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Guest Post: Bridgepoint Case Shows Why Federal Student Aid Dollars Should be Spent on Education

Published:  April 5, 2011

By Craig Smith

Several weeks ago the Senate Health, Education, Labor and Pensions Committee focused the spotlight on the for-profit higher education company Bridgepoint Education as part of its on-going series of hearings examining the career-college sector. This hearing looked specifically at how Bridgepoint purchased a small private non-profit college in Iowa and transformed it into Ashford University, a giant for-profit school that enrolls tens of thousands of students mostly online. Sen. Tom Harkin, the Iowa Democrat who chairs the committee, identified a significant set of problems at Ashford including high withdrawal rates, the lack of any career placement services, and a growing percentage of student loan defaults.

But the data that caught my attention was what has happened to the school’s investment in instruction since Bridgepoint took over. In 2004, when the company bought Mount Saint Clare College, the institution was spending over $5,000 on instruction per student, according to data Bridgepoint provided the HELP Committee. Just five years later, with enrollment soaring at the-now Ashford University to nearly 54,000 students, the amount the company spent per student dropped to just  $700. Someone might suggest this is just another great example of a for-profit college figuring out how to “deliver education” more efficiently. However, when nearly 64 percent of your students pursuing a bachelor’s degree and 85 percent of your students pursuing an associate’s degree are withdrawing while you are capturing 30 percent of your (taxpayer-funded) revenue for profit, perhaps there is a problem with institutional priorities.

So what did Ashford’s accreditor -- the Higher Learning Commission of the North Central Association of Colleges and Schools -- think of this dramatic disinvestment in instruction costs? Apparently not much. Asked at the hearing whether she saw a connection between academic quality and what an institution paid its faculty, Sylvia Manning, the commission’s president, said,  “If an institution can find equally qualified faculty members who are willing to work for less, we don’t have a problem with that.” Thanks for making what we already knew as plain as day.

I was thinking about all this as I read through a recent series of articles and commentary in the Chronicle of Higher Education on the Pell grant program. As part of that series, various policy experts discussed the challenges the government  is facing funding the program and provided recommendations for making it work as effectively as possible for students -- particularly the most financially needy students whom the program was primarily designed to help. Education Sector’s Kevin Carey focused in on accountability, as he often does, suggesting that if colleges are going to take in large sums of federal dollars they should be held more accountable for  helping students succeed. Ironically this point was echoed by Jorge Klor de Alva, the former University of Phoenix president who now heads the astroturfy Nexus Research and Policy Center. He suggested that “Pell Grants should be structured to encourage students to complete their postsecondary objectives.” Indeed. Perhaps schools like UoP and their recruiters should focus on doing that as well.

But if we were to take those calls seriously, how would we make Pell grants help more students succeed? One answer might come from the new health-care reform law of all places. The Affordable Care Act included a policy known as a “medical loss ratio” which basically requires insurance companies “to spend 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs.” In short, Congress required insurers to spend the money on what the consumer is paying them for.

Perhaps we ought to have an “instructional loss ratio” whereby institutions that receive federal student aid are required to devote a certain percentage of their budget to instructional services and support, including full-time faculty, counselors, advisors, and other key academic staff. After all, as the Delta Cost Project has repeatedly shown in its reports on higher education:

The share of spending going to pay for instruction has consistently declined when revenues decline, relative to growth in spending in academic and student support and administration. This erosion persists even when revenues rebound, meaning that over time there has been a gradual shift of resources away from instruction and towards general administrative and academic infrastructure.

And as the Delta Project’s Jane Wellman suggested at a recent American Federation of Teachers’ conference: “the one arguably documented way to increase student success is to invest in the instructional staff, and it appears to be the one option policymakers do not wish to pursue.” 

Perhaps it is time for the federal government to use its considerable financial leverage to ensure that its money goes where most students and parents assume it does -- to education. We could argue about what the right ratio of instructional investment vs. other expenditures should be but at Bridgepoint, it would surely force a change of priorities to the benefit of its students. In 2009, Bridgepoint, according to data presented in the HELP Committee hearing, took in $336 million in federal aid, which constituted 86 percent of the company’s total revenue. An analysis of the company's spending in 2010 shows that thirty percent of those revenues go to profit, 30 percent to marketing, and only 40 percent goes to cover everything else including executive compensation. It’s no wonder the company has so little left for instruction.

Now I can already hear the cries that the focus shouldn’t be just on for-profit institutions. Fair enough. It would seem perfectly reasonable to apply such a rule for federal aid to all institutions of higher education. If this country is serious about improving student performance in higher education, then it is going to have to get serious about investing in educators. Continuing the current discussions about innovations and developing better measures to assess quality will amount to little more than bureaucratic policies if we don’t figure out how to focus on the actual educational process itself.

States and institutions have demonstrated over and over again that they are content to stay the course while our core academic services erode. Perhaps it is time for the federal government to incentivize investment in instruction.

Craig Smith is the Deputy Director of Higher Education for the American Federation of Teachers where his primary responsibilities are field services and communications with an emphasis on political and legislative action. Prior to joining the AFT’s national staff, he was a full-time faculty member and local union president at Salt Lake Community College. Craig blogs regularly on AFT’s Faculty and College Excellence website. His views are his own and do not necessarily reflect those of the New America Foundation.

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