On the Frontline of Education Part II

The "nonpartisan, public policy institute" New America has a blog on Higher Education, called Higher Ed Watch. The institute has been an outspoken critic of past changes made to the Higher Education Act. When the Office of Postsecondary Education (within the Department of Education) announced its "intention to establish negotiated rule making committees to prepare proposed regulations under Title IV and, possibly, Title II of the Higher Education Act of 1965, as amended (HEA)," New America saw this as an opportunity to right a past wrong. They wrote, regarding the 2002 safe harbors, "many of these exemptions violate both the spirit and letter of the law barring commission-based compensation. And most could be easily gamed by unscrupulous schools to engage in the types of predatory recruiting practices that the law expressly prohibits." That was but one piece of the ongoing legislation of education, with Part 1 of the story focusing on some of the history of the changes and broader context surrounding the battle over revisions to the newly passed Higher Education Opportunity Act (HEOA).

Even we, who have been following the developments closer than the average person, find making sense of the processes, time lines, institutions, and acronyms confusing. We wouldn’t be surprised if quite a few others did too, as well as found themselves still saying, "What’s the big deal?" and that there is no way this matters except to a handful of people. The latter viewpoint is the single biggest misconception and the biggest threat to any who currently market or would like to market higher education offers. Almost every major publication has run a piece on the topic, but this same complexity that makes it tough for us to summarize, makes it just as tough for others to as well, especially if education is not their focus. The pieces, though, are becoming more frequent, and one in particular came out that initially had those who lean towards for-profit education growth nervous. Frontline, the documentary series on PBS, ran an expose titled, "College, Inc.," a piece that, given the general tone of most public broadcasting, seemed as though it would turn out as a roast of the for-profit sector. It wasn’t quite roast, but for those who care enough to understand the issue but need to see something, this is for you.

The Frontline piece is just under an hour long, and worth every minute. Watching it and reading this post from Higher Ed Watch, will help any marketer understand those with misgivings about the for-profit space.

Perhaps the best quote in the piece comes from a former Director of the University of Phoenix who, from the sound of it, made millions during his tenure through mostly equity growth. He quips, "What makes education so special?" and compares the spending and profit margins of schools to perfume. Not his best moment. And he says what most marketers know – that they must advertise; to succeed, the schools "have to get people’s attention." If you believe education should not be a business, you’re reading into that as a prime example of a system that is broken.

Some other facts from the piece:

• The typical for-profit schools spends double on marketing than what it does on teaching
• For-profit education is not cheap; a degree costs 5x a typical community college and 2x state schools. The degrees are not far off from the typical private liberal arts school, leading to the comparisons of what you get for your money.
• The for-profit sector has a lot of financial backing; they have investors who expect certain returns, the implication being that they must not only grow fast but charge as much as possible
• The sector also has to spend a lot because they have to add a lot of students per year to keep pace with all that they lose.
• Not mentioned, but worth mentioning, is if this were another big ticket item, there wouldn’t be as much sensitivity, but it’s education so talk of sales tactics and business growth will unsettle many people.
• The sector represents 10% of the total higher education student body but consumes 25% of all student aid, i.e. a much larger than average reliance on tax dollars, and roughly $20bn loans are generated each year to the for-profit.
• Regional accreditation is key, and the financial community values that alone at $10mm; regional accreditation is what enables a school to qualify for student loans. It’s the key for unlocking federal funds.
• The criticism is that accreditation is treated like a tax badge, able to be bought indirectly when a struggling not-for-profit agrees to go for-profit.
• One school charged $30k for a 12 month program for nursing without the students ever stepping foot in a hospital; they are suing as no one will hire them.
• The for-profits might be 10% of all college students, but one person estimates it is responsible for 44% of all student defaults
• Mandate by Obama – by 2020 America will have the highest percentage of college graduates. Community colleges can’t fulfill that. The for-profits will have to play a role
• It’s all about student loans. They aren’t like other loans. If you default on a federal student loan you are "hounded for life." It’s the "most collectible debt" – non dischargeable in bankruptcy, wages can be garnished, tax refunds intercepted, you can be sued in court and ineligible for other federal benefits. In other words, it’s a serious thing when agreeing to one, and $20bn are being generated each year. They should only go to those people qualified and with an understanding of what they are getting into.
• Outstanding student loans equal the nation’s credit card debt, $750bn. We got into a credit crisis, among other reasons, when people were given credit who were at risk from the start of paying it back. That’s the issue here with student loans, especially from the for-profit sector; could it contribute.
• "You can’t be afraid of going into business because of regulation risk, "Jack Welch, who invested in a for-profit and lends his name to one of the graduate degrees.

As Secretary of Education Arne Duncan says, there is nothing inherently wrong with for-profits providing education. The focus now is on making sure the practices are honest and that the students and especially taxpayers are getting value for their investment. High pressure tactics, deceptive actions, and dishonesty is what the Department is challenging in a very serious way. Again, we will see just how serious the challenge is and if the new rules suggest he believes that nothing is inherently wrong.