Office of Planning and Budgeting

Late last week, Moody’s and Standard & Poor’s released a revised assessment of the financial health of the higher education sector.

Not surprisingly, both agencies noted that the sector’s financial risks have intensified since January: state budget appropriations continue to fall, operating expenses are outpacing tuition revenue growth, and diminishing family net worth could affect enrollment as a growing number of colleges become unaffordable. At the same time, institutions’ ability to respond and adapt to these risks is limited by rising political and regulatory scrutiny of the industry and tougher accreditation standards.

S&P and Moody’s also highlighted the importance of successfully navigating the rising tide of technology change. They noted that administrators would need to be “flexible” and “bold” to take advantage of new opportunities for the delivery of educational content and new revenue streams.

Unfortunately, the reports are not public, but Moody’s and S&P subscribers can obtain copies of them through the agencies’ Web sites.

Senator Harkin (D-Iowa) released a much anticipated for-profit higher education report today, detailing the sector’s disproportionate use of federal funds, predatory recruitment tactics, insufficient student support programs, and dismal student outcomes. The lengthy report contains alarming evidence that the colleges included in the two-year investigation – with few exceptions – engaged in behavior to maximize profit from taxpayer investment at the expense of students’ financial security and academic success.

Here are some of the findings:

  • Disproportionate use of federal (taxpayer-supported) funds: Last year, the federal government spent over $32 billion on financial aid in the for-profit sector (25 percent of all federal student aid funds available), though fewer than half of the students in that sector graduated with a degree in 2008-09. Committee staff found that 97% of students at for-profit institutions took out loans to pay their expenses, compared to 13% of students at non-profit community colleges and 48% of students at non-profit four-year baccalaureate institutions. These students also typically borrowed more money (57% borrowed more than $30,000) and defaulted on their loans far more often than their peers in the non-profit sector.
  • Focus on marketing and recruitment at the expense of student support and instruction: Not only do students studying at for-profit institutions take out more loans at higher rates, but their institutions spend far less on instruction and student support than on marketing, recruitment, and pre-tax profit. In FY09, for-profit institutions included in Senator Harkin’s report spent 22.7% of all revenue on marketing, advertising and recruitment expenses and 19.4% on pre-tax profit, but only 17.2% on instruction. On average, these corporations paid their CEOs in excess of $7.3 million annually. While practices varied, by and large, for-profit colleges employed three times more recruiters than student support services employees. The report concludes that, “…once a student is  enrolled that same level of service is often not available. This is true even though the companies seek to enroll the students that research demonstrates are most critically in need of those services.” The investigation found that two of the largest for-profits offered no career services and several have falsified job placement data in the last five years.
  • Current Federal Regulations Insufficient: One of the most alarming findings concerned the 90/10 proportionality rule, which dictates the amount of federal money that the colleges collect. Evidence of fraud was uncovered, as for-profit institutions sought to maximize profit and avoid the federal proportionality rule.    

Despite evidence of fraud, abuse of taxpayer funds, and a low, if not absent, standard of care for students, federal interventions seem unlikely at this stage, as for-profit support remains deeply partisan.  No clear intervention efforts emerged so far.

A new study from the State Budget Crisis Task Force concludes that in many states, anticipated revenues will be insufficient to cover mounting Medicaid enrollment caseloads, underfunded pension commitments, and local government budget obligations. The authors focused their investigation on California, Illinois, New Jersey, New York, Texas, and Virginia. They predicted that anticipated revenues (from sales, income, or other taxes) would be both insufficient to cover expenses and fairly instable, as personal income remains volatile and unemployment (and underemployment) high. In other words, we are edging towards the state budget precipice, even as the national economy distances itself from the official end of the Great Recession proclaimed in 2009.

These conclusions are not unfamiliar to readers; we recently blogged about state-level fiscal uncertainty and sluggish revenue growth. However, this study sheds additional light on the subject, being the first to make a comprehensive assessment of the tension between mounting expenses and shaky revenues in highly populated states.

While Washington State continues to experience slow economic growth in some sectors and in its generation of tax revenue, the Economic Revenue and Forecast Council (ERFC), in its July collections report, refrained from making any firm economic revenue projections due to the excessive variability of receipts. The ERFC report also emphasized slowing job growth: while reducing state unemployment by 0.5 percent would require 160,000 new jobs each month, the state only added 80,000 new jobs in June.

While anticipated revenue is increasing slightly, the downside risks of a second recession brought on by the debt crisis in Europe, disappointing job growth, and depressed consumer confidence are significant. Despite these concerns, ERFC predicts slight revenue increases for both the 2011-13 and 2013-15 biennia, due to legislative action from the 2012 supplemental budget.

 

I’m moving on from the UW and wanted to leave a note here on the blog about how much we appreciate any and all readers and to say that you can look forward to even more authors and topics in the near future!

As I exit, the news of the UW linking up with Coursera has hit the press. While MOOCs offer amazing new opportunities for higher education across the world, they are nowhere close to being more than a complement to the education universities currently provide, as was outlined in a recent OPB brief.

As we naturally get caught up in the high hopes for the transformative power of technology in what is considered a very tradition-bound industry, I recommend that anyone interested read a recent book by Columbia Professor of Literature, Andrew Delbanco. College: What it Was, Is, and Should Be  does not so much propose solutions for the myriad outstanding questions about the future of higher education, particularly public higher education, but does a fantastic job of reminding us how and how much higher education has evolved in the United States over time and, most importantly, what education actually is. Any efforts to alter or replace our current delivery model must be grounded in a clear understanding of that model’s origins, essence, and outcomes.

It’s been a pleasure creating and maintaining OPBlog. As always, stay tuned here for the latest from from OPB.

Jessica Thompson

Today, the National Center for Education Statistics (NCES) published a report summarizing enrollment, price of attendance, and completions data submitted by all Title IV institutions to the Integrated Postsecondary Education Data System (IPEDS) in fall 2011.

Here are some of the findings:

  • Between 2009-10 and 2011-12, the average undergraduate tuition and required fees at 4-year public institutions nationwide (after adjusting for inflation) increased more for in-state students (9 percent increase) than for out-of-state students (6 percent increase). This is consistent with the UW’s experience, where the tuition increase (after adjusting for inflation) was 31.1% ($2,509.05) for residents and 9.8% ($2,509.55) for non-residents over that period.
  • In 2010-11, of the 25,645,985 undergraduate students enrolled in Title IV institutions in the nation, 50.9% attended 4-year institutions – of these, 59.7% attended public institutions. The public share of the 3,876,611 graduate students enrolled in Title IV institutions was 47.6%.
  • Females constitute 57.0% of the undergraduate and 60.2% of the graduate students in the nation. They also account for 58% of the degrees granted by all 4-year institutions.

The Institute for Higher Education Policy recently published a brief addressing the complexity and confusion surrounding the issue of college affordability. Written by Sandy Baum and Saul Schwartz, Is College Affordable? In Seach of a Meaningful Definition succinctly addresses several familiar issues:

  • The conflation of increased or high prices with low affordability (where the former is dealt with by all, the latter is dependent on a family’s resources).
  • Misperceptions about cost/affordability created by the hard to discern difference between sticker prices and net prices for any given family.
  • Difficulties shifting from perceiving public higher education as a service heavily subsidized for all to a service that parents and students are primarily reponsible for funding.
  • Lack of framing affordability of higher educaiton within the context of a long-term investment that you pay for over time with an expectation that the long-term return warrants the cost.

The authors provide some general policy recommendations, including simplifying financial aid and pricing processes, communicating more clearly the monetary and non-monetary payoffs associated with higher education,  strengthening protections in cases where higher education does not pay off for some students, and increasing investment in public subsidies aimed at lowering the price for low-income students.

This brief is a quick and valuable read. For more information, check out coverage of the brief at Inside Higher Ed as well.