Stock prices of  many publicly-traded education companies plunged in mid-August as a result of two well-publicized events in Washington, one at the White House, the other on Capitol Hill in the Senate.  Corinthian Colleges, ITT Education, Strayer Education and University of Phoenix (Apollo Group), for example, have lost as much as two-thirds of their January 1, 2010 value this year.  Even the Washington Post's share price graph looks like a ski jump, due to its Kaplan Higher Education subsidiary.  Two weeks after the mid-August publicity shock those firms' September 1st stock prices are still at or near their 2010 lows.    

 

The 'for-profit sector' of U.S. higher education is a fast-moving vehicle fueled by student customers who purchase educational services with taxpayer money in the form of Pell grants and federal student loans.  It now appears the custodian of those billions of dollars - the U.S. government - will be taking the driver's seat. 

 

At an August White House event, government staffers released student loan repayment statistics that painted a miserable picture of career college students' loan repayment performance.  Accompanying that release are proposed federal regulations that will tie for-profit school eligibility for student financial aid to 'gainful employment' and loan repayment formulas that few of the schools are presently able to meet. 

 

Also during August,  the videotaped activities of government mystery shoppers were widely reported and televised during a Senate committee hearing.  The Government Accounting Office shoppers documented shoddy and deceptive selling practices in the admissions offices of more than a dozen for-profit career colleges.  It was not unreasonable for any viewer to conclude that the students who are not repaying their loans probably shouldn't have attended that college in the first place. 

 

In today's America, politics may be driving the career higher education industry for some time to come. 

 

Training and equipping the drivers

A recent telephone conference hosted by Wall Street's Morgan Stanley in mid-August provided a rare glimpse into the formation of higher education policy White House-style.  We've read the transcript.  Here are excerpted comments from two participants that have been lightly edited and, in a few cases, re-arranged for clarity. 

 

 

 

Involved at the White House in the 'gainful employment' discussions were representatives of the White House Domestic Policy Council, the Council of Economic Advisers, the Office of Management and Budget, and its regulatory arm OIRA.  The White House was involved in the rulemaking from the very beginning - and will be to the end. 

There is a community college grant program that is going to be released in September or October.  The 'second lady' Dr. Biden is having a community college summit at the White House in October.  This grant program is likely to be a deliverable at that conference. Millions of dollars will pour into the community colleges to bring some models to help them increase capacity.  It may actually involve taking some of the more successful components of the for-profit sector and introducing them into the public sector.  You'll likely see a few more announcements at that conference, which I cannot discuss,  But keep an eye on that grant program.  In fact, for-profits may actually be able to apply for some of those dollars as well. 

 

The August 4th Senate hearing on the GAO's undercover investigation [of recruitment practices at several for-profit schools] pointed to seemingly systemic misrepresentation and perhaps prevalent fraud. 

 

It has really shamed people [the Congressional Black Caucus and civil rights groups in particular] away from defending for-profit schools.

Mary Ellen McGuire

But they [Republicans] want to broaden the discussion to include the not-for-profits as well.  To the extent that Republicans gain in November, they might try to broaden the coversation.  That would put at risk the interest of the not-for-profits and the community colleges and others that have a lot more political clout than the for-profits.

Charles Gabriel

 

Besides 'gainful employment' regulation of for-profit schools, the following areas may be subjects of legislation depending on which party(ies) can deliver enough votes in next year's Congress. 

... Further regulation of private student loans

... Bankruptcy discharge of student loans

... Buying accreditation by buying schools

... Re-directing the use of federal funds away from marketing and toward paying instructional costs 

 

It is really important to say the the [Obama] administration cannot reach its 2020 goal without the for-profit schools.  The President's goal is to have the highest proportion of college graduates in the world by 2020.  That's impossible to achieve without for-profits. 

 

Personally, I appreciated this rare real-time virtual tour within the Washington policymaking business.  I'm also impressed at how much re-engineering the people employed in the White House can blueprint with no seeming need  for consultation.  And that an industry as large and robust as U.S. higher education could actually be well on its way to federalization.