Great Comment from http://www.insidehighered.com/news/2010/09/13/comments

Posted: September 24, 2010 in Commentary
Tags: , , , , ,
  • Posted by Robert W Tucker , President at InterEd, Inc. on September 13, 2010 at 12:15pm EDT
  • Not everyone who wrote to the Department objecting to the proposed rules has skin in the game.

    http://www.intered.com/storage/deptofed/InterEdTuckerLetter-to-Duncan_090810.pdf

    On balance, my work will be unaffected by the outcome. I wrote my response because the proposed regulations are blatantly hypocritical and unfair, and riddled with logical and empirical errors, half-truths, and at least one lie. Perhaps worst, is the fact that the proposed rules would not accomplish their stated goals. They would work against these goals via a myriad of “unintended” consequences. Sometimes I wonder if there is anything left but politics and special interests in the federal process,and if our leaders are even capable of objective, dispassionate thought. I encourage everyone involved at senior levels of higher education to read the proposed rules.

    A few of more than a dozen key points:

    1. The Administration’s reasons for proposing this narrow application of rules to 12% of the market and not the other 88% are: (a) that for-profits cost the taxpayer more and (b) have higher loan values and default rates. Both claims are empirically false. Not grey areas . . . they are false. First, economists vary in their assumptions and therefore their findings when determining taxpayer costs of institutional types but the absolute range is from zero to $4,500 for for-profits with less than $2,000 being based on the most sound models, and $10,500 to $16,500 for publics. Second, examining the feds own loan database for loan payback and default for public colleges serving higher proportions of lower income, first-generation students, turn in higher loan values and lower payback percentages.

    2. The rules, as proposed, are based on intentionally distorted empirical foundations. The largest proportion of variance in the variables of interest (default, etc.) are accounted for by loan value and debt/income ratios. From a different perspective, these same variances are accounted for by student and family demographics (e.g., University of Phoenix programs offered to established, working business people have among the lowest default rates in the nation; on the other hand, their programs designed to serve the underclass have high drop out and default rates. (I have no interest in defending UOP. They are not a client. I mention them because I know their default rates in detail.)

    Common sense right? I guess not because the schools to be regulated by these proposed rules: (a) will not be permitted any visibility into how much their students borrow, (b) will not be permitted to determine whether their students can reasonably be expected to be able to pay back what they borrow, and (c) will not be permitted to have any influence whatsoever on the amount borrowed. These schools will be held accountable for behavior over which they will be denied any control or visibility. Does that sound fair to anyone?

    Statistics are widely available showing the growing trend of students borrowing as a substitute for saving and working, even taking out maximum student loans to purchase cars and homes. Under the proposed rules, the schools will be held accountable for these excesses but will not be permitted to learn of them until they receive their after the fact default notice from the feds. And, what is the fed’s position this growing loan problem? One need only look at the fed websites to see that they are encouraging students to borrow as much as they “need” and to consolidate loans. At the same time, the proposed rules count consolidations as defaults against the schools. (There is more detail to this but the main point stands.)

    3. The Administration appears to believe that the at-risk students taken away from the “expensive” for-profits will be well served by other choices. “What they mean by this is tax-supported public institutions where the total cost is north of tuition plus $10-16K (~$20K). The Administration seems ignorant of the fact that public institutions across the nation have turned in double-digit tuition increases, some as high as 17%, with hidden fee increases reported as high as 54%. In the meantime, they are closing doors on programs, reducing enrollments, and turning record numbers of applicants away. These are the schools these the Administration would have the displaced underclass students attend. The truth is that these public institutions do not want and will not admit many of these students. Let them eat cake, I guess.

    Much attention has been given to the culinary industry as an example of programs for which students of for-profit schools do not meet reasonable gainful employment tests and that the public institutions could just as easily educate. Today, 59% of the culinary bachelors degrees are delivered by for-profits. No knowledgeable person could suggest that the public 4-year institutions could pick up this load when, at present, they provide only 11% of these degrees. Take a look at what the National restaurant Association said in their plea to the Department to look at the facts. They depend on the for-profits for an educated workforce and they are worried. See: http://www.intered.com/storage/deptofed/NRA_Gainful_Employment_Comments.pdf

    4. The Department has ignored technical shortcomings in the proposed rules, noting they can be worked out later. To suggest this is either disingenuous or naive. The department of education has a near perfect record of creating rules that it does not and cannot enforce. Who — in reality, based on track record — will work out the bugs in this approach and enforce the final versions? How will that work take place and why would we think it will take place since the history of this kind of detailed follow-up is an embarrassment to the Department?Additionally, every single abuse of the student loan system that has been uncovered to date – whether in for-profits, independents, or publics – is covered under existing law. Law that has not been adequately enforced. This and most federal departments follows a standard practice of proposing new rules to address problems created by failing to enforce current rules. Then there is the fact that each administration wants to leave its stamp on every major industry.

    5. There are more than 900 for-profits colleges and universities. Some serve only the underclass. Some offer only advanced degrees to senior professionals. All but a small handful are not publicly traded. They are small companies closely tied to their communities, employers, and the professions they serve. These 900 schools have little more in common than any 900 schools selected at random from the IPEDS database.

    The proposed rules are clearly designed to slow the growth of the large publicly traded for-profits without regard for the fact that they don’t fit hundreds of schools and will close the doors of dozens of small schools that are serving students no one else wants or will admit.

    To anyone working in a public institution who might be enjoying the suffering of your for-profit colleagues, I would advise you to put principle of equity and rationality over immediate self-interest. The feds have plans to come after you next and you will have lost your opportunity to stop this paternalism, unreasonable for 17-21 year olds, notwithstanding the fact the 40% of college students are working adults and something in the area of 75% of the for-profits’ students are working adults.

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