Higher Ed: Profit, Price, & Performance

I suppose due to the publicity surrounding larger rulings, I missed the courts striking down President Obama’s Gainful Employment rule:

The for-profit college industry, long under attack by Obama administration bureaucrats as well as short-sellers like Steve Eisman, scored a big victory yesterday when a federal court in Washington, D.C. rejected new rules that would have made it harder for their students to obtain federal loans.

In a decision dated June 30, U.S. District Judge Rudolph Contreras rejected most of the Education Dept.’s 2010 rules that would have subjected for-profit colleges to three new tests based on the ability of their students to repay their loans. The judge said a test that would have eliminated the bottom 25% of schools from student-loan eligibility was “arbitrary and capricious” because it wasn’t based on any economic studies suggesting students from those schools had a harder time finding jobs. […]

The judge dismissed most of the for-profit colleges arguments against the new rules, saying it was reasonable for the administration to tie the concept of “gainful employment” specified in the law to ability to repay. ““The real question …is not how much gain is enough but rather how much preparation is enough,” he said. He also rejected the argument that the new rules were an “elephant in a mousehole,” exceeding the Education Dept.’s authority to assess the performance of schools in graduating well-trained students. Under the new rules, schools whose students were left with loan repayments that exceeded 8% of their average annual income or 30% of discretionary income would be in danger of losing funding.

The rationale for the rules were pretty straight-forward, and laudable. I have no problem with for-profit colleges, per se, but the leniency with which we accredit and fund higher education is ripe for abuse. Though for-profits have a pretty solid graduation record when it comes to two-year degrees, too many people are swimming in an ocean of debt for college degrees they either didn’t complete or turned out not to be very valuable. I am sympathetic that this check should be a law rather than an administration dictate, but this was not a solution in search of a problem.

Not a perfect solution, of course. The rule is aimed squarely at for-profits and I am not entirely sure why this should be the case. Politically, it is to avoid black-marking non-profit and government schools that cater to disadvantaged students. That is, however, very often exactly who for profits cater to, and I struggle justifying calling it admirable in one context and loathsome in another. At least theoretically, the lower cost of public institutions should have given them a leg up in the calculations (which takes into account the total amount owed). If that’s not enough, we need to start looking at some of these schools and the services they are actually providing.

Meanwhile, there were some interesting goings-on in Texas and, for once, I have to tip my hat to Texas Governor Rick Perry. Too many politicians are looking at how to help people pay for college, and not enough of them are looking at ways to make college more affordable. This is a distinction with a difference. Perry has joined others in bucking that trend:

The deal is actually a reworking of a 1997 agreement, when Texas helped create WGU along with 18 other states, each of which chipped in $100,000 for the cause. The school is both regionally and nationally accredited.

WGU Texas is the school’s third such beefed-up state program in the last 16 months, WGU spokeswoman Joan Mitchell told the Texas Independent today.

Gov. Mitch Daniels created WGU Indiana by a similar executive order last year, Mitchell said, and WGU Washington was created by lawmakers in that state in the spring.

WGU is self-sustaining, Mitchell said, based on tuition that runs at a flat rate of $2,890 for a six-month term. The program is self-paced, so students can take as many courses as they can manage in one term, and advance as soon as they pass end-of-course exams.

“All of our coursework is online. that model, coupled with being a nonprofit is really unique,” Mitchell said. Four-year tuition at the school runs a little more than $23,000, but Mitchell says most of WGU’s students are adults who already have some college credit. Thanks to that head start many students have, Mitchell says the average time to graduate with a WGU degree is 30 months.

I am not among those who believe that online schools are going to displace the regular kind, for the most part (more on this in a separate post, I think), in part because of the funding regime we have in place that has historically rewarded schools for not being cheap. At some point, though, something is going to need to give. We need to have a discount option to provide a check to five-figure student debts to provide a check on schools that have less motivation to keep prices low than they do for increasing grandiosity.