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Higher Ed Watch's Top Ten Posts of 2010

December 23, 2010

With Christmas and New Years fast approaching, we are about to take our two-week winter publishing break. But before we go, we’ve decided to highlight our most popular posts of the past year. Half of them deal with the raging debate in Washington over for-profit higher education. The others focus on issues we have long covered: student loan reform, predatory private student loan practices, and the 9.5 student loan scandal. And of course, topping the list is a perennial reader favorite, our annual Academic Bowl Championship Series rankings, which we published just last week.

So without further ado, here are our top 10 best-read posts of 2010: 

Counting Pell Grant Chickens Before They Hatch

December 22, 2010

It started out as a precarious year for the Pell Grant program and it looks like the year will end that way too. Despite media reports to the contrary, Congress just left town without providing any funding for the program in the 2011-12 school year. Congressional staff and the news media have done a major disservice to students and parents by claiming that the program is now in the clear. Here’s why:

Pell Grants are funded mostly through the annual appropriations process, which is supposed to be completed by the time the fiscal year starts on October 1st. This deadline is rarely met, so Congress funds programs subject to appropriations a few weeks or months at a time at the prior year’s levels until it can pass a year-long funding bill. Congress still has not passed a year-long funding bill for fiscal year 2011, which started months ago. The “continuing resolution” lawmakers passed last night temporarily funds programs through March 4th, 2011, and the new Congress that arrives in Washington in January will get the final say on fiscal year 2011 funding.

It’s a mistake to assume that the new Congress won’t cut funding for any number of programs – including Pell Grants – when it finalizes 2011 spending. Consider that House Majority Leader John Boehner (R-OH) has vowed to take appropriations funding back to 2008 levels – about 15 percent below this year’s levels.

But what about the media reports and congressional press releases claiming 2011 Pell Grant funding and a $5,550 grant is in the bag? The timing just doesn’t add up. The fiscal year 2011 appropriations bill will finance the Pell Grants that students get in the 2011-12 school year. But the temporary continuing resolution now in place expires on March 4th, 2011, five months before the first Pell Grant will be awarded for the 2011-12 school year. To be sure, the temporary appropriations bill does provide funding for a maximum Pell Grant of $5,550 for the 2011-12 school year. But it doesn’t matter. Every cent of that funding expires before the school year even starts and before any of it can be spent.

Parents, schools, and students needn’t worry about the Pell Grants awarded for the current school year though. Grants for the 2010-11 school year are overfunded by $7 billion dollars thanks to a one-time infusion of cash from the Health Care and Education Reconciliation Act that Congress passed back in March.

Now all eyes are on the new Congress and how it will fund the Pell Grant program for the 2011-12 academic year. If House Republicans are serious about cutting spending when they finalize fiscal year 2011 appropriations early next year, Pell Grants certainly aren’t the place to start.

Sallie Mae Puts the Lie to Career College Spin on Default Rates

December 21, 2010

Do colleges with high student loan default rates have any responsibility for their former students’ loan repayment problems?

While for-profit college lobbyists and leaders would like us to believe that the answer is “no,” Sallie Mae, the student loan company with the most experience lending to students at these schools in recent years, has a much different story to tell.

As we’ve previously reported, a little less than a decade ago, the student loan giant began forging sweetheart deals with some of the country’s largest chains of for-profit colleges, such as Career Education Corporation, Corinthian Colleges, and ITT Educational Services, among others. Under these arrangements, Sallie Mae agreed to provide high-interest private loans to low-income and working class students at these institutions. The company apparently viewed these loans as “loss leaders,” meaning that it was willing to make these risky loans in exchange for becoming the exclusive provider of federal loans to the hundreds of thousands of students these huge chains collectively serve.

It didn’t take long for these loans to start going bad. For a while, the company, which had put itself up for sale, appears to have tried to hide the rapid deterioration of its “non-traditional” private loan portfolio from investors and potential buyers by pushing as many delinquent borrowers from these schools into forbearance as they could. But after an investor group led by the private equity firm J.C Flowers & Co. dropped its bid to buy the company, Sallie Mae came clean.

In a conference call with investors on January 23, 2008, executives at Sallie Mae announced that the company had sustained more than $1 billion in losses on these loans, and, as a result, would no longer make private loans to financially needy students attending these institutions. Al Lord, the company’s chief executive officer, laid the blame for the losses squarely on the shoulders of the schools with which they had been working:

Senator Harkin Lays Out His Case and, for the First Time, Names Bad Schools

December 16, 2010

Speaking on the Senate floor on Tuesday, Sen. Tom Harkin, the Iowa Democrat who chairs the Health, Education, Labor and Pensions (HELP) Committee, made his strongest case to date about why the federal government needs to strengthen its oversight over the for-profit higher education sector. Throughout the speech, he also singled out, for the first time, several companies that he appears to consider to be among the worst players in the industry.

Assuming that you missed his speech on C-SPAN, and are not a regular reader of the Congressional Record, we thought we’d help out by including an excerpt from the speech here and linking to the full text here. We’ve chosen to highlight this portion of the speech because we believe it shows clearly how the incentives driving the industry have created a “recruit at any cost” mentality that has put students in harm’s way. Under constant pressure from Wall Street to show growth, some of the largest for-profit higher education companies have focused almost exclusively on getting students in the door and signed up for classes and financial aid, even if they know full well that many of these individuals have little chance of succeeding. As a result, a substantial number of students are left deeply in debt but without the training they need to find meaningful employment. Apparently, even companies that have had fairly good reputations in the past have been pumping up their enrollment numbers by "churning" students in the door and out.

Here's what Senator Harkin had to say:

Fourth Annual Academic Bowl Championship Series Rankings

December 14, 2010
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Two undefeated college football teams, Auburn University and the University of Oregon, will go head-to-head in the upcoming BCS National Championship game. The game will be one of five high-profile match-ups in the Bowl Championship Series early next month.

Undoubtedly, the student athletes playing for Auburn and Oregon are proud to be representing their schools in the championship game. But as Higher Ed Watch has noted in the past, there are aspects of college football that no one should be proud of -- from the booming commercialization of college sports, to the unsavory role of agents and runners in recruiting, to the academic struggles of student athletes that are too often overlooked in favor of a successful season.

With these issues in mind, Higher Ed Watch presents the Fourth Annual Academic Bowl Championship Series: a look at how football schools would stack up if academic success determined a team’s Bowl Championship Series standing. Unlike the BCS’s mysterious and controversial ranking formula, we use the federal graduation rates and academic progress rates (APRs) of teams to rank which college football programs are keeping academics as a priority for their players.

Demonizing the GAO

December 10, 2010

Last week, we wrote about how for-profit college lobbyists and advocates have been waging a mostly quiet campaign to discredit a Government Accountability Office (GAO) report that had found “fraudulent, deceptive, and otherwise questionable marketing practices” at the 15 for-profit colleges it visited as part of an undercover investigation. Well, that effort came out in full force this week after The Washington Post reported that the GAO had made changes to the report that softened some of its findings.

Lanny Davis, the former Clinton administration lawyer who now serves as the for-profit higher education industry’s chief attack dog, led the charge, accusing the GAO of participating in a conspiracy to demonize the schools that have put him on retainer. “The defective and deceptive GAO study is just the latest in a deeply flawed regulatory process that has been biased against the for-profit college sector at every step,” he said in a press release.

And the industry’s allies on Capitol Hill were only too happy to join in on the flogging. Sen. Mike Enzi (R-WY), the ranking Republican on the Senate Committee of Health, Education, Labor and Pensions, went so far as to as to call on the GAO to withdraw the report, according to the Post.

At Higher Ed Watch, we believe the GAO does deserve some flogging -- because in its rush to publish its original report, it got sloppy and has now given the industry some ammunition to undermine the powerful results of its investigation. Despite what Davis and what other for-profit college lobbyists say, the vast majority of the changes are relatively minor. But there are several that are damaging in that they show some recruiters to have been more honest, or at least less misleading, than originally portrayed.

The State Fiscal Stabilization Fund and Higher Education Spending

December 9, 2010

While many policy researchers and the media have focused their attention on K-12 education in their reporting on the American Recovery and Reinvestment Act of 2009 (ARRA), few have focused on the law's effect on higher education funding. Today, the New America Foundation's Federal Education Budget Project released an issue brief titled The State Fiscal Stabilization Fund and Higher Education Spending in the States that explores how state funding for higher education fluctuated as a proportion of total state spending during the implementation of the ARRA.

The ARRA was intended to stimulate the economy with $862 billion in new spending and tax cuts. The law included nearly $100 billion in one-time funding for new and existing education programs, a historic sum given that annual appropriations for federal education programs were approximately $60 billion in fiscal year 2009. The largest single education program included in the law was the State Fiscal Stabilization Fund (SFSF), a new $48.6 billion program that provided direct grant aid to state governments in 2009 and 2010. The program was designed to help states maintain support for both K-12 and higher education that they might have otherwise cut in response to budget shortfalls brought on by the economic downturn.

The SFSF was designed under the assumption that states would not be able to maintain then-current levels of spending due to the economic recession and would need federal assistance to maintain their education programs. As a result, the law includes a maintenance of effort provision that gives states flexibility to cut their spending on education to 2006 levels in 2009, 2010, and 2011, and use the SFSF monies to fill any gaps up to the higher of 2008 or 2009 levels.

But many stakeholders have expressed concern that some states would lower state expenditures on education by more than necessary to balance their budgets to take advantage of the federal funds. This issue brief draws general conclusions about how the ARRA may have affected state spending on higher education and whether policymakers’ concerns about the law were valid.

Passing the Buck on Default Rates

December 8, 2010

In the coming weeks, the U.S. Department of Education will release the latest three-year cohort default rates for colleges participating in the federal student loan program. Some of the country’s largest chains of for-profit colleges are expected to fare even worse than they did last year.

Corinthian Colleges, for example, has told investors that it expects that “a majority” of its schools will have three-year default rates about 30 percent, a level that if repeated in future years could put these institutions in jeopardy of losing access to federal student aid. Last year, only about a quarter of Corinthian’s campuses had rates that reached that high.

But no matter how bad the results, there’s one thing you can be sure of -- for-profit college leaders and lobbyists will refuse to take any responsibility for their former students’ repayment problems. Instead, they will continue to insist that the only factors that matter when it comes to their institutions’ high default rates and low student loan repayment rates (the proportion of borrowers who have paid down any principal on their federal loans in the last four years) are the characteristics of their students.

“The only thing that explains [a school’s] default rate is the socioeconomic background” of the students it serves, Harris Miller, the president of the then-Career College Association, told The Chronicle of Higher Education last year after the Education Department released the three-year rates for the first time.

Lanny Davis, the former Clinton lawyer who appears to relish his role as the chief attack dog for the for-profit higher education industry, echoed that comment in a column he wrote recently for the Huffington Post blasting the Obama administration’s proposed Gainful Employment rule.  “Repayment rates are a result of the demographic and socioeconomic status of the students who take out the loans, not the tax status of the colleges they attend,” he stated.

At Higher Ed Watch, we find this argument puzzling. While it is indisputable that socioeconomic and demographic factors have a significant influence on a student’s likelihood of defaulting, they are hardly the only factors at work. Otherwise, all colleges serving low-income and non-traditional students would fare equally poorly, but they don’t. It seems to us that Miller and Davis are actually selling the best-performing for-profit colleges short by discounting their efforts to transform the lives and prospects of their students.

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