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THANK YOU CORINTHIAN COLLEGE FOR MAKING US RETHINK STUDENT LOANS

6/29/2014

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In antiquity Corinth was a center of trade and commerce, famous as well for its prostitutes.  How interesting to choose that name for a cluster of institutions that  once strutted about as “the darling of Wall Street,” and now have fallen from grace.

Floyd Norris’ article  “A For-Profit College Falters as Federal Cash Wanes” in the business section of the New York Times for June 26th lays it on the line about these  institutions (Everest Colleges in various cities, WyoTech et al.).  The  economics are appalling --  If you  bought their stock for $18.588 in 2010, you could have sold it for 28 cents last week. (You can follow its fluctuations on NASDAQ where it is listed as COCO). The educational issues are equally troubling.

Corinthian made most of its money through Federal student loan programs. Wikipedia reports that “In 2010, [Corinthian] …  received 81.9% of revenue from Title IV federal student aid programs.”  The high default rate on these loans did not affect Corinthian’s bottom line; the feds pick up the tab.  There’s a whiff of a “culture of default’ in all this.  After all, who at Corinthian would care if students defaulted?  And default they did.   For students entering in 2010 Corinthian’s  default rate after three years was about 19%.  That compares to these averages:



4 year Public Institutions            6.8%

4 year Private institutions          5.1%

4 year Proprietary institutions  13.4%

As long as the students kept enrolling and generating federal dollars, Corinthian could attract plenty of investors.  But students have a way of voting with their feet.  As an article in Salon, “America’s Worst Colleges” pointed out, “Corinthian had 71,246 students in July 2008, enrolled 120,638 new students during the following year, but ended up with only 89,479 by June 30, 2009.“  (There are currently about 72,000 Corinthian students).  Some Corinthian students, moreover, complained they were misled by Corinthian’s aggressive marketing, or were not properly trained in Corinthian courses.  In addition California’s attorney-general last year sued Corinthian, claiming that it had lied about the success of its former students, while using high-pressure sales tactics, as the Times reports.  

 But Corinthian institutions keep getting accredited, despite the mounting evidence that something is going badly wrong.    And Uncle Sam keeps writing the checks, most recently $16 million, “with more expected to follow, even though Corinthian has not provided many of the documents the department [of Education] demanded months ago,” as Norris reports in the Times.

So why should we all be thankful to Corinthian?  Not just because this sordid story raises questions about the accreditation process and the administration of the federal student loan program.  Not just because one now has to look closely at other operations in the for-profit sector. Not even because it raises a challenge to current law which allows colleges and universities to get off scot-free when 10% or more of their student loan recipients default.  (At well-run, not-for-profit institutions that rate is almost always in the low single digits).   A more fundamental matter now needs to be debated: Are student loans the best way for the government to help students get a college education? 

That must be approached primarily as an educational, not a political or economic question.   As I argued in a recent issue of  the New and Noteworthy newsletter debt can pressure students into making bad choices in course and major selection, In response a physician friend noted an analogy in medicine --  debt leads med students to avoid going into primary care in favor of more lucrative specialties.  Would it not be better to put all available federal student aid funds into need-based scholarships, grants that students could use wherever they felt they would gain the best education.  Yes, the number of recipients would go down, but the quality of American higher education would almost certainly go up.

Thanks, Corinthian, for making us rethink the whole pattern of government support for students headed for college. .

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WHY DOES THE REAL COST OF  COLLEGE VARY SO MUCH FROM COLLEGE TO COLLEGE?

6/26/2014

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Matt Rocheleau of the Boston Gloibe has done us all a service by looking at the changing pattern of college costs and financial aid at 33 Massachusetts private colleges and universities.  Unlike many writers on this subject Rocheleau has done it right, by looking at net changes, that is costs after financial aid has been deducted from tuition and fees.  

The headline on his article, “College Costs Top Inflation.” in the Boston Globe for June 22 2014 tells part of the story: from 2008 to 2013 the average net cost at these schools went up by 10.5%  (versus an 8.2% increase in the CPI during that time).  Not a big difference? Tell that to someone whose family income has stagnated or declined during that period.

The striking thing to me, however, is the huge variation among institutions. The figures show that some institutions have  made dramatic efforts to increase student aid, while others have let tuition increase and aid decline.  Mount Holyoke is the extreme case of the latter pattern according to figures in the Globe.  During the 2008 – 2013 period financial aid declined at Mt/. Holyoke by 2.9% and net cost increased by 23,9%.   Result: average net costs are significantly higher there than across the way at Smith.  At the other end of the spectrum were a very diverse group of institutions, includiong Hampshire, Harvard, Northeastern, Simmons, and  Suffolk, at each of which net costs actually decreased.  Some of the changes are dramatic.  At Northeastern, for example, student aid increased by 64.7% and the net cost declined by 7.2%.  Changes of that order may be driven by market strategies, but still seem to me to point to heroic efforts by the institution’s senior leadership.

If these colleges managed to reduce net costs, can’t other colleges do so too?  There are, to be sure, local factors at work among ostensibly similar institutions. The contrast between Amherst and Williams, for example, is striking.  Amherst increased aid by 20.1% and saw its net cost increase by 11.6%.  In the same period up the road at Williams, financial aid went up by only 10% and the net cost increased by  47.4%.  Result: the net cost at Williams is now about $3,000 higher than that at Amherst, according to a table accompanying Rocheleau’s article.  Why the difference? The Globe story gives some answers, but the question still needs to be pressed – how can some colleges keep net costs down while at other it  keeps rising?

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