For-Profit Colleges &     UniversitiesACCESS, COMPETITION & FOR-PROFIT HIGHER EDUCATION CONFERENCE  SANFORD SCHOOL OF PUBL...
Research Synthesis and Response
Themes
What is the public good? Is higher education a private or public good?     What aspects: instruction, research, or both?...
Should for-profits be treated differently thannonprofits?    Non-profits versus for-profits      Competition among non-s...
Apollo Group Owns & Operates:• University of Phoenix            • The College for Financial Planning• Western Internation...
Arguments for FPCUs & Status Quo Since FPCUs serve disproportionately “under-represented,”  “vulnerable” and “non-traditi...
For-Profit Business Model Publicly-traded for-profits and particularly on-line degrees account for growth  in the for-pro...
Non-Profit Model Public and private   Public non-profits particularly impacted by declines in state    support Attract ...
Regulatory Environment
Corporate Governance Definition: systems by which companies are governed includes laws, practices, and norms. Prevalent ...
Corporate Governance Federal Law    The federal government, to a large extent through the Securities and     Exchange Co...
Corporate Governance State Corporate Law:    State corporate law addresses the internal affairs of the     corporation, ...
Proposed Gainful Employment Rule Originally, 3 proposed measures. Each had a “in compliance” zone, a “warning” zone, and...
Student Loan      SanctionsRepayment RateOver 45%          None.35%-45%           Warnings to prospective students about d...
Industry Input & LobbyingOver 90,000 Comments Later…
Final Gainful Employment Rule Student Loan Repayment Rate must be 35% or above. Annual loan payments (debt) for graduate...
GER takes a “Vacation”- APSCU v. Duncan The Association of Private Colleges & Universities (APSCU) challenged the Gainful...
Post-APSCU v. Duncan The DOE has challenged the District Court’s ruling, but does not expect an imminent victory. DOE’s ...
The 90/10 Rule34 C.F.R. § 668.18(b)(16) All FPCUs must derive at least 10% of their annual  revenue from non-Title IV, no...
Accreditation Issues 20 U.S.C. 1001(a)(5) requires all postsecondary educational  institutions to be accredited by “a nat...
Consumer Protection Model? Target abusive practices, fraud, misrepresentations, and predatory aspects.    Contract law ...
Nature of Higher Education Information asymetries Experience goods Associative goods Giffen goods Conspicuous consump...
Higher Education Stratification Education not a “great leveler” but a sorter along class and racial  lines. Do we have t...
Higher Education Stratification Impact of social capital:  college choice  persistence toward degree  career outcomes
Linkages between for-profits and non-profits Existing competition between for-profits and non- profits. (e.g., HBCU’s, co...
Finance and Structural Issues Structural issues may dictate institutional behavior Impact of economic conditions on for-...
Developing Better Metrics and Methodologies Institutional level data to provide micro and macro picture. For-profits have...
Potential Solutions and Policy Formation? For profits are here to stay. What does research tell us about potential solut...
Additional Themes?
Open Discussion
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ACFP Research Synthesis & Response

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Omari Scott Simmons from Wake Forest University School of Law conference summary slides.

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ACFP Research Synthesis & Response

  1. 1. For-Profit Colleges & UniversitiesACCESS, COMPETITION & FOR-PROFIT HIGHER EDUCATION CONFERENCE SANFORD SCHOOL OF PUBLIC POLICY DUKE UNIVERSITY SEPTEMBER 21-22, 2012 OMARI SCOTT SIMMONSWAKE FOREST UNIVERSITY SCHOOL OF LAW
  2. 2. Research Synthesis and Response
  3. 3. Themes
  4. 4. What is the public good? Is higher education a private or public good?  What aspects: instruction, research, or both? Lack of a specific definition  Narrow vs. broad. Short term vs. long term. Economic vs. non-economic.Items associated with the public good: Individual  Higher wages and personal happiness Societal  Higher tax revenues  Better health outcomes  Democratic participation  Reduced poverty and inequality  Lower criminal justice costs  Social cohesion
  5. 5. Should for-profits be treated differently thannonprofits?  Non-profits versus for-profits  Competition among non-selective institutions  Competition among specific types of degrees/certificate programs  Different treatment among types of for-profit institutions  Publicly traded vs. privately held  Two-year vs. four-year  Bad apples vs. systemic narrative  Non-profit and for-profit collaboration (e.g., online degree programs like the Duke Fuqua MBA online)
  6. 6. Apollo Group Owns & Operates:• University of Phoenix • The College for Financial Planning• Western International University • The Institute for Professional Development• Axia College • Insight Public Schools (Online Public H.S.) 2011 Net Revenue for Apollo Group: $4.733 billion. 2011 Gross Profit for Apollo Group: $2.544 billion 2011 CEO Payment: $2.3 million, $7.3 million exercised(2011 Apollo Group Annual Report)
  7. 7. Arguments for FPCUs & Status Quo Since FPCUs serve disproportionately “under-represented,” “vulnerable” and “non-traditional” student populations, regulations restricting enrollments harm these populations. Meet demand for education that non-profits cannot meet. Without for-profit participation there would be undersupply. Education as a free market. Efficiency of new digital technology and online distribution should be embraced. “Vocational” training is the “wave of the future” for a populace in need of job skills.
  8. 8. For-Profit Business Model Publicly-traded for-profits and particularly on-line degrees account for growth in the for-profit industry. Emphasis on volume and expanding capacity. Separation of ownership & control. Attracting investor capital particularly institutional investors, e.g., mutual funds, pension funds, private equity, etc. Potential short-termism and shareholder value maximization myopia. Focus on quarterly earnings and reporting over long term business concerns such as quality. Reliance on government aid and lack of diversified revenue streams. Is this sustainable? Tension between investor concerns and broader public Greater ability to expand capacity than non-profit organizations
  9. 9. Non-Profit Model Public and private  Public non-profits particularly impacted by declines in state support Attract donations and do not redistribute earnings to shareholders. Treated differently under Internal Revenue Code and Higher Education Act.
  10. 10. Regulatory Environment
  11. 11. Corporate Governance Definition: systems by which companies are governed includes laws, practices, and norms. Prevalent perspectives:  Director Primacy  Shareholder Primacy  Stakeholder Theory (e.g., employees, communities, students, etc.) Prevailing governance regime does not necessarily penalize anti-public behavior or harm to third parties.
  12. 12. Corporate Governance Federal Law  The federal government, to a large extent through the Securities and Exchange Commission (SEC), regulates the external trading of securities and disclosure without addressing the internal affairs of the corporations it regulates.  Disclosure requirements, as a general matter, are less intrusive than prescriptive rules and are consistent with market-based theories.  Better information ostensibly contributes to healthier markets and presupposes that the greater the disclosure, the lesser the need for judicial and regulatory intervention.
  13. 13. Corporate Governance State Corporate Law:  State corporate law addresses the internal affairs of the corporation, primarily the relationship between shareholders and managers.  The content of state corporate law, especially Delaware law, is schematically conservative, lacks a degree of contextual specificity, and provides substantial managerial discretion.  State corporate laws function like bookends, they do not address a broad range of corporate activity and leave it to managers, in most cases, to fill gaps.
  14. 14. Proposed Gainful Employment Rule Originally, 3 proposed measures. Each had a “in compliance” zone, a “warning” zone, and a threshold for loss of Title IV eligibility. Each program within each FPCU must satisfy 1 of the 3 thresholds. Failure to meet 1 of 3 thresholds would result in loss of eligibility for Title IV funds the next program year.
  15. 15. Student Loan SanctionsRepayment RateOver 45% None.35%-45% Warnings to prospective students about difficulty repaying loans & limitations on Title IV-funded enrollments.Under 35% Loss of Title IV eligibility for each failing program.Annual Loan Payment: Sanctions% of Annual Income8% or below None.8%-12% Warnings to prospective students about difficulty repaying loans & limitations on Title IV-funded enrollments.Over 12% Loss of Title IV eligibility for each failing program.Annual Loan Payment: % of SanctionsDiscretionary Income20% or below None.20%-30% Warnings to prospective students about difficulty repaying loans & limitations on Title IV-funded enrollments.Over 30% Loss of Title IV eligibility for each failing program.
  16. 16. Industry Input & LobbyingOver 90,000 Comments Later…
  17. 17. Final Gainful Employment Rule Student Loan Repayment Rate must be 35% or above. Annual loan payments (debt) for graduates must be 12% or less of annual earnings income. Annual loan payments (debt) for graduates must be 30% or less of annual discretionary income. Failure to meet all 3 of these measures for 3 of 4 years results in program ineligibility for Title IV funding.Source: 28 C.F.R. § 667.
  18. 18. GER takes a “Vacation”- APSCU v. Duncan The Association of Private Colleges & Universities (APSCU) challenged the Gainful Employment Rule in APSCU v. Duncan.  APSCU argued that the DOE had exceeded its statutory mandate and the Gainful Employment Rule was beyond the scope of its authority.  The District Court of D.C. found DOE indeed had statutory authority to enact the Gainful Employment rule.  However, the court found the 35% debt repayment rate to be “arbitrary and capricious” under the APA.  Finding all 3 debt measures “inextricable,” the court vacated the entire GER under the APA.
  19. 19. Post-APSCU v. Duncan The DOE has challenged the District Court’s ruling, but does not expect an imminent victory. DOE’s main focus is reinstituting the debt measurement requirements, without the consequences. The APSCU continues to vigorously oppose any additional regulations. There has been no indication from DOE that it will begin a new rulemaking process until the G.E.R. is fully litigated.
  20. 20. The 90/10 Rule34 C.F.R. § 668.18(b)(16) All FPCUs must derive at least 10% of their annual revenue from non-Title IV, non-HEA sources. 1 year failure to comply results in provisional participatory status in HEA programs for 2 years. 2 consecutive failures results in ineligibility for HEA & Title IV funding. However, this excludes G.I. Bill funds from the 90%.
  21. 21. Accreditation Issues 20 U.S.C. 1001(a)(5) requires all postsecondary educational institutions to be accredited by “a nationally recognized accrediting agency.” The U.S. Government accredits these agencies by maintaining a list of “reliable” accrediting authorities. Variable accrediting standards allow FPCUs to shop for the most lenient agency. “Accreditation Shopping”- FPCUs purchase struggling non-profit colleges to retain the accreditation status, convert the school into a for-profit without re-accreditation.Sources: Amanda Harmon Cooley, The Need for Legal Reform of the For-Profit EducationalIndustry, 79 Tenn. L. Rev. 515.
  22. 22. Consumer Protection Model? Target abusive practices, fraud, misrepresentations, and predatory aspects.  Contract law  Consumer protection statutes Education as commodity indistinguishable from other products and services. Who should enforce?
  23. 23. Nature of Higher Education Information asymetries Experience goods Associative goods Giffen goods Conspicuous consumption
  24. 24. Higher Education Stratification Education not a “great leveler” but a sorter along class and racial lines. Do we have two higher education systems: one for the affluent and another for the vulnerable Are for-profits made necessary by non-profit practices that exclude certain student populations? (e.g., class bias and associative goods) Vocational versus liberal arts; on-line versus traditional instruction; selective versus non-selective Does existing portable financial aid system contribute to stratification (e.g., demand side subsidies/vouchers).  Types of market failure, e.g., information asymetries
  25. 25. Higher Education Stratification Impact of social capital:  college choice  persistence toward degree  career outcomes
  26. 26. Linkages between for-profits and non-profits Existing competition between for-profits and non- profits. (e.g., HBCU’s, community colleges). Future competition? Non-profit and for-profit collaboration (e.g., online degree programs)
  27. 27. Finance and Structural Issues Structural issues may dictate institutional behavior Impact of economic conditions on for-profit growth  Counter-cyclical  State budget shortfalls
  28. 28. Developing Better Metrics and Methodologies Institutional level data to provide micro and macro picture. For-profits have proprietary information on student populations that could inform research. Enrollments and completions perhaps insufficient without seeing downstream outcomes (e.g., loan defaults, wage growth, career opportunities). QUALITY. Is education simply sharing knowledge? How do we measure quality?
  29. 29. Potential Solutions and Policy Formation? For profits are here to stay. What does research tell us about potential solutions and fixing problems? Descriptive and normative. Timing constraints. Looking forward rather than backward. Interdisciplinary dialogue including industry representatives. A continuum of approaches and presenting alternatives. Not an all or nothing zero-sum outcome.
  30. 30. Additional Themes?
  31. 31. Open Discussion

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