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Last December I went out on a limb and suggested ten predictions that would change the game in higher education in the United States. I always thought that people who made predictions (“especially about the future”) lacked a certain humility.

But, as a blogger I must have opinions and so I made a few predictions. Prediction Number One, to my chagrin, began to unfold during the first few days of the year. Since then it has caught the political winds and is moving at a much faster clip than I had predicted. Sorry about that.

Now, only three months into the year, we began to see Prediction Number Two come to fruition.  The prediction says in part:

Number Two: In 2011, the Feds will continue their attempt to push the Capitalized Universities (CUs) further away from the educational trough.

And concluded that:

The Feds will hurt CUs in the short-term with lower sales and lower profits, but this will only serve to make the CUs a stronger competitor and cause it to move into more of the Traditional Universities’ (TUs) traditional areas. The CUs will successfully adapt, the TUs will need another strategy.”

One of those “let’s go get them policies” dealt with the Department of Education’s Rule Section 600.9. This policy would have forced institutions of higher education to first apply and then be approved to conduct business in all states in which they currently enroll students (including those state where students are taking courses via distance learning).

The policy’s objective was to complicate how CUs conduct their business. No longer will CUs be able to accept students from every state without first being authorized to do business in that state. This is analogous to a book store in Alabama with an internet presence, being forced to register (and pay taxes) in each state where their consumers reside. Seems Un-american.

This is a very puzzling policy. Most targeted changes in policies hide their purposes while taking away the bacon. This one while transparent in its aim to harm CUs, misses the target in a way that it actually favors the CUs. If I were to be running a CU I would not mind this gift from Regulatory Heaven.

The reason is that CU’s resources being far superior to the TUs resources would enable them to task a team of executives and attorneys to file the necessary papers and be approved to do business in 50 states within a month.

TUs would have a much more complicated path. TUs would have to be organized as a non-profit corporation in each state, which would make them subject to another more complicated set of regulations, with no assurances that students would materialize. TUs will be better served to become CUs but, oh my heavens, the shame of becoming what you for so long fought against!

What’s more, CUs already have students in most states and most CUs are licensed to conduct business in those states, (any business including education). This means that the policy designed to slow down the progress of CUs, will paradoxically speed it up.

Representatives of the TUs are up in arms as they should be. The American Council on Education, in a letter dated March 2, 2011, addressed to Secretary Duncan and signed by Molly Corbett, Board President of ACE, made my prediction come true. She wrote:

Dear Secretary Duncan:

On behalf of the 60 higher education associations and accrediting organizations listed below, I write to express our serious concerns regarding the state authorization regulations in Section 600.9 of the Oct. 29, 2010, final program integrity rule. These final regulations significantly expand and complicate the existing federal requirements for institutions to be “legally authorized” in a state. While the final rule reflects changes from the draft proposal, these changes do not address the concerns we raised during the rulemaking process. In addition, the final rule includes an entirely new and problematic provision regulating distance education programs.

And concluded as follows:

We believe the best course of action would be to rescind the new state authorization regulation in its entirety. This is a conclusion we have not reached lightly and only after determining that our concerns cannot be addressed through modification. As finalized, the regulation creates serious concerns for our private, non-profit institutions—in particular for religiously affiliated and other mission-based institutions— and threatens the ability of both public and private institutions to serve students through effective distance education programs.

This will not mark the end of the Feds (and State Regulators and Regional Accreditators) attacks on CUs.

There’s a new regulatory move targeting at the CUs (but not so obviously) to limit the CU student’s access to Federal loans and guarantees, by eliminating the student’s ability to borrow for a second loan, usually applied for to do summer study. Congressional Republicans want to go even deeper. House Resolution 1 calls for a 24 percent reduction in the Pell Grant program, which is primarily dedicated to low-income students. The Senate has yet to act on a twin measure.

So far TUs have only whispered dissent but are probably undecided about what to do.  The reason given for the new regulations, is that the Pell fund is going broke due to the expanded demand caused largely by the CUs ability to recruit students. CUs more than TUs use this provision.

However, the new limitations on the Pell grant will result in an increase in the average “time to completion” for undergraduate students (i.e., the amount of time it takes a student to get a baccalaureate).

American students’ time to completion of a baccalaureate is horrendous. This is partly due to the Feds definition of full-time student as one taking 12 units per semester. Do the math. Most baccalaureate degrees are 120 units, if the student is only taking 12 units per semester, it will take 10 semesters (or 5 years since summer school is used by only 9% of the students), and thus by Fed feat, the 4-year degree becomes the 5-year degree.

This expanding effect (in the years the 12-unit full-time definition has been in place), is confirmed by the most accurate data available, which calculates that the average student in a 4-year program already takes 4 years and 9 months (or 5 years) to complete it.

Currently, only 30-35% of the students who enroll in a 4-year program actually graduate in 4 years, another 10-15% graduate in 5 years and the rest (approximately 10-15%) graduate in six. But you would observe quite correctly, that even the highest percentage (35+15+15) only adds up to 65%. What happened to the other 35% that enrolled?

Those students never made it. They were interrupted by a “life event” –got married, got pregnant, moved out-of-town, lost the job that allowed them to attend school—or were simply not able to do the work. Some of them will never return to school and some of them will go to join the ranks of what we euphemistically refer to as the “underserved.”

These “underserved” are the CUs market because the CU offers a second chance on the student’s terms. Although the CU costs more and is less prestigious, eventually half of those “underserved” graduate. Next time you hear that CUs only graduate 30% of its enrollment, remember, half of those had already failed once before.

Using the new phrase of the moment, the 12-unit full-time rule and now the second loan rule will amount to “kicking the can down the road”. It will not result in any reduction in the total amount of money the Feds spend on students (assuming they finish in seven or eight years as most of them will) but it will create an inferior productivity (output) rate in comparison with our global competitors. This will cost us income (tax dollars) and will push us down the slippery slope which has ranked the US 12th in the world in the number of citizens with a baccalaureate.

So what now? If we move ahead with the changed Pell rule, let’s change it in a way that would aid productivity, let’s raise the minimum to 15 units per semester. If we continue with the proposed Pell policy as it is, we will increase the time to completion (a cost burden to students, universities and society).

Here’s the 11th prediction, we will soon rank 15th in the world and deliver  just the opposite of what President Obama’s State of the Union “Winning the Future” promised.