Holding Higher Education Institutions Accountable for ROI
April 28, 2015
By William Stern, SAS’15
During a summer speech on college affordability at SUNY Buffalo, President Obama directed the Department to publish the country’s first federal college ratings system. The ratings, he argued, would be based on metrics like graduation rates, student loan default rates and access for poorer students. Furthermore, they would serve as a tremendous and important aid to students, especially those coming from an under privileged background, in the college selection process. Although the metrics and merits of such a system are still being debated, the department is beginning to investigate specific institutions that perhaps are taking advantage of both federal loan programs and desperate students. The administration aims to end taxpayer support for programs that claim to train people for careers, but instead leave them facing high levels of debt.
The programs authorized under Title IV of the 1965 Higher Education Act aim to provide post-secondary learning and career opportunities to those who could not otherwise afford such schooling. The federal government offers both loans and grants, which don’t have to be paid back, to prospective students. The Federal Pell Grant program, for example, uses a codified formula, which analyzes a student’s family household size, number of family members and net income among other factors, to determine a student’s expected family contribution (EFC.) The grant amount is subsequently based on this quantity. Federal Pell Grants are awarded to students with financial need who have not received their first bachelor’s degree or who are enrolled in certain post-baccalaureate programs that offer certification opportunities (Please link to the Federal Pell Grant Program Website). On the other hand, our country currently faces a massive, well-documented student loan conundrum. According to a report from the Federal Reserve Bank of New York, dated February 2014, the outstanding student loan balance is $1.08 trillion, with 11.5% of it more than 90 days delinquent or in default. The Federal Government looks to combat this problem by ensuring that schools place their graduates in positions to succeed and pay back these initial loans. Furthermore, a more credible higher education system would enable the federal government to place more faith in grant programs.
President Obama’s potential school ratings program would attempt to confront schools that produce graduates with too much debt, insufficient earnings and the inability to find a job in their field. For-profit institutions are found to be the greatest offenders of this statue. According to a report from the New America Foundation, more than half of the graduates from for-profit institutions are not earning enough money to account for basic expenses, not including their student debts. Furthermore, in a March 2014 report, the Department of Education claimed that 72 percent of programs at for-profit institutions produced graduates who actually on average earned less than high school dropouts. A report from the New America Foundation claimed that graduates from the same programs at public colleges receive earnings that are nearly double those of their for-profit counterparts. Over the course of my internship I have been analyzing and inspecting various metrics that offer evidence that a specific school or program is actually hurting its students. For example, the cohort default rate measures the percentage of students at a certain program or school who defaulted on their loans after two years of their repayment plan. The statistics help to form the important distinction between the program and the school that fails. For example, a school with a high overall loan default rate can boast a strong cosmetology program.
While reading these statistics, it is important to note that for-profit schools benefit a tremendous amount because they offer a broad spectrum of degree options. For example, these types of schools offer certificates that are tied to low-wage professions like Cosmetology, Medical Assisting and Office management. Ben Miller of the New America Foundation argues that certificate programs lack programmatic accountability and the for-profit schools are wrong in charging such a high amount in tuition for such a low level of gained expertise.
During the first week of my internship, Corinthian Colleges, a publicly traded for-profit higher education company that enrolls more than 70,000 students across the country announced that it would be shutting down. The school was under immense pressure from the Department for allegedly releasing false job career placement data to prospective students. According to the Department of Education, 35% of Corinthian‘s programs were deemed “failing” and 15% were in a warning zone. For example, at the Corinthian-owned Everest College in Newport News, VA campus, graduates of the Medical Assistant Certificate Program were earning $12,553 in 2011. Conversely, 90 percent of full-time medical assistants are paid at least $21,080, according to the Bureau of Labor Statistics. In 2010, at the peak of its enrollment, Corinthian Colleges accumulated nearly $500 Million exclusively in the Pell Grants described above. It is important to note that the school’s closure left nearly 100 thousand without a job or a degree track.
Additional Blog Posts
Student Blog Disclaimer
The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Penn Wharton Public Policy Initiative’s strategies, recommendations, or opinions.