many people feel that all sorts of work is "beneath them." No wonder, perhaps, given that our popular culture worships at the altar of narcissism, self-glorification, indulgence and victimhood.

    I personally consider picking up trash around my neighborhood a highly valuable form of unpaid labor. There is nothing lowly about work performed with care, attention and impeccability.

  4. Work to establish multiple sources of household income. If there are potentially employable members of the household earning nothing, then get them out there making some sort of income, even if it is informal, sporadic and low-paying. Something is better than nothing.
  5. Think like an employer. The attitude built up by 60 years of prosperity is generally "give me a job and I'll do good work." That was no hindrance in decades of rising employment but now there is a new reality: a thousand other people will also do good work when given a job.

    The key word here is "given." If you think like an employer, then you realize that doing good work is the minimum baseline. You have to provide additional value that gives the employer/supervisor some hope that you will bring a much-needed spark to the enterprise. That could be a cheery, generous nature; it could be a can-do attitude of wanting to learn new things. It could be a willingess to be flexible in hours worked.

    This is not a suggestion to work for free for an enterprise which pays others to do similar work. But even in this recessionary environment, all too many people expect to work according to their own requirements rather than the needs of the enterprise. This difference in baseline assumptions is most visible between native-born Americans and recent "green card" immigrants, who typically will do whatever it takes to get ahead.

  6. Beware the illusion of incremental change. Sustained effort brings results, but within this common-sense approach is a pernicious trap I call The Seductive Illusion of Incremental Change (May 13, 2008). Picking the "low hanging fruit" produces significant improvements, and with that the illusion is formed: if we just keep doing what we've been doing, little by little the problem will be chipped away to zero.

    For example, in the first round of household budget cuts, it's not too difficult to pare away a few hundred dollars (travel, eating out, unlimited texting phone plans, etc.). That initial success can lead to a false confidence that such cuts can be continued to the point that income and expenses are actually aligned.

    But incremental change often starts yielding diminishing returns. Are the changes being made fundamental, or are they essentially tweaks to a system heading toward collapse?

    Weight loss is an example many of us can relate to. A pound of human fat contains 3,500 calories. To lose a pound of fat you need to burn 3,500 calories in excess of what you eat. To lose five pounds, you must burn 17,500 calories more than you eat. If you ramp up your exercise program and burn 500 more calories a day, then in 35 days you will lose the five pounds. Alternatively, you can cut 250 calories from your intake and expend 250 calories in additional exercise.

    This sort of sustained effort will produce fundamental results, but anything less will not. Just sending out 10 resumes a week may not produce any job offers, and cutting marginal expenses rather than making the deep cuts needed to re-align income and expenses will only set aside the day of reckoning.

  7. Preserve capital. Pulling money out of savings, IRAs and 401Ks to maintain a giant mortgage or an unsustainable lifestyle is unwise; that savings might be needed down the road for a really important emergency such as getting a knee replacement (paid in cash).

    Given the likelihood that the stock market will eventually reflect the weakness of the real economy, then keeping IRAs and 401K capital in cash rather than stock mutual funds is a form of capital preservation.

  8. Become fluid and flexible. Someone to whom various kinds of work is "beneath them" is like the person who has no interest in learning new skills; their inflexibility dooms them by reducing their adaptability. The living branch bends in the wind, the dead branch snaps off.

  9. Accept the new reality. If someone offers you four hours of work, take it. It might lead to something else, and if not, at least you made a few bucks. Clinging to past paradigms is a dead-end.

  10. Get healthy, stay healthy. Losing status, income, security, etc. are wounds to self-worth and the soul. Increased stress and anxiety are not healthy. Exercise and productive work/learning are important ways to reduce stress and build a positive response to unwanted change. Walk a quarter mile; when that's easy, walk a half-mile. When that's easy, walk a mile, and so on. Seek respite and renewal in Nature. Your body is a temple; don't feed it crap.
  11. Think entrepreneurally. The basics of entrepreneurism are simple: seek out unfilled needs, or offer a service/product which offers customers faster, better, cheaper. Identify what you like doing even if it's unpaid (at first) and pursue that line.

[Jul 10, 2010] Subprime Goes to College; Students Buried in Debt; Who is to Blame?

What Went Wrong?

Supposedly "Ms. Munna and her mother, Cathryn, have spent the years since her graduation trying to understand where they went wrong."

It should take seconds. Going $100,000 in debt to get an interdisciplinary degree in religious and women's studies seem rather foolish to say the least. Exactly what kind of job did Ms. Munna expect to get with that degree?

Now she is working for a photographer and it is plain to see her degree is totally useless.

Ms. Munna and her mom should look in a mirror to see who to blame.

Recognizing the Enabler

Although Ms. Munna should blame herself, there is a huge enabler of these kind of tragedies: Pell Grants and government loans.

Subprime Goes to College

Inquiring minds are reading the Eisman ira sohn conference slides and speech-5-26-10 presentation called Subprime Goes to College.

[Jul 10, 2010] Debt for Diploma Schemes and the Cookie Monster Principle

the expenditure of additional resources is the same thing as raising the cost per student.
March 08, 2010 | globaleconomicanalysis.blogspot.com

Inquiring minds are investigating a 44 page PDF by the Center for College Affordability on why financial aid is ineffective. Please consider Financial Aid in Theory and Practice.

Executive Summary

Financial aid programs are supposed to improve access and affordability in higher education. The effectiveness of these programs is increasingly being questioned as college attainment figures stagnate and the financial burden on students and families continues to climb year after year. This report identifies the main culprit for this unsatisfactory state of affairs as a misunderstanding of the effect of financial aid on schools.

Currently, financial aid programs take costs per student as a given, and attempt to offset some of those costs. However, costs are not given. In fact, it is widely acknowledged that colleges and universities are engaged in an academic arms race. Thus, when financial aid programs make more money available to schools, this money is spent and results in higher costs per student. The end result is more costly higher education, generally accompanied by higher tuition, which has negative implications for access and affordability.

... ... ...

The ravenous need of schools for money was originally described as "Bowen's Rule"

All universities, and in particular major institutions with or seeking elite status, will use any and all funds they receive for the pursuit of perceived excellence and improvement."17

Bowen's Rule has been confirmed by others such as Charles Clotfelter, who, as Rupert Wilkinson noted, showed that colleges "increased their prices and general spending because they could get away with it – not to make money in itself but to buy the best of nearly everything." (Emphasis original)18

... ... ...

How Schools Spend Money
In response to University of California Campus Erupts In Riots; Student Loan Scam Drives Up Cost Of Education; Expect More Riots I received several emails regarding Pell Grants.

"Matt" Writes:

Hey Mish

I live in Phoenix and have many friends working for the University of Phoenix. there. The big joke there is the Pell Grant. Most first time students call to get it but never finish one day of class. Because it's a grant, they keep the cash and never pay it back.

"Art" writes:
Thank you once again for exposing the corrupt government policies involving student loans. I also largely worked my way through undergraduate and three graduate programs. When I was in my doctoral program we were able to borrow tuition-level amounts from Pell grants. Those proved quite difficult to repay actually. Just after I finished these programs the loan mavens raised the available amounts, made the loans immune to bankruptcy, and people began borrowing tuition and lifestyle support monies.

The part that you may not be aware of is that financial vampirism has now come full circle with many Universities FORBIDDING graduate students to have any part time employment. They now MUST borrow a full ride. At our hospital we have medical and other advanced students in trainee status. The medical students tell me that they will graduate with over $300,000 in student loans and the Psychology students (depending on their schools) as much as $200,000+ in student loan debt. This means that these professionals must find the most lucrative practice subspecialties to enter or they will never be able to repay these mountains of debt. Many will fail.

The social stupidity of all this is unbelievable. We have a generation of financially crippled professionals coming on. We need these people in the areas of their training, particularly general practices, clinics etc. and yet many will not be functional because they will be fleeing from debt collectors or competing for scarce positions. Many will simply become disillusioned and quit. They will not be able to afford the amenities of life, having families etc. if they play by the rules. On the government-public policy side we have malinvested gigantic quantities of money and degraded the resource, health professionals, that we were attempting to improve.

Sincerely

Art

Pell Grant Money Goes To For-Profit Colleges

Let's wrap this up with For-profit colleges haul in gov't aid.

Students aren't the only ones benefiting from the billions of new dollars Washington is spending on college aid for the poor.

An Associated Press analysis shows surging proportions of both low-income students and the recently boosted government money that follows them are ending up at for-profit schools, from local career colleges to giant publicly traded chains such as the University of Phoenix, Kaplan and Devry.

Last year, the five institutions that received the most federal Pell Grant dollars were all for-profit colleges, collecting more than $1 billion among them. That was two and a half times what those schools hauled in just two years prior, the AP found, analyzing Department of Education data on disbursements from the Pell program, Washington's main form of college aid to the poor.

This year, the trend is accelerating: In the first quarter after the maximum Pell Grant was increased last July 1, Washington paid out 45 percent more through the program than during the same period a year ago, the AP found. But the amount of dollars heading to for-profit, or "proprietary," schools is up even more - about 67 percent.

For-profits are also grabbing a growing share of loans subsidized by the government to help low-income students. They collected about $7 billion in subsidized Stafford loans in 2008-2009, up from $4.7 billion two years before. Taxpayers subsidize the interest rate and take the hit when students default. Nearly one-quarter of students at for-profit schools default within four years, more than double the rate of other schools.

Overall, the sector enrolled about 2.7 million students in 2007-2008, the latest year with complete federal data available. That was only about 10 percent of total enrollment in higher education, but it's about 2 million more than a decade before.

The numbers are even more striking for low-income students: The number of Pell recipients enrolled in for-profit schools is 50 percent higher than two years ago.

[Jul 07, 2010] GMO's Jim Montier Destroys Kartik Athreya zero hedge

07/07/2010

House Atreides:

You know its funny. Am currently doing an university economics module on investing and in the last assignment on risk I had the temerity to quote Tyler Durden (!!) and Hugh Hendry.

Jesus. What a shit storm. They couldn't mark me down because I was right but the commentary I got back "These are not academic sources, all you should quote is the course textbook blah blah blah". Under no circumstances should you try to relate what you are being taught to the real world and the people who actually, you know, work in it. Couldn't help but think of Jeffery (I see no problem with Greece being able to service its debts) Sachs getting his ass handed to him by Hugh Hendry.

DavidC:

House Atreides
Credit to you!

Tyler, Hugh Hendry, Joe Saluzzi, Chris Martenson may not be 'appropriate' academic sources but they quote and refer to the necessary and appropriate source material.

slyfox :

i love how phd's are always so pissed off and/or full of shit. But then again if I paid 6 figures for an "advance economic" degree, when 5th grade math will do just fine, and found validation only among my peers, the same ones who dont realize that they have never thought for themselves ("go to school, get a good education, and you will get a good job"), I would probably be disgruntled as well. Funny how the only entities that will "pay" you for your "advanced degree" are the same one's that have been telling you how to think for your entire life.

[Jul 05, 2010] The New Poor - For-Profit Schools Cashing In on Recession and Federal Aid - NYTimes.com

"Critics say many schools exaggerate the value of their degree programs, selling young people on dreams of middle-class wages while setting them up for default on untenable debts, low-wage work and a struggle to avoid poverty. " The average annual tuition for for-profit schools this year is about $14,000, according to the College Board. For-profit schools have long derived the bulk of their revenue from federal loans and grants, and the percentages have been climbing sharply. Enrollment at for-profit trade schools expanded about 20 percent a year the last two years, more than double the pace from 2001-7, according to the Career College Association. Private trade schools as they stand now are just another form of predatory lending.
One fast-growing American industry has become a conspicuous beneficiary of the recession: for-profit colleges and trade schools.

At institutions that train students for careers in areas like health care, computers and food service, enrollments are soaring as people anxious about weak job prospects borrow aggressively to pay tuition that can exceed $30,000 a year.

But the profits have come at substantial taxpayer expense while often delivering dubious benefits to students, according to academics and advocates for greater oversight of financial aid. Critics say many schools exaggerate the value of their degree programs, selling young people on dreams of middle-class wages while setting them up for default on untenable debts, low-wage work and a struggle to avoid poverty. And the schools are harvesting growing federal student aid dollars, including Pell grants awarded to low-income students.

... ... ...

Career Education says admissions staff are barred from making promises about jobs or salaries. The school requires students to sign disclosures stating that they understand that its programs afford no guarantees.

But promotional materials convey a sense of promise.

"Our students are given the tools needed to become the future leaders in the industry," proclaims the Le Cordon Bleu Web site. "Many graduates have attained positions of responsibility, visibility, and entrepreneurship soon after completing their studies."

The job placement results that the school files with accrediting agencies suggest a different outcome. From July 2007 to June 2008, students who graduated from the culinary arts associate degree program landed jobs that paid an average of $21,000 a year, or about $10 an hour. Oregon's minimum wage is $8.40 an hour.

The job placement list is cited in a class-action lawsuit filed against the Portland school - previously known as Western Culinary Institute - by graduates who allege fraud, breach of contract and unlawful trade practices. Executives at Career Education denied the allegations while asserting it would be wrong to judge the school on the basis of its graduates' first jobs.

Frank M:

The root of the problem is not the private colleges. The problem is the easy credit bubble from federally guaranteed student loans.

A history degree from Yale for $80k in student loans is just as bad as the degrees being conferred from these for-profit organizations. Both are just as useless in terms of economic viability.

It's time to cut student loans to a max of $10k/year for undergrad.
Or allow student loans to be discharged in bankruptcy, which will cause Congress to get curtail student loans as many people do strategic bankruptcy to get rid of them.

That will cause a lot of problems since many colleges hired tenured professors on the assumption that the student loan bubble will last forever. Because it's such a hard decision, our leaders will resort to kicking the can down the road while ruining the lives of many young Americans.

AJ:

I'm a math professor. I have had colleagues who have taught at some of these vocation and low level private colleges. They tell me that they are basically diploma mills.

The student pays, the student does the time, AND the student gets the diploma -- whether they can do the work or not. It is a huge scam. But hey, money is money when you need a job.

EVERYONE in the field knows this is how it is.

The problem is that it is difficult to objectively distinguish the legitimate private college from the scam diploma mills.

The interest of elite private colleges, the religious colleges, the 2nd and 3rd tier private colleges, and the students hoping to attend those schools are aligned with the special interests of the diploma mills. Moreover, many students realize that a diploma is just a credential - and so they are quite happy to essentially buy one.

In my opinion the solution is obvious and impossible to implement in our society for structural reasons.

We should cut off all private colleges from ANY form of public tax payer supported grant or financial aid and instead divert it, dollar for dollar to the public universities.

If you're a scientist doing research at a private college, fine, get a grant from some private business or rich donor. If you want to go to Harvard or the Cashier Training Institute, fine, pay for it with private money.

The result would be that the top researchers and top students, would, as always, follow the money. This would, in the long run, serve to democratize education. It has always seemed wrong to me to support the private colleges with public funding.

I realize that some of the best research is carried out at the private universities. But the research is carried out by people, who could work at the public colleges - if the funding was there.

David Smith:

I worked for a short time as an admissions advisor for one of these on-line universities. Most are open enrollment colleges. This means you only need a GED or high school diploma to get in. Everyone is sold a dream of going to college and earning more money. The first thing they must do is go on-line and fill out their FAFSA. This determines how much money they can get in grants and loans. You ask them what career they are interested in, and most say Criminal Justice or Medical billing and coding. Why, I ask? "Well I am a big fan of CSI or SVU, etc." Once a student is admitted, they only have to log in to class for at least two weeks, and they are obligated for the whole loan. This is the next bubble on the horizon.

buckigirl:

In a moment of boredom I impulsively started to look at online geriatric social work programs. I was immediately assaulted by phone calls from so-called counselors. It was an experience much like stepping onto a used car lot. One of the most prominent names in online degrees was the most aggressive. A smooth-talking young man assured me that they had a degree program that would be perfect for me after a very brief interview. He inquired if there was anything in particular I was working for -- a new car or truck, perhaps? I assured him that I wasn't motivated by money. He was slightly confused at this notion, but still, he forged on, and the next thing I knew, I was talking to a financial aid advisor, and within five minutes (literally) I had a Federal Student Aid PIN. The financial aid advisor then wanted all our recent tax information in order to fill out a FAFSA form. Fortunately, this process had stopped being amusing to me, and I called a halt to things then and there.

Afterwards I had to wonder what would have happened if I hadn't been a fairly sophisticated and semi-mature adult? What if I had been interested in making enough money for that new car or truck? I realized how ruinous this could have been for a more gullible person. I did speak with another institution that has a good reputation for the field I'm interested in, who treated me much more like a potential student rather than a sucker who was looking at a flashy used sports car with a bad transmission. Right now I'm thoughtfully considering all my options. I hope people will read this article and do the same when it comes to furthering their educations.

smi2le:

The worst offenders are chiropractic schools which troll community colleges for young people and then lure them into taking out huge student loans under the impression they will become real doctors and earn the same income as real doctors. Although the tuition at chiropractic schools is the samse as medical schools, the training is not even equivalent to that of a vocational nurse and since fewere ad fewer chiropractors can make a living at chiropractic today, most of these students are stuck with huge unforgivable student loans, ruined financially and cannot even transfer the credits they have from the chiro schools.

Tom:

Students unable to find meaningful employment. What a surprise. The only thing is this situation is not just limited to people graduating from these trade schools. University students who will be graduating for the next 2~10 years will be facing a job market that is pretty dismal. People with a marketable trade may find better prospects that University fresh-outs just because they can begin to contribute to a company's bottom line the day they walk in the door. University fresh-outs don't really start to contribute for some months and maybe even as much as a year.

Yes, there are "diploma mills" in the trade school game but today these trade schools are about the only place you can hope to learn a "trade". Colleges and Junior Colleges that use to teach trades have almost universally eliminated these courses from their offerings.

People looking at entering one of these trade schools will do well to take a close look at their placement percentages. Do they offer a placement program? Do they have any "apprenticeship" arrangements with companies in the business? Will they provide you with contact information of people that have recently graduated? Will they provide you will contact information of businesses where they have placed people?

Robert

How is this any different from law schools or medical schools. Really come on. Education is education and the debate on the quality of education versus its costs will be a debate that will persist forever.

In the matter of public financing we should enforce an approach that requires any institutions that receiving federal or state education grants to be mid state accredited. I feel this would provide a small shield that helps the student population stay minimally educated allowing for greater opportunities to repay obligations owed to the states and federal agencies.

It disgusts me in NY that some public assistance schools you know who they are because they advertise the most, take minimally informed individuals promising a certificate in some capacity in a shortened period of time.

I just bumped into an individual who received a medical billing certificate. It costs her 12k in federal & state funds, she piled on an additional 5k in federal student loans which she has no capacity to pay for and has a CERTIFICATE to what?????? This could easily be addressed. Raising bar to higher education to those individuals who are not as informed of the consequences.

To simple burn through 12 Pell quarters an revive nothing that makes you a more productive person on the taxpayers dollar is just not right. Once a school has mid state accreditation then it really doesn't matter. An education that is not universally transferable in the United States is a bogus education, pure and simple.

Kate B:

I am so happy the NYTimes finally acknowledged this absurd phenomenon!

I was at a COLLEGE FAIR last fall, surrounded by reps from legitimate public and private institutions of higher learning that teach students analytical reasoning skills and critical theory, so they have the intellectual tools to dissect the absurdity of the 21st century for themselves, and there was a woman from a Massage Therapy School hawking $25,000 degrees in massage skills. I was floored, and to top it off her booth was surrounded by bright-eyed, bushy-tailed innocents fascinated by her massage stones and promises of immediate wealth and security after 9 months and $25,000!!!!

Students at the UC and Cal State campuses are effectively being shut out of social advancement by the lethal cuts in state funding, and yet the money that could go to teaching them Statistics and Chemistry and Sociology is going to con men peddling ice sculpture skills and back rub theory...

J. A. Bujes:

Another striking example of how for-profit companies privatize profit while socializing losses. Instead of putting money into Pell grants, the govt should be putting money into expanding city colleges to provide a full gamut of instruction in the trades. Much better for the economy in the long term. Much better for students and their communities.

JohnBoise:

The lesson here is don't be naive and let a salesperson's pitch ever be the final determination in a financial decision. Do your homework. Do some research. Do your best to understand what you're truly buying before you're $40,000 in debt and no better off from an earnings standpoint. For the most part, these trade schools are a fraud. If you want to be chef, study the career ascension of famous chefs -- how did they do it? If you want to be good at anything, learn from those who are great at that very thing you want to be -- and copy them. In most cases, I suspect the answer won't be going into extreme debt for a worthless degree.

Shane:

Keep the money flowing, President Obama. Easy money for fake school programs paid for by the taxpayers provide false hope and ultimately despair for our most vulnerable young people. Meanwhile, you're enriching cynical scam artists and wasting a lot of taxpayer dollars.

Let's stop pretending that unprepared young people who can't get into the most basic two-year community college are capable of higher education. They are not. Providing these easy-money-up-front loans to desperate, ignorant kids looking for easy answers is a stupid waste of money and worse, a lost opportunity to really help them.

C.T.:

It is not just the trade schools for which there are no jobs at graduation, it is also the A.A. programs in vocational technologies for which there are no jobs at graduation. If this was Scandinavia and the tuition was free and the students were merely staying active and learning new skills, this would be a fair trade of their time for what they'd learn. As it is, the students as a group are being exploited just to fill the coffers of these institutions. The students become debt slaves. The current Reaganesque denial of the lack of jobs is going to create a major blowback.

Shane:

I should add this: Federal dollars would better be spent on expanding state community college systems. Make them free for pete's sake! But, we must set entrance standards and provide plenty of remediation. We must also DEMAND ACHIEVEMENT and attendance.

Concerned

Federal Financial Aid programs can best be described as the "New Welfare System". Individuals that are not qualified to enroll at a Community College that offers the same programs as the for profit schools because of grades, low test scores or lack of a HS graduation, are lured into the for profit schools by recruiters who are only interested in number of applicants. While the recruiters are not allowed to be paid on the number of enrollees, they can be fired for "lack of production" if their numbers are not up to the quota set by management. Students are borrowing amounts in excess of tuition and fees charged by the school, because they are allowed to borrow for "living expenses as well". Many of these students have no intention of completing the program and stay in school only long enough to draw their "living expense" check and drop out. The school has their money and the student has his. Many of these students then go on and do the same thing at another for profit school. What a scam!

Jen:

I always feel bad for people who are taken in by these programs. Hardly anyone is hiring based on some 6-12 month degree. I have a great job in technology making about $50k a year with excellent benefits and easy hours. I got a BA (in an unrelated field) from a real college and worked my way up from a low level job within the company right out of college.

Rule of thumb: if something seems too easy, it usually is. Any degree or license you can get in a few months is not worth having.

Henry

I have a number of rental homes and encounter many potential renters who have excellent work histories but are forced to rent since they cannot get a mortgage. These people have enormous student loans that prevent them from buying a home and not one works in the field they trained in. These student loans are not like any other dept that can be eliminated by bankruptcy due to a special law that congress passed after lobbying by the for profit schools. This is wrong.

RAPIER

Over the last decade or so, many of the vocational and some of the academic schools that have sprung up are owned and controlled by one gang, which has no ethics. The accreditation process has been corrupted. Having speciality schools that are regulated and spring from someone's true passion or even honest entrepreneurialship is great; however, old-fashioned, but more effective hands-on apprenticeships would serve novices better who want to pursue a specific vocation. The apprentice would simultaneously develop relationships, find out if they really like the work and the industry would only support as many apprentices as needed rather than a deluge of new graduates with no jobs available. This approach would maintain a healthier balance in the marketplace. This same problem has occurred with court-reporter schools, which charge large sums for which the students carry long-term debt when it is clear the market will not support all the graduates at the wages the schools touted to the student prospects. The bottom line is that these schools are intentionally misleading prospects to keep their sales up. In some cases, the same group that owns the schools, controls or monopolizes the jobs in that industry and therefore ensures that they have a plethora of cheap labor. Unethical and dishonest school operators need to be weeded out. Investigating the identity of the true owners of these schools and what other related holdings they may control would be a socially beneficial effort, which could be implemented in the qualificaiton/accreditation process. Corrupt work systems that we have historically seen run by the mafia or mafia-type groups, including corrupt political systems, such as The Daly Chicago Machine, controled entire workforces in certain industries, i.e., truckdrivers, dock workers, sanitation workers, etc. Just as we qualify and vet doctors, psychologists, lawyers, etc., we should qualify people who decide they want to own and operate schools so that the system encourages and supports ethical leadership.

me

All schools whose students are eligible for federal or state loans should be required to hold an orientation class where--through a prepared federal presentation--they would be told about the pitfalls of over-borrowing, the realities of work after graduation, and the real time costs of 10, 20, and 39 payback of the loans they are embarking on. As a borrowing student at UT Austin, I was required to sit through such a presentation and it made an impact.

Dave K

I can only speak to the computer training that schools like ITT Tech offer, but in general what I see from them is selling the dream of a white-collar office job to bright young people, providing a poor level of instruction, and then hanging the graduates out to dry. If you watch an ITT ad, it makes it appear like the majority of their computer graduates are out there competing with the graduates of top universities such as MIT or Stanford. Well, that simply isn't true: no matter how bright the student is, 2 years of often shoddy teaching is no substitute for 4 years of excellent instruction.

Many students who are heavily recruited by for-profit 2-year schools would be far better served by their local community college, continuing on to their state university system if they did well. Among other things, the instruction will probably be much better, simply because the community college's raison d'etre is teaching, not profits.

Disgruntled Student

This article would be more accurate if it included "non-profit" colleges and graduate schools. Many law and other graduate programs lure students with promises of wealth and stable careers; these students typically graduate to unemployment or part-time, dead-end jobs (adjunct teaching, document review, long-term temping). Today's ordinary college graduates face daunting odds at finding stable employment.

I went to my state's top public university, graduating Summa cum Laude with a liberal arts degree. It took two years of retail and P/T work, $3,000 of additional training (a certificate program), and a lot of job hunting just to land an entry-level position, and this was before the 'Great Recession' even got rolling. Some of my classmates are in far worse positions than I am.

We are told to attend college because a BA/BS is necessary to compete for an entry-level job that until recently was manned by high school grads. Ambitious students, or those who couldn't land an entry-level job, flood professional and graduate schools, taking on more debt.

BTW, student loan debt cannot be discharged in bankruptcy. Salle Mae can send you through multiple collection agencies, adding fees each time. Should you default, the lender is repaid by the US gov't. Graduates trying to service over $100,000 in debt on near-minimum wage are not going to be able to make purchases, buy houses, raise families, or otherwise participate in this society.

This is not sustainable. You can't have tens of thousands of MBAs, MFAs, PhDs and JDs defaulting on their student loans because Starbucks won't give them more shifts. Like the subprime market, at some point the higher education bubble will burst, either because students stop participating or because Uncle Sam can no longer support bailing out Sallie Mae et al.

Flagstaff

In the countries that the United States considers its allies and competitors (come to think of it, perhaps not for long, the way things are going...), these types of programs are free, public and begin in 10th or 11th grade, after serious counseling and orientation for those who should be, or want to do them.

They are free, and they are part of a high-level, high-quality, real-skill vocational secondary school cycle, that can be followed after graduation by higher levels in similar types of programs at the technical college level...again, for free.

At both levels, the programs are accompanied by long, serious apprenticeships - here in France, for example, the pastry chef or artisan-baker cycle last seven years. Involving employment and some kind of salary from beginning to end of the apprenticeship. No Debt. Repeat, no debt.

Hello President Obama, is anyone in our government paying attention? Our demise seems to be taking place before our eyes.

Hello? Is anyone paying attention???

ccweems

The trade school hoax applies to far more schools than you might think. Most of the recent schools popping up all over country each awarding baccalaureate degrees such as the University of Phoenix are accredited by trade school organizations.

It is through these organizations that these newcomers can give university credit for "life experiences" and teach courses online with little supervision. It is one thing to give an experienced welder credit for his demonstrable skills and quite a different thing to give academic credit without qualifying exams. For a long time companies in Houston extended their educational benefits without much scrutiny. Now that is changing with companies only extending assistance to those schools accredited by academic associations.

Unfortunately many in the military are spending their educational benefits on these diploma mills staffed with undistinguished part time instructors. I have heard comment that the only students in these schools are those with employer or government assistance. It is truly unfortunate that these schools steal money from the government and hope for a brighter future from the earnest students.

PAPRIN

As a public school administrator I agree with the perspective in the article. The most disappointing thing is most high school students can receive this type of training for FREE at our local vo-tech centers, yet the public high schools do not promote the programs. I counsel students that they can still attend these programs and go to college.

Trades at many of these school typically pay low wages without benefits or retirement plans. Many of these students stay perpetually in debt. We should be promoting the trades though apprenticeship programs first. Students should do job shadowing and internships before the commit to a program. Many times they would see the job fist hand and they would be able to compare the amount spent for training as compared to the income potential.

I would rather see these students going to junior or community colleges FIRST as a means to strengthen academic skills. Many students attend trade schools due to a lack of academic skills and many drop out because the academic demands are too stressful and difficult when compared to their preexisting skills and knowledge.

If high schools were doing their job promoting trade programs and building academic skills, we would not have people facing insurmountable debt for that which could have been free or lower in cost at a junior college. Shut them all down and give no federal aid.

BaronDZ

Higher (and Lower) Education institutions have long been taking advantage of the impressionable, immature, inexperienced, ignorant and simply uninformed. If only all schools were made to scale debt to salary expectations that are realistic, and more importantly, if only the collections schemes were limited to something realistic, like perhaps 5% of income. A good education is no guarantee of employment. Whatever you earn, you can expect the collectors to want 25% of your income, regardless of your rent and other necessary expenses, and they will hound you without mercy. For those who are disabled, there is a disability discharge form that no one will tell you about. For anyone to use default on a student loan as a negative attribute is criminal. When I entered college, I did not want any loans, I knew better. But my blessed alma mater would not let me have any financial aid at all if I would not take out loans. I left college in 1980 with $10,000 in debt and no prospects for employment. By the time I finished a master's degree with only a few prospects for low-paid employment, my debt was up to at least $30,000, and mushrooming every year. And back then, that was a year's income for a professional, and rent was already $600 a month or more. The only answers are to make higher education available to all who qualify with grants, not loans.
Parents and students have played a nasty part in this whole situation. By demanding fancy food service, luxurious dorms with all kinds of amenities, they have driven up the cost of attending themselves, all because they could not discipline their children and let them learn to start out with what they can carry. It may be bare, but it's a lot more fair. Look at how much indulgence has raised the cost of college, and then see if you really have any complaints.

GeorgeF:

Amen! It's about time this gets looked into. There are good schools and there are mills. The Trade School Explosion that happened in the 80s took lots of money, made lots of promises, and robbed people.

I call it the Education Industry.

I started my career with one but then interviewed so many candidates (IT trade schools) that trained and certified but really just took money and produced "grads" who knew little of what they did.
For sure, this happens with colleges as well, but to a much lesser degree.

Go get em.

George F.:

Yeah, I spent a couple of years working at a small for profit school as a part-timer, I'm educated from and teach in big state-schools.

The quality of education at these for-profit places are NOT commensurate with the price students pay. The ideology of more education is always better and worth any price is false when the education involves a BA from a place in which none of the instructors has a PhD and students pass who almost never attend class and do the work at a high school level.

US educational decline has gone hand in hand with market driven innovation.

Purchasing a college education is not like order at Subway: Yes I'd like my BA without an math please or could you hold the literature and writing please, no I don't like lab can I have my BS without a hard science please?

The answer at a Subway to similar requests is "certainly," but the University must answer, "No, you will take your BA/BS as *we* tell you you will, because you don't know anything about what you need or want."

You see? College students aren't consumers, they're students. They aren't ordering lunch, but getting an education that will change their lives.

The consumer model of education is sure to create only one thing, Idiocracy.

Father O'neil:

I graduated with a degree in finance in 2006 from a big private university in Boston, but my "world of opportunities"are limited to an $9 an hour bank teller job or a Full Commission Sales job, so I am living my worst fear of being an educated waiter. I didn't expect my dream job right out of school, but I did expect to earning a reasonable salary to support myself and pay off my student loan. As for right now, I live with my parents for 3 years and I haven't paid one cents of my $65.000 student loan.

Vast majority of my classmates work in malls, call centers and restaurants. This is the reality on the ground.

neitheornor:

What's more shocking is the fact that your local federally and state-funded jobs placement office, run through the Employment Development Department, actively promotes these for-profit private technical colleges at the expense of local community colleges.

I'd recently been laid off and heard I could get federal funding to go back to school through the Workforce Investment Act. Even better, I could get training and still get unemployment. There are two catches, though. One catch is good: They will only help fund education that will (theoretically) lead to immediate employment, such as nursing, the much-talked-about medical billing, trucking, and the really vague "green jobs." The other catch is iffy: You must complete the training within one year. That significantly limits the types of programs you can enter.

I wanted to get my LVN or, preferably, my RN. RNs and LVNs are high-demand professions in California? There are multiple local community college programs that are cheap and short that will provide you with a great LVN education. Granted, they are VERY competitive and hard to get into right now.

But I was SHOCKED to discover that the WIA program won't fund ONE local community college LVN program. But there were PLENTY of very, VERY expensive for-profit private colleges om their "eligible training provider list," all offering quick one-year LVN programs to the tune of $25,000 to $31,000. (Pacific College, Stanbridge, Advanced College, and Career Colleges of America) You can't find any info on these programs online -- you MUST talk to a recruiter. All these schools seemed to have tailored themselves to the WIA requirement of one year exactly...and a lot of debt.

I don't want to assume 20K+ in debt to become an LVN. They don't make THAT much money. RNs do -- but the WIA won't help you there. And I'd be even more in debt after that program, too.

Altogether, it was a really disheartening experience. The government really isn't out there to help YOU. They're out there to help BUSINESSES make more money OFF OF YOU. Sad.

SmartChick

I have recently joined the ranks of part time faculty at one of these online schools. I'm a professor at a major university, and teach as an adjunct on occasion at local community colleges. I was approached by the online school based on my credentials and while for years I held my nose when talking about these institutions, I have spent the past 10 years watching essentially the same gouging of students and their parents at the so-called respectable institutions otherwise known as public universities. I see "teaching" that costs thousands of dollars per course and consists of courses that are simply serial guest speakers, with a paper at the end of the semester that everyone magically passes... I see curriculum decisions being made to support the latest pet project of the department chair and his/her newest board affiliation... I see "strict admission requirements" deteriorating into essentially how many paid enrollments can be garnered (it's first come, first served and most get admitted while still missing pre-requisites).

I also see secretarial jobs now requiring applicants to have a bachelor's degree. How many of you went to college to be a secretary, regardless of how they change the title ??!?! I'm all for an educated populous but when did you need a 4-year degree to answer the phone, type letters, schedule meetings, pour coffee, clean up after meetings and functions, and seat guests for the executive behind the curtain while s/he puts away their crossword puzzle?!? (I know, I know - secretaries do more today, but I still contend you don't need the 4-year degree to do it)

This being said, as lower and lower level jobs begin to require degrees, what are people to do? Along comes the aggressive marketing of the for-profits, and people who were without hope of ever entering the hallowed halls of academia finally have a chance at what they perceive to be the American dream (a degree, respectability and a good job). Sadly, like many others on this article have noted, none of these academic endeavors can guarantee a good job, or even a job in some cases! I admit to struggling when I talk to students interested in our traditional university graduate program who ask me if it is worth it for them to quit their job, take out the $30,000++ tuition in student loans and complete the program? ((try answering that one in a way that will allow you to keep your nice university job, but will also allow you to sleep at night...))

So, you ask why a nice PhD with a good university job would "stoop" to teaching in a for-rprofit online school? Two reasons: 1) I haven't had a raise in over 2 years and it's not looking good for this year either, and at the levels they pay faculty at public insitutions (which is nothing compared to the athletics department folks and other administrators), I was going backwards, financially - and this PhD wasn't funded by a trust fund (read - I have student loan debt, too).

Reason #2: why do the students in these for-profits deserve any less qualified instruction? I may be making a real difference for some, although I will admit many of the students I have seen to date in my for-profit classes would be hard pressed to have graduated from my high school (I fail a lot of students - I may not have this teaching gig for long)

Real reform needs to come but we should not be duped into thinking that for-profit educational institutions are the only educational institutions in this game for the money at the exclusion of just about everything else. It is indeed time for real reform, but will it happen in my lifetime? I doubt it, but like those underprivileged students in my online for-profit classes, I can always hope for a better future.

goodrich4bk:

This is a replica of the subprime fraud. Government guaranteed loans, with the tease of temporarily low interest rates, attract profit-making "capitalists" to the public trough. The school recruiters are the real estate agents, the financial aid department is the mortgage broker, and dream sold to the poor is the same: middle class living.

Our parents in California did not build the best higher educational system in the world with Pell Grants and student loans. They built it with public taxes, brick and mortar. They bequeathed their children nine U.C. campuses and many more state universities and community colleges. We boomers have bequeathed our children nothing but debt. Instead of saving and building for our children's higher eduction, we have consumed our seed corn and encumbered their future. None of this is accidental, from the taxing of savings (and deduction for home debt) to taxpayer bailouts for the banking elite who profit from debt.

[Jul 05, 2010] Do Grades Matter How About the College One Company Says the Answer is No

He is writing down the college way too fast ;-). College education provides the fundament on which the qualification is built. It also train you to study and study hard disciplines. In certain specialties people will not speak to you unless you have a degree. But what is true is that there is little difference between quality of education from good community college and large university and between state college and private college (unless we are talking about very bright students with well to do parents and Ivy League universities: it's much better to be rich and healthy then poor and sick :-).
Mish's Global Economic Trend Analysis
On this long 4th of July weekend, here is an Email from "KC" regarding the costs of education. "KC" writes ...
Hi Mish,

I've emailed you before on this subject. Today, I came across an article where a small company has started recruiting directly out of high school.

If education costs soar, I believe this is the future. I've been suggesting to many people for a while now that it's a win-win for both employer and student to hire straight out of high school. The student gets four years of work experience and income which is a tremendous head start compared to the debt of a four-year degree. As the author suggests, after two years the quality of work is indistinguishable between one of his recruits and someone with a degree. For the company, the benefit is lower salaries and a more stable work force, at least until other companies start hiring directly out of high school also.

With fewer students, education costs must come down and this will make it possible for those who want to become academics to pursue a meaningful and rewarding career; academic salaries are just not high enough to compensate for the debt burden while retaining the talented.

Keep up the good work.

KC

Recruiting at Zoho/AdventNet

"KC" was referring to How We Recruit - On Formal Credentials vs Experience-based Education

I was recently interviewed on Fox Business News. The anchor Liz Claman told me one of the things that interested them about Zoho/AdventNet is our recruitment model. It is a subject I am passionate about -in fact, I spend about as much time on it as our products or technology. After all, AdventNet has about 700 people, and we are hiring at a steadily increasing pace, so recruitment, motivation and retention are important topics for us.

Our company in India always faced trouble recruiting, because most college graduates, particularly from well-known colleges, would prefer big-brand-name firms. Simply out of sheer necessity, we started to disregard the kind of college a person graduated from, and the grades they obtained. In India, that task was made even easier, because much of the Indian industry is boringly conventional, and job advertisements that specify things like "Must have a minimum of 80% average in college" are fairly common (so if you got only 79%, don't bother to apply). As a result, we get a lot of the arbitrarily-cut-off category applicants. What we found over time was that there is a lot of really good talent in that pool, which the industry had overlooked. Based on a few years of observation, we noticed that there was little or no correlation between academic performance, as measured by grades & the type of college a person attended, and their real on-the-job performance. That was a genuine surprise, particularly for me, as I grew up thinking grades really mattered.

Over time, that led us to be bolder in our search for talent. We started to ask "What if the college degree itself is not really that useful? What if we took kids after high school, train them ourselves?"

That proved to be an outstanding success. Within 2 years, those students would become full time employees, their work performance indistinguishable from their college-educated peers. We have since expanded the program, with the latest batch of students consisting of about 20, recruited not just from Chennai but smaller towns and villages in the region.

Keeping the US Education Bubble Alive

While Zoho is hiring out of college, President Obama is hellbent on keeping the
education bubble alive by throwing more money at Pell Grants.

Education is generally a good thing, but a policy that pushes everyone receive a 4-year degree is certainly the wrong policy. Countless graduates have found that out the hard way.

Pell Grants are part of the problem as is any policy that helps keep the cost of education up. Worse yet, students graduate from college, deep in debt, unprepared for the real world, and poor job prospects to boot.

I am quite certain that education costs and administrative costs are both going to fall like a rock at some point simply because the current system is unsustainable. What cannot be sustained by definition won't be.

As always, timing of the setup is problematic. However, locking in the cost of a 4-year degree now for kids still in grade school seems unwise.


Leo Chen:

At least in Engineering and Science, additional education and training is a life-long effort. We cannot sit on our laurals, MIT or Harvard not withstanding. In just about any area of a Business, additional skills need to be acquired in order for the company to stay competitive.

Stated another way, if you want to stay in the same game with Apple, you better be smarter than your counter-part at Apple 'cause so far, they are killing the competition. So is WalMart. So are Google and Yahoo. So is China; being the Global Mfg of Choice.

mannfm11:

How much of that do you think is actually transposed to real business? Of that amount, how long do you really think it would take to learn it? My experience in education is that there is a key component of a class of course, like chemistry and if you know it, the rest follows reasonably simple. You get rid of the people that can't understand the basic structure behind a science and keep the rest and go on. Our education system spends several courses making sure the students that can't figure out the basic equation or structure and subject the rest to many times the needed time and expense to get through the education. I took 2 accounting courses to cover what the first covered, so they could make sure the idiots that passed the first one really passed. If someone can't learn the basic formulas of chemistry in a month or 2, send them on to study something else and come back when they can if they insist. This sounds like an oversimplication, but when most of this stuff is going on, engineering majors are fooling with history and political science and english and an entire list of nonsense. These courses should be suspended until it is clear the student has the brains to grasp what he is going to study for a career. Instead of 3 hours of Chemistry and 3 hours of some kind of math, maybe you do 6 and not do history and English and waste another semester on the second course teaching what you needed to pass the first. The entire US education system is devoted to teaching students what they can't learn or can't remember, not to teaching students that can learn and go forward. This is one reason our system goes to pot after about 4th grade. The no kid left behind, needs to be kids that can't keep up are left behind. I think the other students that can master the subjects end up getting bored.

btraven:

OT: I highly recommend taking a look at Steve Keen's paper from his presentation at the Levy Institute on June 27.

~ http://www.debtdeflation.com/blogs/wp-content/uploads/papers/KeenAreWeItYetPaperFinal.pdf
[OR]
~ http://www.debtdeflation.com/blogs/2010/06/28/levy-paper/ (click on "paper" link)

--- Excerpts ---

We can now use this framework to consider one aspect of the current financial crisis: if a "credit crunch" occurs, that is the best way for government to address it?-by giving fiat money to the banks to lend, or by giving it to the debtors to spend? Our current crisis is, of course, more than merely a "credit crunch"-a temporary breakdown in the process of circulation of credit. It is also arguably a secular turning point in debt akin to that of the Great Depression ((Keen 2009)), as Figure 22 illustrates. However the model developed here can assess the differential impact of a sudden injection of fiat money18 to rescue an economy that has experienced a sudden drop in the rate of circulation and creation of private credit. This is an important point, since although the scale of government response to the crisis was enormous across all affected nations, the nature of that response did vary: notably, the
USA focused its attention on boosting bank reserves in the belief, as expressed by President Obama, that the money multiplier made refinancing the banks far more effective than rescuing the borrowers:

...

Crucially from the policy perspective, the household-oriented approach has a far more immediate and substantial impact upon employment (Figure 28). Contrary to the expectations of President Obama and his mainstream economic advisers, there is far more "bang for your buck" out of a household rescue than out of a bank rescue.

...

The final debt-driven collapse, in which both wages and profitability plunge, gives the lie to the neoclassical perception that crises are caused by wages being too high, and the solution to the crisis is to reduce wages.

...

What their blinkered ignorance of the role of the finance sector obscures is that the essential class conflict in financial capitalism is not between workers and capitalists, but between financial and industrial capital. The rising level of debt directly leads to a falling worker share of GDP, while leaving industrial capital's share unaffected until the final collapse drives it too into oblivion.

...

Instead of a sign of economic success, the "Great Moderation" was a sign of failure. It was the lull before the storm of the Great Recession, where the lull was driven by the same force that caused the storm: rising debt relative to GDP in an economy that had become beholden to Ponzi finance.

Bombillo:

Jim Chanos was just interviewed on Bloomberg. Asked where he is investing now, he responded that he is shorting all the [private] companies in the "technical school" genre. Asked why, he basically said they were a scam to tie into the student loan programs and were of no discernible benefit to the "graduates". More than 50% of these loans are in collections and it is starting to be a big enough number that this cannot go unchecked. Asked which one of these tech schools is the most egregious, he said to "short them all", again.

expatriate:

Apprenticeship programs for office/bank type jobs are standard here in Germany. They teach very specific industry skills. University degree which does not teach engineer, lawyer, etc. are useless. Most jobs are really asking for very specific training with specific comüputer programs iused in that company, etc. so a college degree can get you nowhere fast, make you overqualified and undertrained simultaneously. apprenticeship programs like this tested by Chamber of Commerce with pracitcal and academic time (3day practical/2 day academic) would be much more usefuzl. The young trainees earn a graded salary a bit more each of three years and live at home.

mannfm11:

I have a lot to chime in on this. I went to Texas A&M in the 1970's, took 8 semesters and graduated. I rarely made classes before 11 AM due to the fact I liked to stay up and read the newspaper when it came in the morning and there wasn't much in those classes I needed to learn to go along with my degree. I made B's and C's in most of those classes and the only ones I attempted to make dealt with my major. I was a horrible student who had no money, who studied when he had to and went to class to take the tests in many cases and nothing else(I would go to the class after the test to find out how I did and learn what I wasn't able to answer in many cases). I graduated with around a 2.8, having made 2 D's in English, a D in Texas History (a course I took because I thought it would be an easy A or B and getting a professor that would have ruined trival pursuit with his tests) and in Calculus, where I didn't have the book. I didn't drop classes where I wasn't making good grades, to protect my GPA, because I didn't want to stay another semester. It is clearly easier to make a good GPA by dodging the classes you get behind and putting them off for later times or repeating the classs.

In any case, I found most accounting easy to comprehend and quite a bit of the finances was simple fractions, the only difficulty being the timing of the cash flows. My second to the last semester, I took a cost accounting class. It was 8 AM. I showed up to find out what was going to be on the test, to take the test and to get it back and was pushing an A grade. At the middle of the semester, the prof gave out a group project. I had to find out what group I was on and get together with them. The assignment was to defend keeping a portion of a business that was losing money. So, I figured out the problem, took my findings to the meeting and they adopted my solution. The rest of the students were literally the teachers pets. Result was our group got a 93 and the other 3 groups in his 2 classes got a 68. The people defending the other side of the equation, the scores were reversed. The other 3 students were high GPA students and I was skipping the guys class, taking his tests in 20 minutes and pissing him off. I got a 78 for my part. The last class I attended, the prof, without singling me out, asked if the class thought the 10% assigned for class participation shouldn't be arbitrary for the prof, meaning he could give a zero. That part of the grade was to allow the prof to give a couple of points to move a grade if he wished, but could not diminish the score on the other 90%. I could see he went out of his way to screw me on the group project because I was making a mockery of his course and I suspect he thought I was cheating. I never cheated in a course.

What I found out the last semester really blew grades out of the water. I went into a business simulation class, where the students in a group were supposed to put together all they knew to move an imaginary business toward optimum. The key to the whole course was to figure out you needed to expand your production ASAP. Out of 100 students, I was the only one that figured that out and I had to argue with my clueless team members to get that one through. It should have been clear to anyone who had passed the courses to get to that course that they would run out of inventory before they could expand production if they didn't do it immediately. 99 other students, save the 3 in my group didn't figure that out. The Cost accounting profs pets were in the course on other teams.

In another course, a finance class designed to find out if the students that were soon to graduate could discount a stream of income in various ways. It was the easiest A I ever made, but one of the other students, who happened to have been in the cost accounting group I was in had never made either a B or a C and was having hell with the course. I was stunned.

Here I was a professional beer drinker, not to mention other things and probably a nervous breakdown away from flunking out and I could dust these people when it came to practical use of what they had been taught. Most of what I bring up was really pretty simple stuff, if one had legitimately passed the courses that came before the courses I mentioned. Only my group could figure out the cost accounting group project and I was a borderline flunky who knew the answers. The straight A students were literally clueless, though you can bet many of them went on to get MBA's and are probably in upper management in many cases. The deductive reasoning necessary to make business decisions wasn't present.

Some of what I knew couldn't be taught in college, but by using what I was taught, I was able to see the answers. If a company hiring could see the results of what I mentioned above, they would likely give me a good look, but not knowing the straight A students I met in these instances and how they did in the same pursuits, the grade would win out. Of course, I was going to be a tycoon when I got out of college and never interviewed. A racoon was closer to the result.

In closing, I believe the basics of what I learned in college could be taught in about 100 hours of training. Once all the nonsense adopted over the past 40 years had been wiped out, that is about 75% of what one needs to know to perform on an accounting or finance degree. The other 25% no only quite often depends on the 75%, but much of it like taxes is in a constant state of flux. Stuff like portfolio theory generally only works when it is not being widely used, as the returns are then reduced to risk free or even lower, which can be achieved by simply buying treasuries. We are now to the point that the return on 30 year treasuries bought in late 1995 would have beaten the market. So would have 30 year treasuries bought in 1982.

bottom racer:

Now that we know that the education system in Amerika is broken, lets try to find something in this great land that works. Health care - nope. Insurance - nope. Government - big nope. Manufacturing, sustainable agriculture, transportation, legal, nope, nope, nope.

How can it all be fixed without lot's o pain?

Nancy Drew:

Hmmm. A degree not necessary....I am in medical sales, and you can't get an interview without a degree and experience both.

My oldest daughter has 1 more year of high school. We met with an advisor at the U of MD (her most probable choice). We found out that daughter will most likely enter U of MD with enough AP credits to graduate with a math degree in three years. She would love to double major in math and music, which would take 4 years, but that's another story. The music is just a personal goal, nothing that would make her employable.

Here's what surprises me. Most kids who are going to be seniors are taking a very light schedule, many will take only 1 class their senior year (required 4th year in English). Their logic is that this is their senior year, they need to kick back and take it easy, everyone does it. It's party year.

If they took just six classes, they would get out of school at noon. If they took six AP classes, they could potentially get college credit for six courses and that would save them huge $$. It's like they are throwing money away.

I think we have to pay $60 per AP test, and our county will pay for anything over 5 AP tests.

So right not, it looks like my daughter will be taking 6 AP classes, all of which meet requirements for the degree she expects to be seeking, at a cost to us of $300 in AP testing fees. She will also take one on-line community college history course (at half price, because she is in high school) during the senior year. She will get out at noon, and hopefully end up fulfilling 7 college course requirements while in her senior year.

[Jul 01, 2010] Itt Technical Institute Jobs Forum - ITT - Tech Is A SCAM!!!!!!!!!! DONT DO IT! Indeed.com

A two-year associate's degree at ITT Tech costs approximately $47,000: "ITT is a very expensive option for those uninformed. You are correct in that it is a rip off - in terms of $$$$$. You can (and should) attend your local community college - same degree, software and 85% cheaper."

Former_Instructor:

From a former ITT-Tech instructor (4.5 years in Houston) - the school is a scam that preys on stupid, uneducated (and uneducable) people for the $40,000 federal student loans that they obtain. The books are a joke, the cirriculum is written for morons (because only a moron would attend there) and the credits don't transfer.

How can a person who picks his/her nose in class; who doesn't bathe regularly; who can't read OR write expect to get a professional job earning sufficient income to pay off a $40,000 student loan?

To summarize: the school is a scam for suckers, the credits will NEVER transfer to a REAL university or college (DeVry doesn't count, stupid!), and only morons enroll.

dcplace2009:

kirk watson in Noblesville, Indiana said: this guy has no clue

not only did i get interviews for cia they came to school to recruit. so much for his story

i now work for verizon as a switch tech working on fiber optics, gtd-5's,dms-100's, 5ess, dco's, dms-10's, i work on ss7, fiber transports from t1's oc48,s oc12,s.. now we are expanding fiber to home with fios' last yr i made 69,000 so tell me again how bad this school is

I am almost certain that you did not make that income working as a line tech for a cell company...I got some ocean-front property in Arizona for sale for those who think he made that salary...Even in small print on ITTs commercials they talk about credits not transferring...unreal...

Itt tech is a Scam:

All these positive rebuttals are from fake students and are actually paid by ITT Tech to say bogus and fake message, I am working for ITT and I know what's going on, everybody knows ITT-TECH and their fabricated information and invented reports, I am surpassed they still in the education business, they should be in the Sublime loans or any fraud and unethical business. The only concern of the management in the HQ is to increase profits and do not care about students, I believe ITT Tech soon will go down because I know about many lawsuits waiting for ITT.

Please think 98,000,000 times before attending ITT Tech, at ITT Tech you are a "start number" you are not a students in any way.

runfastfromITT:

Please Please Please listen...I'm a grad of ITT, 3.8 gpa, and am TWENTY-TWO THOUSAND DOLLARS IN DEBT.

Please don't go to ANY franchise-college that advertises on prime-time cable, you will regret it for the rest of your life. $40,000 in loans and grants is a lot of money, more precisely, a lot of debt. Grants, which you don't have to pay back, will serve you MUCH MUCH better at a public community college for an associates degree (and it will likely cover the entire expense too), and a small student loan can subsidize costs of living. Then if you want your BS, pick a good public university. They offer the same courses of study PLUS employers won't laugh at you for having a worthless degree. PLEASE READ ON...

My graduating class was 82 people, about 15 of those were employed in their field of study (7 of those were Drafting & Design). THAT'S ABOUT 18% OF GRADS WHO GOT A JOB IN THEIR FIELD OF STUDY.

NOT ONE...ZERO OF THE GRADS OF THE "COMPUTER NETWORKING" CLASS WERE HIRED IN THAT FIELD (THIS WAS MY AREA OF STUDY, BY THE WAY), AND THE NETWORKING CLASS WAS 56 STUDENTS.

As to national OR regional accreditation...Gadsden State Community college wouldn't even accept my math 116 or eng 101 credits from ITT!

Ask the recruiter, instructor, etc. what ITT stands for, they won't know...and if they do, they're lying. IT DOESN'T MEAN ANYTHING. Why would a higher learning institution (hard not to laugh when I typed that) use an acronym w/no meaning? Marketing purposes?

Now, as I said before, I'm $22, 000 in debt, earning nowhere near the 68G average the recruiter quoted as the national average for network engineers (that was right after he told me they had a 98% success rate in job placement for grads in their field of study). I'm in a position now where I can't afford to further my education again, because I truly can't afford my student loan payments as it is. As for job placement, there was a stack of BIRMINGHAM EMPLOYMENT WEEKLY they kept by the ve

runfastfromITT:

...vending machines, that's it.

I know these statistics because, along with myself, 11 other graduates wish refer to ITT as the "adverse party", figure it out. We interviewed 76 of 82.

kirk watson, nobody really, itt_instructor, Vineo Escobar and fred123 are either new students, ITT employees, liars or morons. If they have great jobs, good for them. It probably wasn't because of ITT Tech. If you're a grad of ITT and think it's for real, good for you. Stay dumb and happy.

Everyone else, again, please don't go to ANY franchise-college that advertises on prime-time cable, YOU WILL regret it for the rest of your life. Your debt-to-income ratio will be outrageous when you cant find an employer to take you seriously. Go to community college for an associates degree! Go to a public university for your BS.

Best of luck!

runfastfromITT:

Again, as for time and effort, if one person decides not to attend this scam of a school and got to a local community college for their AAS degree, it would be worth a hundred times the time I have spent typing the 5 or so posts I've typed like this one.

If you were thinking of what is best for the student and not your or your peers bank accounts, you would encourage people to do the same.

Very Sincerely
Joshua Barfield
barfield.j@gmail.com

Nanlisa:

A few weeks ago, while I was coming home from work, I was talking with this girl who just came from an appointment with the ITT Tech school in King of Prussia. She wants to take up criminal justice and become a parole officer.

I asked her if she signed any papers, and she said no. She was only 23, she doesn't even live with her parents, and she works. Because of a federal regulation, they would have to get her parents income information in order for her to get financial aid. They should look at her income; not her parents'. ITT Tech charges $500 a credit, and her parents would hit the roof if they ever found out about this.

I also suggested that she check out Delaware County Community College. This way, she can transfer her credits toward a four-year-degree, the tuition would be cheaper, and employers would recognize the degree as well

I believe a couple of other trade schools here in Philadelphia offer criminal justice courses besides ITT Tech. I can't understand how a technical training school can offer training in Criminal Justice. Like I said earlier, most places want people with a four-year college degree. I believe one of those NBA basketball placers has a four-year degree in Criminal Justices from La Salle.

Go onto ripoffreport.com and you will see the numerous complaints against ITT Tech.

Scott Tudehope :

One of the considerations of accreditation involves who actually pays for the salaries and other expenses of the accreditation authority. Apparently, according to the popular press, DeVry, ITT Bleechm and other trade schools pick up the tab. That's right: the very people who 'monitor' these for-profit companies are actually, in a sense, their employees.

As a former instructor at ITT Tech in San Bernardino, the pressure was always about money, money, money. The idea was to never piss off ANY student for ANY reason because they represented walking, talking pay checks. I saw instructors hired one day and gone in two weeks. After awhile, I refused to even introduce myself, as I knew a large number of them wouldn't be there in any event. We had a math instructor there who, when he wasn

I had to answer to seven different bosses as a full time English and economics instructor, and was never consulted as to which texts that I was to use, exams, or even lesson plans. Teachers there are blamed, then harassed, then fired monthly. The place is extremely top down, and professionally licensed instructors like me were rare.

After I was booted out of ITT Tech (and happily rehired by the public schools a month later) I heard that their best math instructor was an illegal alien who had been teaching there for roughly three years. Mrs. Aquino and another fellow Filipino sure had them fooled, didn't they? Another woman, some Bulgarian, believe it or not, although fine looking, could barely be understood by the students.

Another instructor decided that he'd fornicate with a student and give her a baby. There you go. Good job, Ray. He was a criminal justice instructor who had absolutely no c.j. experience of any kind. Management put a tail on him and caught the guy 'visiting' the coed, a welfare princess who worked at the library part time.

This was the tip of the ice berg for San Bernardino. STEER CLEAR of any ITT Bleech and simply enroll at a real college

[Jul 01, 2010] Subprime goes to college By STEVE EISMAN

June 6, 2010 | NYPost

Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task.

The for-profit industry has grown at an extreme and unusual rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk, and the for-profit industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.

In the past 10 years, the for-profit education industry has grown 5-10 times the historical rate of traditional post secondary education. As of 2009, the industry had almost 10% of enrolled students but claimed nearly 25% of the $89 billion of federal Title IV student loans and grant disbursements. At the current pace of growth, for-profit schools will draw 40% of all Title IV aid in 10 years.

How has this been allowed to happen?

The simple answer is that they've hired every lobbyist in Washington, DC. There has been a revolving door between the people who work for this industry and the halls of government. One example is Sally Stroup. In 2001-2002, she was the head lobbyist for the Apollo Group - the company behind the University of Phoenix and the largest for-profit educator. But from 2002-2006 she became assistant secretary of post-secondary education for the Department of Education under President Bush. In other words, she was directly in charge of regulating the industry she had previously lobbied for.

From 1987 through 2000, the amount of total Title IV dollars received by students of for-profit schools fluctuated between $2 billion and $4 billion per annum. But when the Bush administration took over, the DOE gutted many of the rules that governed the conduct of this industry. Once the floodgates were opened, the industry embarked on 10 years of unrestricted massive growth. Federal dollars flowing to the industry exploded to over $21 billion, a 450% increase.

At many major-for profit institutions, federal Title IV loan and grant dollars now comprise close to 90% of total revenues. And this growth has resulted in spectacular profits and executive salaries. For example, ITT Educational Services, or ESI, has a roughly 40% operating margin vs. the 7%-12% margins of other companies that receive major government contracts. ESI is more profitable on a margin basis than even Apple.

This growth is purely a function of government largesse, as Title IV has accounted for more than 100% of revenue growth.

Here is one of the more upsetting statistics. In fiscal 2009, Apollo increased total revenues by $833 million. Of that amount, $1.1 billion came from Title IV federally funded student loans and grants. More than 100% of the revenue growth came from the federal government. But of this incremental $1.1 billion in federal loan and grant dollars, the company only spent an incremental $99 million on faculty compensation and instructional costs - that's 9 cents on every dollar received from the government going toward actual education. The rest went to marketing and paying executives.

Leaving politics aside for a moment, the other major reason why the industry has taken an ever increasing share of government dollars is that it has turned the typical education model on its head. And here is where the subprime analogy becomes very clear.

There is a traditional relationship between matching means and cost in education. Typically, families of lesser financial means seek lower cost colleges in order to maximize the available Title IV loans and grants - thereby getting the most out of every dollar and minimizing debt burdens.

The for-profit model seeks to recruit those with the greatest financial need and put them in high cost institutions. This formula maximizes the amount of Title IV loans and grants that these students receive.

With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters (and I mean that literally), the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable of society.

If the industry in fact educated its students and got them good jobs that enabled them to receive higher incomes and to pay off their student loans, everything I've just said would be irrelevant.

So the key question to ask is - what do these students get for their education? In many cases, NOT much, not much at all.

At one Corinthian Colleges-owned Everest College campus in California, students paid $16,000 for an eight-month course in medical assisting. Upon nearing completion, the students learned that not only would their credits not transfer to any community or four-year college, but also that their degree is not recognized by the American Association for Medical Assistants. Hospitals refuse to even interview graduates.

And look at drop-out rates. Companies don't fully disclose graduation rates, but using both DOE data and company-provided information, I calculate drop out rates of most schools are 50%-plus per year.

Default rates on student loans are already starting to skyrocket. It's just like subprime - which grew at any cost and kept weakening its underwriting standards to grow.

The bottom line is that as long as the government continues to flood the for-profit education industry with loan dollars and the risk for these loans is borne solely by the students and the government, then the industry has every incentive to grow at all costs, compensate employees based on enrollment, influence key regulatory bodies and manipulate reported statistics - all to maintain access to the government's money.

In a sense, these companies are marketing machines masquerading as universities. Let me quote a bit from a former employee of Bridgepoint Education, operators of Ashford University:

"Ashford is a for-profit school and makes a majority of its money on federal loans students take out. They conveniently price tuition at the exact amount that a student can qualify for in federal loan money. There is no regard to whether a student really belongs in school, the goal is to enroll as many as possible. They also go after GI Bill money and currently have separate teams set up to specifically target military students. If a person has money available for school Ashford finds a way to go after them. Ashford is just the middle man, profiting off this money, like milking a cow and working the system within the limits of what's technically legal, and paying huge salaries while the student suffers with debt that can't even be forgiven by bankruptcy. We mention tuition prices as little as possible . . . this may cause the student to change their mind.

"It's a boiler room - selling education to people who really don't want it."

How do such schools stay in business? The answer is to control the accreditation process. The scandal here is exactly akin to the rating agency role in subprime securitizations.

In order to be eligible for Title IV programs, the universities must be accredited. But accreditation bodies are non-governmental, non-profit peer-reviewing groups. In many instances, the for-profit institutions sit on the boards of the accrediting body. The inmates run the asylum.

The latest trend of for-profit institutions, meanwhile, is to acquire accreditation through the outright purchase of small, financially distressed non-profit institutions. In March 2005, Bridgepoint acquired the regionally accredited Franciscan University of the Prairies and renamed it Ashford University. On the date of purchase, Franciscan (now Ashford) had 312 students. Bridgepoint took that school online and at the end of 2009 it had 54,000 students.

So what is the government going to do?

Most importantly, the DOE has proposed a rule known as "Gainful Employment." The idea behind the rule is to limit student debt to a certain level. Specifically, the suggested rule is that the debt service-to-income-ratio not exceed 8%. The industry has gotten hysterical over this rule because it knows that to comply, it will probably have to reduce tuition.

I cannot emphasize enough that gainful employment changes the business model. Gainful employment will cause enrollment levels to grow less quickly. And the days of raising tuition would be over; in many cases, tuition will go down.

By late 2004, it was clear to me and my partners that the mortgage industry had lost its mind and a society-wide calamity was going to occur. It was like watching a train wreck with no ability to stop it. Who could you complain to? The rating agencies? They were part of the machine. Alan Greenspan? He was busy making speeches that every American should take out an ARM mortgage loan.

Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can't afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back?

If nothing is done, then we are on the cusp of a new social disaster. If present trends continue, over the next 10 years almost $500 billion of Title IV loans will have been funneled to this industry. We estimate total defaults of $275 billion, and because of fees associated with defaults, for-profit students will owe $330 billion on defaulted loans over the next 10 years.

Steven Eisman is the portfolio manager of the FrontPoint Financial Services Fund, and one of the first people to predict the subprime mortgage crisis. Adapted from a speech he gave to the Ira Sohn Investment Conference.

BIG BUSINESS OF COLLEGE

In 2002, the government changed regulations banning colleges from providing "any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid." Since then, there has been an explosion of advertising for ITT, DeVry, Phoenix University and other for-profit universities, which aggressively recruit students and help guide them to federal student aid. Investing expert Steve Eisman estimates that for-profit students will default on $275 billion in taxpayer-backed, federal student loans.

Major for-profit educators include . . .

Apollo

ITT Educational Services

Strayer Education, Inc.

Profit margin.............................. 34%

*Profit margins based on an UBS analysis

What the Obama administration is considering . . .

* The Department of Education is mulling a "Gainful Employment" rule that would limit student debt. A proposed limit would be a debt service-to-income ratio of no more than 8%. This would force universities to lower their tuition, or face declining enrollment because fewer students could afford school. After a discussion period, the rules will be issued in November and go into effect summer 2011.

[Jun 30, 2010] Senate Committee Probes Financial Risk, Alleged Fraud Attributed to For-Profit Schools by Joyce Jones

June 25, 2010

Kathleen Tighe is the U.S. Education Department inspector general. (photo courtesy of the U.S. Department of Education)

WASHINGTON – For-profit, or proprietary, institutions of higher education came under fire Thursday as the Department of Education's inspector general, a former student, a Wall Street investor, and a former California deputy attorney general testified before the Senate Health, Education, Labor and Pensions Committee and alleged fraud and abuse by those institutions.

Steven Eisman, portfolio manager of the FrontPoint Financial Services Fund, compared for-profit colleges to the subprime mortgage lending industry.

"The government, the students and the taxpayer bear all the risk, and the for-profit industry reaps all the rewards," he said. "This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper."

According to Eisman, the industry accounts for 9 percent of the students; 25 percent of all Title IV loan and grant disbursements, and 44 percent of all defaults. At many of those institutions, he added, Title IV loans and grants make up 90 percent of total revenues. He cited ITT Educational Services as an example, noting that it "is more profitable on a margin basis than even Apple." Eisman predicts that, in the next 10 years, close to $500 billion in Title IV loans will be funneled to for-profits and that its students will owe $330 billion on defaulted loans.

How did it get to this point?

In her testimony, Kathleen Tighe, the Education Department's inspector general, cited numerous examples of fraud and abuse, including falsified records to qualify students to receive and continue getting federal financial aid and enrolling students in programs that do not meet minimum program eligibility requirements; failure to refund Title IV funds when a student drops out of an institution; and added "creative accounting schemes" to falsely demonstrate that the institution is meeting the 90/10 Rule so they can continue participating in federal student aid programs.

Tighe also said that her office has received complaints that institutions are violating a ban on incentive compensation for recruiters to increase enrollment. Unfortunately, the current regulations of the Department of Education shield schools from administrative civil and criminal liability, but that could change if recently proposed rules are adopted.

Other changes proposed include protecting students from misrepresentation, governing ability-to-benefit testing and satisfactory academic progress, and establishing a process to check whether a high school diploma is valid for student eligibility purposes, Tighe testified.

Margaret Reiter, a former deputy attorney general in the California Department of Justice, last prosecuted cases against postsecondary proprietary schools for unlawful and fraudulent business practices in the late 1990s. She told lawmakers that today such schools are more likely to be publicly traded, be larger and be richer and but the abuses are strikingly similar, causing students to rack up much larger debt.

"The Department of Education has proposed some much needed regulations to attempt to fix the problem. That is a good start, but fixing this problem will require stronger, tougher regulations than the Department of Education has yet proposed. It will also require legislative measures that finally get to the heart of the problem," Reiter said.

Yasmine Issa, a single mother of twins from Yonkers, N.Y., testified how the Sanford Brown Institute in White Plains made several promises and actively pursued her until she enrolled in its ultrasound technician's program.

She borrowed $15,000 of the $32,000 she paid to attend the school but did not discover until after graduation that the program is not accredited although the school is and that she would not be able to find a job in that field. Issa later found a local community college that offers an accredited ultrasound program at half the cost. When she inquired about enrolling there, Issa was told the school would not accept a transfer of credits from Sanford Brown.

"The closest that I have come to a real ultrasound job was the two months when I worked as a temp for a private doctor while his ultrasound tech was on vacation," she told lawmakers. "It's hard to find any work without a marketable skill, but going to Sanford Brown to get one has left my family and me worse off than if I had never gone back to school."

The hearing is the first of what will be a series to investigate waste, fraud and abuse at for-profits. Committee chairman Sen. Tom Harkin (D-Iowa) unveiled a report titled "Emerging Risk: An Overview of Growth, Spending, Student Debt and Unanswered Questions." It found that enrollment at for-profits grew 225 percent between 1998 and 2008 and that their share of federal education loans has doubled. The average fiscal year 2009 operating profit was $229 million, and at eight publicly traded for-profit schools almost 50 percent of the costs incurred were unrelated to education. In addition, the report showed, graduates have higher default rates and higher debt loads, and statistics suggest that many are dropping out.

"We really have to question the profit margins of these companies. It seems we have a situation where the bad actors are pulling the good actors," Harkin said. "I know first-hand how a student loan can transform the life of someone from a background of modest means. Low-income students depend on the federal government to provide them with the opportunity to attend college. Congress has a responsibility to ensure that this opportunity is real and not just false hopes pedaled on a billboard or pop-up ad."

To read all of the testimonies and view a webcast of the hearing, click here.

[Jun 30, 2010] Steve Eisman's Next Big Short: For-Profit Colleges By Andy Kroll

May. 27, 2010 | Mother Jones

Steve Eisman, the outspoken investor whose huge wager against the subprime mortgage market was chronicled by author Michael Lewis in his bestselling book The Big Short, has set sights on a new target: for-profit colleges of the kind of you might see advertised on daytime TV and at bus stops. Think ITT Educational Services, Corinthian Colleges, or Education Management Corporation.

In a speech titled "Subprime Goes to College," delivered Wednesday at the Ira Sohn Investment Research Conference, Eisman blasted the for-profit education industry, likening these companies to the seamy mortgage brokers who peddled explosive subprime loans over the past two decades. "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive and morally bankrupt as the subprime mortgage industry. I was wrong," Eisman said. "The for-profit education industry has proven equal to the task." (All of Eisman's remarks here come from a copy of his prepared remarks obtained by Mother Jones.)

Eisman, a blunt, no-frills portfolio manager at FrontPoint Financial Services Fund, a Morgan Stanley subsidiary, became an overnight sensation as one of the main characters in Lewis' latest. After witnessing the first wave of subprime madness in the 1990s, Eisman grew skeptical of the industry as a whole, Lewis writes. Then, when subprime surged again in the 2000s, he put his knowledge to work. Needless to say, he's a lot richer than he was two years ago.

The for-profit education sector has soared over the past decade, making companies like ITT and Apollo Group into heavyweights. Driving much of the growth, Eisman explained, was the sector's easy access to federally guaranteed debt through Title IV student loans. In 2009, he said, for-profit educators raked in almost one-quarter of the $89 billion in available Title IV loans and grants, despite having only 10 percent of the nation's postsecondary students.

Eisman attributes the industry's success to a Bush administration that stripped away regulations and increased the private sector's access to public funds. "The government, the students, and the taxpayer bear all the risk and the for-profit industry reaps all the rewards," Eisman said. "This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper." (Calls to several for-profit colleges, including ITT and Corinthian, were not immediately returned.)

Another similarity between subprime lending and for-profit education is this, Eisman said: Both push low-income Americans into something they can't afford-in the schools' case, pricey programs that leave the students heavily in debt; what's more, the degrees they get mean little in the real world: "With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters-and I mean that literally-the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable."

Eisman went on to cite the industry's dropout rates of 50-plus percent as another sign of poor quality; the numbers are likely understated, he added, given that the industry reports them voluntarily. "How good could the product be if dropout rates are so stratospheric?" he asked. "Default rates are already starting to skyrocket. It's just like subprime-which grew at any cost and kept weakening its underwriting standards to grow."

How does this kind of industry even stay in business? That, Eisman asserted, has much to do with accreditation. There are two main tiers of college accreditation: national and regional-the latter being the more valuable. (Big schools like Yale and the University of Michigan are regionally accredited.) As Pulitzer Prize-winner Dan Golden has reported, for-profit colleges with the weaker national accreditation have started acquiring financially troubled colleges for their regional accreditation. In a Bloomberg report, Golden cites ITT's acquisition of New Hampshire-based Daniel Webster College in June 2009 for $20 million, a purchase that could ultimately reap $1 billion or more for ITT.

Eisman saved the ugliest part for last: As he sees it, the industry's era of massive profits-ITT is more profitable on a margin basis than Apple, he notes-are about to end, thanks to new government regulations in the pipeline. He predicts big hits to the per-share earnings of Apollo Group, ITT, Corinthian Colleges, Education Management Corporation, and the Washington Post Company-which owns and relies on Kaplan for profitability. For ITT and Corinthian, Eisman foresees 2010 losses of nearly 40 to 50 percent. Regarding EDMC, he noted in his prepared remarks that the company's 2010 fiscal estimate is "massively negative."

Eisman ended with a warning:

Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can't afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back? The industry is now 25 percent of Title IV money on its way to 40 percent. If its growth is stopped now and it is policed, the problem can be stopped. It is my hope that this administration sees the nature of the problem and begins to act now. If the gainful employment rule goes through as is, then this is only the beginning of the policing of this industry.

But if nothing is done, then we are on the cusp of a new social disaster.

Not all experts on the for-profit education foresee such an ominous future. Trace Urdan, a managing director at Signal Hill who analyzes the industry, told Mother Jones earlier this week that pending regulation from Washington could indeed complicate the future for for-profit colleges. He added, however, that "if you're short on the industry right now, you think there's a game-over scenario on the way"-something Urdan himself doesn't necessarily see happening. Should the Education Department strongly crack down on for-profit schools, Urdan said he predicted losses of 8 to 12 percent-far less than Eisman's 40 to 50 percent projection.

Andy Kroll is a reporter at Mother Jones. For more of his stories, click here. Email him with tips and insights at akroll (at) motherjones (dot) com. Follow him on Twitter here.

[Jun 30, 2010] Greenberg: For-Profit Schools ... Subprime Redux? By Herb Greenberg

"Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."
Jun 24, 2010 | CNBC

Rule No. 1 for companies engaged in battles with short-sellers should be: Don't attack them and if you do, don't make it personal. Doing so is often viewed as trying to divert attention away from the issue.

That's why I was surprised to see just that in a press release from Harris Miller, president of the Career College Association, which represents the for-profit post-secondary education industry. His comment, posted on the Career College Association's website, was in anticipation of a hearing scheduled for today at the Senate Committee on Health, Education, Labor and Pensions.

He wrote: "What we will hear from one of the witnesses-a Wall Street short-seller born with a silver spoon in his mouth, who got his first big paycheck the old fashioned way, through his parents-will be self-serving attacks on non-traditional students designed to fatten his wallet, not to inform the American people on how best to get unemployed and underemployed Americans educated and back to work."

The short-seller, Steve Eisman of FrontPoint Partners, is perhaps best known as being immortalized in Michael Lewis' book, "The Big Short: Inside the Doomsday Machine," as having warned about the sub-prime mess when nobody cared.

Now Eisman's focus, which he detailed last month at the Ira Sohn Investment Conference in New York: The for-profit subprime industry, which for years has been engaged in an on-again-off-again tug-of-war between the shorts and longs. The title of his 48-page report: "Subprime Goes to College."

Among the companies he mentioned:

pollo Group
APOL

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ITT Education
ESI

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Corinthian Colleges
COCO

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Eisman is among those scheduled to testify.

Herb Greenberg
Senior Stocks
Commentator

Others include Kathleen Tighe, inspector general for the Department of Education. Her testimony was scheduled to mention examples of "fraud and abuse" her office has spotted over the years at for-profit education companies.

According to her prepared comments: "Considering the economic downturn over the last several years, combined with escalating student loan debts, a significant concern is the potential for increased loan defaults as we have seen the national cohort default rate increase recently."

But Eisman's comments were the most direct. Key claims include:

* "Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry. I was wrong. The for-profit education industry has proven equal to the task."
* With Title IV student loans, "the government, the students and the taxpayers bear all the risk and the for-profit industry reaps all of the rewards."
* "We have every expectation the industry's default rates are about to explode."
* "How do such schools stay in business? The answer is to control the accreditation process. The scandal here is exactly akin to the rating agency role in subprime securitizations."

In a 45-minute conference call Wednesday directed at Eisman's testimony, Harris disputed Eisman's claims, calling them "misleading" and charging that his subprime analogy is "wrongheaded." Among his points:

* "Mr. Eisman expresses concerns about cohort default rates but in doing so fails to provide the appropriate context and in some cases simply misstates the case."
* "The truth is that the overwhelming majority of career college students graduate and repay their student loans."
* "It's no secret that the career education sector is under attack by short sellers, trial lawyers, self-styled consumer advocates and some traditional academics….And they recycle old news to give currency to new allegations. In short, they twist the truth to serve their self-interest."

He added, "Comparing the for-profit career college sector to the subprime mortgage banking industry is as silly as it is simplistic."

Or not. Stay tuned.

[Jun 30, 2010] BP-to-Goldman Boards Become Hot Seats for College Presidents By Janet Lorin

Jun 30, 2010 | http://www.bloomberg.com/

As much as higher education and corporate America would like to be engaged, college presidents are struggling to reconcile the demands and values of academia with shareholder skepticism about their boardroom commitments.

Marathon Oil Corp. investors cast 67.5 million votes against Rensselaer Polytechnic Institute President Shirley Ann Jackson in April after a shareholder questioned whether she had time to serve. At Goldman Sachs Group Inc., Brown University President Ruth Simmons declined to stand for reelection in May, citing time demands, amid student criticism of her tie to the company, which was involved in the Wall Street meltdown.

University System of Georgia Chancellor Erroll B. Davis Jr. is a defendant in at least two lawsuits stemming from BP Plc's oil spill in the Gulf of Mexico, even though he quit BP's board in April, five days before the spill began.

"For university presidents, sitting on a corporate board used to be a resume enhancer and a networking opportunity," Nell Minow, chairman of the Corporate Library, a Portland, Maine, company that evaluates board performance, said in an interview. "Now it is a genuine and very demanding task with some daunting liability -- reputational and financial."

Companies recruit college presidents to add independent voices on boards dominated by corporate officers. Shareholders question the college leaders' availability for board tasks. Campus critics say chancellors, provosts and presidents should be focusing on budget cuts and shrunken endowments, and are tainted by the behavior of companies they serve.

Successive Meetings

Jackson of RPI, in Troy, New York, sits on five corporate boards, more than most college presidents, after stepping down from a sixth in April. She traveled to Milwaukee and Houston to attend shareholder meetings for International Business Machines Corp. and Marathon Oil on two successive April days.

Shareholders at IBM, Marathon Oil, FedEx Corp. and NYSE Euronext filed proxy statements this year or in 2009 questioning Jackson's ability to juggle jobs.

"Nobody should be sitting on that many boards," said Emil Rossi, the trustee for shares who filed a proxy statement with his son to protest Jackson's board nomination at Armonk, New York-based IBM, the world's largest computer-services provider. Of 14 candidates, Jackson placed 11th in the voting and retained her seat. While getting the fewest votes for election at Public Service Enterprise Group Inc., a Newark, New Jersey-based utility, she also held her board post there.

Founded in 1824, RPI is the nation's oldest technological university, according to its website. Jackson earned $1.6 million from RPI in the year ended June 30, 2008, making her the highest-paid leader of a nonprofit private college in the U.S., according to the latest rankings by the Chronicle of Higher Education.

Reaping Fees

Jackson also reaped $982,628 in fees and other compensation such as stock awards from IBM, Public Service, New York-based NYSE Euronext and Marathon Oil in 2009, plus $403,823 from FedEx and Medtronic Inc., a Minneapolis-based medical-device maker, for their latest completed fiscal years, proxy statements show.

Faculty members said Jackson isn't devoting enough attention to RPI's endowment losses and credit issues. In May 2009, RPI had its debt downgraded to A3 from A2 by Moody's Investors Service. While retaining the rating, Moody's in March changed RPI's outlook to "stable" from "negative." RPI's endowment fell 23 percent in a year, to $612.8 million on June 30, 2009, according to the National Association of College & University Business Officers, based in Washington.

"Her first priority needs to be this university," said Jim Napolitano, a professor of physics at RPI since 1992.

Keeping Jackson

While Jackson declined to be interviewed, her participation on corporate boards has "resulted in wide-ranging pathways of opportunities for Rensselaer students and faculty, and the university as a whole," William Walker, a spokesman for the university administration, said in an e-mail.

The board of trustees voted unanimously this month to keep Jackson as president for 10 more years, RPI said in a statement on June 15. The board cited "historic and significant accomplishments," including fundraising, faculty recruitment and buildings.

Jackson, 63, a physicist who formerly headed the U.S. Nuclear Regulatory Commission, has also earned praise from the companies she serves.

"It is clear that the overwhelming majority of IBM's stockholders appreciate her contributions to the company," Edward Barbini, a company spokesman, said in an e-mail.

'Tremendous Asset'

Jackson is a "tremendous asset" to FedEx, where she has served since 1999, Jess Bunn, a company spokesman, said in an e- mail. FedEx, based in Memphis, Tennessee, is the world's largest air-cargo carrier. At Houston-based Marathon Oil, where Jackson also remains on the board, she is "a valued contributor, with a keen attention to detail and breadth of knowledge," Lee Warren, a company spokeswoman, said in an e-mail.

College presidents began serving on for-profit boards at least 30 years ago, and the number has risen in the past two decades, said James H. Finkelstein, a professor of public policy at George Mason University's campus in Arlington, Virginia. Finkelstein surveyed more than 100 universities in 2000 and found that one-third of the presidents served on one to five boards, mostly in finance, manufacturing and technology.

Board service was once focused on the most-elite institutions, and expanded to less-prestigious schools, Finkelstein said.

Fundraising Tool

"Universities are feeling the pressure for fundraising, and they think creating these linkages will bring them more philanthropy, although there's no evidence to suggest that actually happens," Finkelstein said in an interview.

Davis, the Atlanta-based chancellor of the 35-campus University System of Georgia since February 2006, retired from the BP board on April 15. On April 20, an explosion at a well in the Gulf of Mexico led to the largest oil spill in U.S. history.

Having been a member of BP's committee on safety, ethics and environment assurance, Davis was named as a defendant in a class-action lawsuit over investor losses in the wake of the spill, said Robert S. Schachter, an attorney at New York-based Zwerling, Schachter & Zwerling, which filed the complaint in federal court in New Orleans on June 8.

The suit, on behalf of investors who purchased BP securities from Feb. 27, 2008, to May 12 this year, alleges that "false and misleading statements were issued by BP, saying that safety was their number-one priority," Schachter said. Davis is also a defendant in a suit filed in Lafayette, Louisiana, on May 21, according to court records. The value of BP's American depositary receipts has fallen about 53 percent since the day before the well explosion.

Avoiding Distraction

Davis declined to comment on why he resigned from BP, John Millsaps, a spokesman for the university system, said.

In a June 21 letter to the board of regents that supervises the university system, Davis said he won't be distracted by BP litigation. For members of corporate boards to be sued is "the norm," he wrote.

"As a director on the boards of major corporations, I have been named numerous times over the years in lawsuits," Davis wrote. "Not once in my capacity as a board member have I ever had to give a deposition or prepare for trial. I expect that to be the case in this instance, as well."

Davis, 65, joined the board of London-based BP in December 1998, and previously served as a director of Amoco, a company acquired by BP, according to a regulatory filing. Davis is also a board member at Detroit-based General Motors Co. and Union Pacific Corp., the rail-transportation company based in Omaha, Nebraska.

Mining Accident

Opposition from critics, both on campus and off, may drive university officials from corporate boards. E. Gordon Gee, president of Ohio State University, left Massey Energy Co., a coal-mining company based in Richmond, Virginia, in July 2009, after nine years on the board, amid criticism he was abetting a polluter. The following April, an explosion at the company's Upper Big Branch mine in West Virginia killed 29 people.

Before the resignation, a Cleveland-based nonprofit group called Ohio Citizen Action had collected signatures and letters from more than 6,800 Ohio residents, including students, faculty and alumni of Ohio State, urging Gee to leave Massey, said Kate Russell, an organizer of the protest.

The group opposes what Russell said is Massey's practice of mountaintop-removal mining that adds waste to waterways. Gee's service at Massey was hypocritical because he was promoting alternatives to fossil fuel while receiving fees from the coal company, Russell said in an interview.

Community Detriment

"As a university president, he shouldn't serve on the boards of companies whose ability to make their profit is at the detriment of local communities," Russell said.

Gee, 66, declined to comment, said Shelly Hoffman, a spokeswoman for the university, in Columbus, Ohio. Gee remains a board member at Bob Evans Farms Inc., a restaurant operator, and Grange Mutual Casualty Co., two companies also based in Columbus.

Gee isn't the only college official to find his, or a school's, reputation affected by a corporate tie. At Brown, in Providence, Rhode Island, students expressed concern that Simmons's involvement as a Goldman Sachs board member tainted the university, said Simon Liebling, 20, a columnist with the Brown Daily Herald, the student newspaper.

"When Goldman became a pariah of Wall Street and poster boy for greed and excess, Brown was tied up in that," Liebling said in an interview.

Simmons, 64, joined the Goldman Sachs board in January 2000, while she was president of Smith College in Northampton, Massachusetts.

Record Bonus

Simmons was a member of Goldman Sachs's compensation committee, according to company filings. In 2007, the group approved a $67.9 million bonus, still a Wall Street record, for Chairman and Chief Executive Officer Lloyd Blankfein. The U.S. Securities and Exchange Commission said in a lawsuit in April that Goldman Sachs had misled investors in mortgage-linked securities designed to benefit a favored client at others' loss. The company denied wrongdoing.

Goldman Sachs said in February that Simmons wouldn't stand for reelection because of her need to spend more time at Brown. Simmons said in an interview that criticism in the student newspaper about her tie to the bank had "zero" to do with her decision. She remains a director of Dallas-based Texas Instruments Inc., the second-largest U.S. maker of computer chips.

'Not Complicated'

"Right now, the idea is I might be able to handle one" directorship, Simmons said in an interview. "It's not complicated, if you know the semiconductor industry."

Simmons is one of five presidents in the Ivy League who serve on for-profit boards -- one for each president --according to the universities. The Ivy League consists of eight institutions in the northeast U.S.

Google, Cisco

Outside the Ivy League, John Hennessy, president of Stanford University near Palo Alto, California, also is Google director. In addition, he is a board member at Cisco Systems Inc., the biggest maker of computer-networking equipment, based in San Jose, California, and Atheros Communications Inc., a Santa Clara, California-based maker of electronic products used in communication networks.

Susan Hockfield, president of the Massachusetts Institute of Technology in Cambridge, is a board member of Fairfield, Connecticut-based General Electric Co., the world's biggest maker of jet engines, power-generation equipment and locomotives.

In January, the board of regents of the 10-campus University of California system, based in Oakland, limited to three the number of for-profit boards that chancellors and other senior leaders can join, said Steve Montiel, a spokesman.

Stepping Down

The university system made permanent the interim rules it had adopted in January 2007. That year, Marye Anne Fox, chancellor of the University of California, San Diego, quit as a director of Pharmaceutical Product Development Inc., a consulting company based in Wilmington, North Carolina, to hold her board positions to three.

Jeffrey Gattas, a spokesman for the university, said Fox, a 62-year-old chemist, declined to comment.

Even a single board seat can arouse controversy.

University of Washington Provost Phyllis Wise won appointment to the board of Beaverton, Oregon-based Nike Inc. in November. Two months later, a group of faculty members asked her to step down. As provost and executive vice president, Wise is the second-ranking official of the public university, whose largest campus is in Seattle.

Wise's role as a Nike director poses a conflict of interest because the company and the school do business with each other, said Janelle Taylor, leader of the University of Washington chapter of the American Association of University Professors, the advocacy group based in Washington, D.C.

'Just Unethical'

A 10-year arrangement with Nike gives 23 campus teams free shoes, apparel and equipment and provides $725,000 annually to the athletic department -- a total value of at least $35 million to the school, according to the athletics department. In return, Nike gains exposure for its products.

University President Mark A. Emmert wrote to Nike, most recently in April, asking the company to pressure contractors to provide severance pay to minimum-wage workers who lost jobs. Two plants had closed in January 2009 in Honduras, where subcontractors produced Nike collegiate products, according to the university's Advisory Committee on Trademarks & Licensing.

"We've been pressuring the school to cut our contract with Nike," said Eunice How, 20, an undergraduate who is a member of the Student Labor Action Project, a group that advocates workers' rights. "Provost Wise being so entwined with Nike is just unethical."

Not so, said Wise. She said she won't be involved in renewal of the Nike contract, which expires in June 2019, and is at least "two or three steps removed" from dealings between university officials and the company.

"The concern about a conflict of interest there is unfounded," Wise, 65, said in an interview.

To contact the reporter on this story: Janet Lorin in New York jlorin@bloomberg.net.

[Jun 30, 2010] Princeton as `Hedge Fund' Foils Residents Seeking Relative Share of Taxes By Moira Herbst

"Is the university some type of old-fashioned institution full of scholarly gentlemen with modest salaries and a devotion to education?" Wilkes, a 1983 Princeton graduate, said in a phone interview. "Or is it a hedge fund with $16 billion promoting an educational arm on the side?"

Jun 29, 2010 | http://www.bloomberg.com/

Princeton University, the fourth- richest institution of higher education iicipal officials and residents say the college should do more.

The university would pay about $28 million in additional property taxes if all of its land were taxed, said Princeton Borough Councilman Kevin Wilkes. The college owns 43 percent of the borough's assessed land value and 13 percent of adjoining Princeton Township's, Wilkes said.

"The town budget is strapped and schools are looking at laying off teachers," said Princeton Borough resident Peter Kann, former chairman and chief executive officer of Dow Jones & Co. and the co-chair of Princeton Future, a civic organization. "Then there is this enormously rich university. They give the appearance of being wonderful donors to the town, but compared with what they would be giving if they were paying property taxes it's really trifling."

It's the latest round in the town-gown faceoff, as U.S. municipalities still reeling from the economic crisis turn to their local universities, whose land holdings are mostly tax- exempt, to close budget shortfalls. Those institutions say they aren't in a position to help: They are also scrimping to save money through program and job cuts after record endowment declines. Princeton University's investments lost 24 percent in the year ended June 30, 2009. The total value of the endowment fell 23 percent to $12.6 billion, from $16.3 billion the previous year.

Task Force

In Boston, a task force is completing a plan to be phased in over the next five years that calls on colleges and other nonprofit organizations to make annual payments equivalent to 25 percent of what they would owe if they paid property taxes. In November, Pittsburgh's mayor threatened, and ultimately failed, to tax college tuition. Instead, Carnegie Mellon University, the University of Pittsburgh and the health-care insurer Highmark, which has some for-profit subsidiaries, agreed to contribute an amount to be negotiated with the city.

Just one third of 30 top research universities made regular voluntary payments in lieu of taxes to their cities or towns, according to a Chronicle of Higher Education survey in January.

Tensions in Princeton have been mounting since a standing- room-only meeting in April 2009, called "Why Princeton University Should Pay Its Fair Share of Property Taxes." About a dozen people booed Kristen Appelget, the university's director of community and regional affairs, as she spoke about all the college had done for its neighbors, directly or indirectly, said David Goldfarb, a Princeton Borough councilman.

'Scholarly Gentlemen'

Princeton Borough, Princeton Township and the regional school board voted in January to urge the college to boost its payments.

"Is the university some type of old-fashioned institution full of scholarly gentlemen with modest salaries and a devotion to education?" Wilkes, a 1983 Princeton graduate, said in a phone interview. "Or is it a hedge fund with $16 billion promoting an educational arm on the side?"

The booing that disrupted the 2009 community meeting, sponsored by the Princeton Citizens for Tax Fairness, was a "very unusual occurrence," Robert Durkee, the university's vice president, said in an interview in 254-year-old Nassau Hall. Subsequent meetings with local officials were held privately.

"Almost everyone who was in that room has come forward to apologize since then," Durkee said. "That's not how we conduct conversations in this community."

Rich County

Princeton Borough and Township are part of Mercer County, one of the 100 richest counties in the U.S. with populations exceeding 65,000, on the basis of median household income, according to the U.S. Census Bureau's 2008 American Community Survey. The median housing price in Princeton Borough was $544,950 in 2009 -- about twice the level for New Jersey overall, according to Onboard Informatics, a New York-based real estate data provider. Princeton High School ranked No. 94 in the nation in a U.S. News & World Report 2010 survey.

The university is already the largest taxpayer in Princeton Borough and Princeton Township, Durkee said. It paid $8.2 million last year in property taxes on housing for staff, faculty and some graduate students as well as for parking lots and other commercial facilities. It contributed an additional $1.6 million in sewer fees last year, according to the university.

Free Jitney

The university doesn't pay property taxes on academic, administrative and athletic facilities. Instead, it made a $1.2 million payment in 2009 in lieu of taxes, part of a six-year agreement that expires at the end of 2011.

Princeton University also pays $35,000 a year to support the First Aid & Rescue Squad and $100,000 a year for a staff position at the fire department, the university said. It gave $60,000 to the borough in 2008 to launch a free jitney service to the train station for residents, and community members can visit the art museum and children's library on campus at no charge. The university helped restore the Garden Theatre, on Nassau Street bordering the college, in 2001. That same year, it gave a $500,000 gift to the school system for a new high school library.

The university employs about 5,300 people, and each year it helps generate more than $1 billion in economic activity, according to a 2008 college-issued report.

"Our sense is, if you look at everything together, the university makes a very substantial contribution to the community," Durkee said. "We believe that we have been a very good neighbor."

Mayor's Deal

The university made its first voluntary contribution to Princeton Borough in 1964 for $10,000. It also started leaving housing properties for faculty, staff and graduate students on the tax rolls because families might send children to the public schools, the university said.

While residents have long wanted Princeton to pay more, many held their tongues because they depend upon the university directly or indirectly for their livelihood, Goldfarb, 56, a lifelong Princeton resident, said.

That approach changed in 2005, after the late Joseph O'Neill, who was Princeton Borough Mayor, secured the six-year payment-in-lieu-of-taxes agreement with the university. For the first time, the university's contribution topped $1 million and was formally annualized in a contract.

"Residents sat back and said, 'If the university gave $1 million with apparent ease maybe we didn't aim high enough,'" Goldfarb said.

Tight Budgets

Princeton University and the surrounding borough and township are all facing budget cuts. The college slashed $88 million from its $1.3 billion annual operating budget in the fiscal year ending June 30 and $82 million from its $1.4 billion budget for 2011. Over the two years, it eliminated 43 positions and reduced hours on 18 jobs. It also postponed construction of a satellite art museum and storage facilities and delayed the renovation of a humanities and social sciences building.

"This is not a good time to be asking the university to increase contributions," Durkee said.

The Princeton Regional School Board cut more than $3 million from its 2010-2011 budget after it lost $3.7 million in state aid, even as taxes rose by 4.4 percent. The Board cut 24 teaching positions and eliminated summer sports programs, said Princeton Regional School Board Superintendent Judith Wilson.

Borough's Cuts

Princeton Borough, an about 2-square mile (3-square kilometer) municipality nestled within the 17-square mile Princeton Township like the hole of a donut, has made cuts as well. The town dismissed two police officers and left two positions unfilled since June 2009, shrinking the force to 30. Garbage pickup was cut back to once a week from two.

Princeton Township started a furlough program in its Public Works Department, reducing union employees to a 35-hour work week from a 40-hour work week in June through August, said Township Mayor Bernard P. Miller. The police officers' union agreed to reductions in benefits and a changed pay scale for officers hired after January 1, 2010.

At the same time, property taxes are set to rise for many residents after the first reappraisal since 1996. Last year, residents paid an average of $15,670 in taxes in Princeton Township and $15,092 in Princeton Borough, according to Appraisal Systems Inc., a consulting firm based in Morristown, New Jersey. Residents will learn whether their property taxes will rise and by how much after 2010 municipal budgets are passed this summer, said Ernest F. Del Guercio, the firm's chief executive.

Paving Streets

"Taxpayers are subsidizing the university," said Sue Nemeth, a Princeton Township committee member. "The intangible benefits the university offers are lovely but we can't pave the streets with them."

Nemeth cites what she calls the generosity of other wealthy Ivy League colleges. Harvard University, which has the largest university endowment in the U.S., made $4.14 million in voluntary payments in lieu of taxes in 2009 to Cambridge and Boston, the two cities where its campuses are located.

Yale University, which has the second-largest endowment in higher education in the U.S., increased its annual voluntary payment in lieu of taxes to its hometown, New Haven, Connecticut, to more than $7.5 million in 2009 from $5 million.

Princeton University's financial contributions to the town significantly exceed those of peer institutions when measured as a percentage of the municipal budget, Durkee said.

Tim McNulty, owner of Green Design, sells ecologically friendly products on Witherspoon Street a block from campus. While students and visitors shop at his store, it may be time for the university to contribute more, he said.

"If Harvard and Yale's contributions are higher, why not bring Princeton into line?" McNulty said.

[Apr 16, 2010] Bill Gates - Wikipedia, the free encyclopedia

Since leaving Microsoft, Gates continues his philanthropy and, among other projects, purchased the videos rights to the Messenger Lectures series titled The Character of Physical Law, given at Cornell University by Richard Feynman in 1964 and recorded by the BBC. The videos are available online to the public at Microsoft's Project Tuva.[45][46]

[Apr 10, 2010] Mish's Global Economic Trend Analysis Cal. Munis Rated Worse than Kazakhstan; Students Forced to Buy Healthcare; Rents Drop 1.5%, Record Vacancies; 33 States Exhaust Unemployment Reserves

Medical Student Debt Statistics

The American Medical Association has some interesting statistics on Medical Student Debt.

Student debt statistics According to the Association of American Medical Colleges (AAMC), the average educational debt of indebted graduates of the class of 2009 is $156,456.
It will take a decade or longer to pay that debt off. And that is IF the students find a good job.

[Mar 30, 2010] "Human Capital: Literal Truth, Fairy Tale or Myth?"

Nick Rowe says "This is from my Carleton colleague Frances Woolley":

Human capital: literal truth, fairy tale or myth?, by Frances Woolley:

Part I: Education

Every undergraduate student in labor economics gets told the story of human capital. Education and experience make people more productive. The skills so acquired are called "human capital." This explains why some people earn more than others, and why some countries are richer than others.

Is human capital theory the literal truth? There is an element of truth in it. The typing skills learnt from Mr. Darby in grade 9 make me more productive than my hunt-and-pecking colleagues. Educating girls reduces fertility rates (pdf), promotes female autonomy, and has a host of other productivity-enhancing benefits. But there are many things that human capital cannot explain.

For example, if what is taught at universities actually makes people more productive, then simply taking university courses should be enough increase earnings. In fact, to get much of a payoff from university education, you have to finish your degree (the "sheepskin effect" ). One reason education pays is that completing a degree "signals" your ability, determination, competence and general stick-with-it-ness.

Perhaps we should think of human capital as a fairy tale, a reassuring bedside story. But the power of fairy tales is that they reflect certain elemental truths about the human condition. People who teach economics may find it deeply comforting to think that their pay is justified by their high levels of human capital.

But human capital is more than a comforting story – it is a myth that shapes our understanding of the world and thus public policy. Ontario's government is urging universities to increase retention rates, so everyone who starts university completes a degree. If the human capital theory is true, then this is sound policy: more students completing university means more human capital means a more productive economy. If, however, the value of university education is as a signal of ability, then one of the most important things that universities do is fail students. Unless some students fail, the ability to complete a university degree confers no special distinction on the graduate.

Whether or not human capital theory is true determines the best response to the demographic challenges much discussed this blog. If education makes people more productive, then more education can increase the productivity of our economy – possibly enough so that fewer workers are able to support the large number of pensioners. If, however, education is basically about sorting workers – if people are getting more and more degrees in hope of eventually capturing that one elusive stable professional job with benefits – then the best way of responding to the demographic crisis is to scale back post-secondary education. Doing so would effectively increase the size of the working age population substantially, easing demographic problems. ... [Part II: The experience part of the human capital equation]...

My case is unusual since I have a job in a university, but there is no doubt at all that education enhanced my productivity (i.e. that education was more than a signal to potential employers). If California had set tuition at just over $100 per semester at its state universities (colleges then), I'd most likely be selling tractor parts somewhere and hating it. That's what my grandfather did, that's what my dad did, and although my brother isn't in parts directly, he sells John Deere engines so he is involved in the tractor business as well (both my grandfather and my dad managed to work their way up to sales and, in my dad's case, part ownership and general manager toward the end of his career -- my brother and my dad have severe dyslexia, and they overcame much more than I did in achieving the success they realized).

I started working at the parts counter in tractor stores during high school, and I continued all through college to support myself. I hated that job, and it was all the motivation I needed to go to class every day and do my best (which did not rule out doing my share of partying -- I will be in surplus the rest of my life just from those four years...). I had a math professor who loaded his classes up in the morning, and was at the golf course by 1:00 every day (where his son was the pro). I had another who spent a lot of time hunting, fishing, and generally doing whatever he wanted with his free time. I looked at both of them, thought about the stupid tractor parts counter job I was doing and how bored I was with it -- how much I hated going there every day -- and thought "I can do that job." I can play golf every day, enjoy the outdoors, take summers off, etc. (When I showed up to work in the morning, I would write down the number 480 on a piece of paper -- that was how many minutes I had left until I could go home -- and then I'd write down and check off each minute one by one during the day. It was agonizing and counting every minute made it worse. If 15 minutes passed by without my checking off any numbers, a whole 15 minutes without thinking about getting out of there, I considered it a success. Occasionally, a whole hour might go by before I wrote down how long until the day was over, but that was rare.

I remember thinking that all I wanted was a job where I wouldn't count the minutes from the time I got there until it was time to go home.) Somehow, though, during graduate school I became convinced that I was supposed to do research, not just play all day when I wasn't teaching, so I skipped the teaching jobs and took a position that required research. But I wouldn't be here without cheap tuition, the math guy who played golf every day -- I took every class I could from him and every other math class they offered that fit my schedule (when I found a good teacher I'd take every class he or she taught no matter what type of math it was), and all the economics I took from the professor who'd rather be hunting or fishing. And I certainly wouldn't be here without all the technical skills I learned (the computer science classes were very valuable). As I said, I have no doubt that my productivity was enhanced by going to college.

But I want to take on the basic premise that the purpose of an education is to enhance productivity, to prepare students for the workforce. That's part of it, certainly, though that is much more the case in professional schools that are attached to universities than in the universities themselves. I didn't just get technical skills from college -- math, computer science, etc. -- I got a liberal arts education (or, at least as much of one as you can get at a state institution charging $100 tuition). I learned things about the world and about ideas that I would not have learned elsewhere, things that helped me to think about and evaluate the world around me from new, different, and valuable perspectives. Even if I'd ended up back at the tractor store, and that was certainly a possibility since I got into graduate school by luck -- I only applied two places, Berkeley and Stanford, and got rejected at both places. (I didn't know how hard it was to get there from Cal State Chico and thought my grades/GRE/math training/letters would be enough, I was pretty naive at that time. I can still remember reading the letters on my front porch and feeling crushed.) A professor I was working for at the time helping with medical consulting (pricing of pharmaceuticals for Medicare) got me into Washington State with support after deadlines had passed. If that had not happened, and it was a bit of luck that it did, I wouldn't have gone to graduate school.

However, even if I'd ended up selling tractor parts, what I learned at Chico is something nobody could have ever taken away from me. We often forget about the education part of education and focus on the vocational training aspect, but to me the broad-based liberal arts education is one of the more valuable parts of the education I received. I tended to focus on economics, mathematics, and computer science. I only took courses outside those areas when I was forced to, and I am so glad they made me to take other courses. I loved geology even though I thought I'd hate it, psychology was surprisingly good -- I read the entire text after the course was over, I read most of the books for my undergraduate courses cover to cover at some point -- cultural geography was a surprise (lots of economics). Now that I think about it there were only one or two courses I didn't like and that was mostly because of the instructors.

I didn't always appreciate it at the time, but the general education part of the degree was of great value. That's one of the main reasons I wish I could have afforded to go to a better school than Chico. I doubt the technical training would have been any better, I made a conscious effort to cover all those bases and a motivated student could get what was needed without too much trouble, but the liberal arts part of the education would have likely been much better (and the opportunities for graduate study would have been considerably enhanced -- there are places you can't get to from Chico). I still have lots of holes in history, philosophy, the arts, religious studies, and so on that were left unfilled growing up in a small farming community with parents who never graduated from college. There were so many things I didn't even know I didn't know (though there are also insights that come with such an upbringing that cannot be learned in college or anywhere else, I think I understand things other people sometimes don't, so I don't mean to put down growing up in a small, farming community, not at all). However, even though Chico probably wasn't the best place in the world for a liberal arts educations, for me it was a great leap forward.

Given my background, and the near certainty that it was only the cheap tuition that saved me from a life I would have hated, I am very sad about what is happening to educational access in California and elsewhere. When I think of all the people stuck in their version of the job at the parts counter, people that could be doing so much more if the path were open to them, it makes me both sad for them and very, very appreciative that the state made it possible for me to find a way out.

I know there are many of you who don't see education the way I do -- as a ticket to someplace better and the only real chance I had -- but I believe education is the key to a better future and I will not give up trying to increase access to as many people as possible. I don't care at all if if dilutes the signal to employers, they'll just have to figure out some other way to cull the herd. The value of an education to an individual goes far beyond training for a job, and I see no reason to deny those benefits to anyone who has done the work required to prepare themselves for college level work.

Posted by Mark Thoma on Sunday, March 28, 2010 at 01:11 PM Comments (52)

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