Education Industry Reporter

Gainful Employment Notice Published

Posted in Department of Education, Gainful Employment, Higher Education News, Higher Education Policy

Dennis Cariello

As promised, here is the pre-publication version of the gainful employment rule, complete with Preamble (the informal text of the Rule was published earlier) as will be published int eh Federal Register tomorrow.  I suggest you pack a lunch if you are going to read it – the file comes in at 945 pages strong.  Of course, we will do the hard work so you don’t have to – stay tuned to the blog for further updates.

Department of Education Releases Gainful Employment Rule – Eliminates Proposed Programmatic Cohort Default Rate

Posted in Department of Education, Gainful Employment, Higher Education News, Higher Education Policy, Uncategorized

Dennis Cariello

As most readers of this blog probably know by now (around 8:00 am on the east coast), the Department of Education (“Department”) will publish the “gainful employment” rule (“GE Rule” or “Rule”) later this morning.  The informal text of the rule has been made available, although the full draft notice has not been published yet on the Department’s GE website.  In sum, the Rule seeks to impose a return on investment metric to higher education programs at proprietary colleges and on one-year programs at any school (regardless of tax status).  Early reports on the Rule (from Inside Higher Ed and the Chronicle of Higher Education) indicate at least one major variance with the draft rule published in March 2014 – the new programmatic cohort default rate has been eliminated.  The proposed debt-to-income metrics have not been changed.  As this fact sheet explains, the Department estimates approximately 1,400 programs – effecting 840,000 students will be effected.

We will discuss these issues more later this morning when we review the draft text.  In the meantime, here are a few interesting comments/whitepapers that came out of the notice and comment period on the rule:

  • APSCU presentation that reviews the rule and synthesizes the Charles River Report;
  • Mark Kanterowitz’s white paper on the GE Rule;
  • Chris Ross of the Parthanon Group did an analysis of the rule form a student characteristic perspective;
  • Mark Schneider’s report of the American Enterprise Institute on how public and private; and non-profit schools would perform under the GE Rule’s metrics.

New Incentive Compensation Decision

Posted in Department of Education, Higher Education News, Incenitve Compensation, Litigation News

Dennis Cariello

Yesterday, the DC District Court issued an opinion in the continuing saga of the U.S. Department of Education’s 2010 Program Integrity regulations.   The case rejected the Department’s rationale (we discussed this preamble previously) for banning graduation/retention rate bonuses and its explanation on the effect the ban on incentive compensation would have on diversity enrollment.   This Court remanded the issue back to the Department to better justify the reasons for the incentive compensation ban prohibiting these bonuses and to better explore the effect of the ban on minority enrollment.

Interestingly, the Court appeared to reject the Department’s view that everything is a proxy for enrollment when it relates to incentive compensation:

The “proxy” argument is advanced by the Department’s lawyers on summary judgment (in response to an invitation from the Circuit, but is not reflected in the Amended Preamble. Moreover, if graduation rates could be used as a proxy for recruitment numbers, graduation rates would need to serve as a nearly identical substitute for enrollment figures.  Nothing in the administrative record suggests the Department performed such an analysis, even after remand. What the Department stated in the Amended Preamble is the common-sense and irrefutable proposition that “compensation for securing program completion requires the student’s enrollment as a necessary preliminary step.” It cannot be gainsaid that enrolling in a postsecondary program—of any kind—precedes completion; in other words, one cannot end what one has not begun.

If accepted, this rationale would allow the Department to ban all incentive-based compensation in higher education, as enrollment is always a necessary predicate to any assessment of program success or student achievement. Congress specified that postsecondary institutions are prohibited from providing commissions, bonuses, or other incentive payments based “directly or indirectly on success in securing enrollments . . . .” 20 U.S.C. § 1094(a)(20) (emphasis added). Had Congress intended to proscribe all incentive-based compensation, it would have expressly done so by enacting a general ban on incentive payments, not limited to enrollments.  The fact that Congress chose to ban only enrollment-based incentives indicates that any regulatory prohibitions must be reasonably tied to enrollment, without permeating the entire postsecondary education process. (Citations omitted).

Also, it seems the Department will have a tough road in convincing that a graduation-based incentive is inconsistent with the Higher Education Act: Continue Reading

Department of Education Deputy Secretary James Shelton Reportedly Leaving at the End of the Year

Posted in Department of Education, Higher Education News, K-12 News

Dennis Cariello

As reported by EdWeek, U.S. Deputy Secretary of Education Jim Shelton is planning to resign at the end of this year.  “Before being promoted to deputy secretary, Shelton was the assistant secretary for innovation and improvement, where he managed a portfolio of high-profile competitive-grant programs targeted at improving teacher quality, public school choice, and education technology—including the nearly $1 billion Investing in Innovation contest.”  Dep. Sec. Shelton has been a real friend to innovation and technology and a frequent participant and presenter at the GSV Advisers EdInnovations conference.

Also, EdWeek reports that on Wednesday, September 24, Robert Gordon, who has been nominated to succeed Carmel Martin as assistant secretary for planning evaluation and policy, joined the Office of the Secretary as a consultant and senior advisor to Duncan. In this role, Gordon will advise Duncan on top administration priorities and initiatives while his nomination remains pending in the Senate.”

Department of Education Issues New Guidance on Race and “Resource Comparability”

Posted in Civil Rights & the Constitution, Department of Education, K-12 News, Office for Civil Rights (OCR)

Dennis Cariello

Yesterday, the US Department of Education’s Office for Civil Rights (“OCR”) issued a 37-page guidance document on “Resource Comparability” and unequal distribution of education resources along racial or ethic lines in elementary and secondary education.  More specifically, OCR is focusing on racial disparities in access to “rigorous courses, academic programs, and extracurricular activities; stable workforces of effective teachers, leaders, and support staff; safe and appropriate school buildings and facilities; and modern technology and high-quality instructional materials.” The document  also tackles such “in the news” topics as racial disparities in selective public schools and AP classes, as well as funding disparities within and between school districts.

Senator Lamar Alexander (R-TN), the current Ranking member of the Senate Committee on Health Education Labor and Pensions – and the likely Charmian of that committee if Republicans take control of the Senate this November, called on the Obama Administration to rescind the guidance, citing the intrusion onto issues of local control called for in the guidance (“This administration’s National School Board has gone from telling states what academic standards they should set to, now, making decisions for our school districts about school wi-fi hotspots, air conditioning systems, performance art spaces or the quality of the carpeting in the hallways. “).

Restructuring in Higher Education

Posted in Bankruptcy, Higher Education News, Higher Education Policy

Dennis Cariello

Since 2011, there have been an increasing number of restructurings in higher education.  What may have started with the foreclosure and sale of ATI Schools and Colleges has continued this year with last month’s conversion of $400 million in debt to equity in the case of Education Management Corporation. Indeed, as Joe D’Angelo from Carl Marks explains, lower profits, increased regulations and lower student enrollment have caused an increase in higher education restructurings in the last three years.

We have handled a number of these restructurings and one legal issue that surprises people is that Title IV institutions cannot file for bankruptcy and remain a Title IV institution.  Section 102 of the Higher Education Act (20 USC 1002) provides that an institution shall not be eligible for the Title IV programs is “the institution, or an affiliate of the institution that has the power, by contract or ownership interest, to direct or cause the direction of the management or policies of the institution, has filed for bankruptcy.”  This restriction is also codified in regulation.  Moreover, although sparse, case law has consistently held that these provisions trump any powers of the bankruptcy court or the non-discrimination provisions of bankruptcy law (the government’s brief in the Lon Morris bankruptcy matter has a good discussion of the legislative history concerning this provision).

Removing bankruptcy from the equation changes the restructuring equation dramatically.  Unlike a typical restructuring, in higher education the institution and its creditors have to come to grips with the reality that creditors are essentially in the position of equity rather than of traditional lenders.    Indeed, creditors must be as concerned about maintaining the institution as a going concern as the institution is.  This is even more the case with for-profit higher education providers.  While non-profit institutions often have substantial assets (such as land and buildings) that it may sell off to pay debts, proprietary schools typically lease space and equipment, thus leaving the institution with only one “asset”: the ability to disperse Title IV funds. As a result, while bankruptcy is a theoretical possible vehicle through which a non-profit school could satisfy its debts (if the parts are truly greater than the sum of the whole), that will almost never be the case for a proprietary school.

As a result, instead of more traditional restructurings, we have seen far more schools and their creditors utilize liability management, cost cutting, shutting down campuses, and consolidation as means of creating liquidity to pay down debt.  In the most problematic cases, however, parties have engineered sales of all or some of the institution as a means of paying down the debt.  So far, three models for doing so have emerged:

1. Debt to Equity Swaps;

2. Foreclosure Sales (including where the creditor(s) purchases the institution through credit bidding); and

3. Pressured Sales (such as with Anthem Education).

Obviously there are various permutations on these and each method has its own positives and negatives and need to be carefully considered.  Also, regulators will need to be involved in approving these transactions which unfortunately will take time.  In the end, however, such transactions can leave institutions with far less debt (or debt-free) and much better able to serve its students.

New Paper On the Merits of a Three-Year Bachelor’s Degree

Posted in Higher Education Policy

Dennis Cariello

On September 17, 2014, the Progressive Policy Institute issued a new paper entitled “Give Our Kids a Break: How Three-Year Degrees Can Cut College Costs.”  The paper, written by Paul Weinstein Jr. who, in addition to being a PPI senior fellow directs the Graduate Program in Public Management at Johns Hopkins University, focuses on two ideas to help cut college costs: (1) to move colleges to offer three-year bachelor’s degrees, and (2) to simplify the federal grant programs to provide each of the 85% of students currently receiving federal aid an annual grant of $3,820 (the per student share of the $82.5 billion in Title IV grant programs and tax benefits). In short, while both ideas deserve more study, the paper failed to address a number of the issues required to fully develop the proposal.  Moreover, the focus on the reduction of student debt – a worthy goal to be sure – crowded out the consideration of other important concerns.  A more comprehensive follow up would hopefully address these concerns.

First off, I think the one grant for all students idea is an interesting one.  As the author notes, while the grant would be lower than the current maximum Pell Grant of $5,730, “it is greater than the average Pell Grant, which is currently estimated at $3,651.”  It isn’t entirely clear, however, what the effect of this will be on student access for the underprivileged or if this will affect the ability of students to graduate.  Indeed, the author spends little time discussing these effects.  Perhaps it will raise degree attainment – a July 2013 report of the Department of Education’s Advisory Committee on Student Financial Assistance found that “[a]s the percentage of a college’s students who are Pell recipients (serving Pell recipients) rises, 6-year graduation rate declines from 80% to 25%, and average test score declines from 29 to 19.”  Thus, directing aid to more-well off students may raise graduation rates.  On the other hand, a number of studies have found a positive correlation between need-based aid and graduation rates (see here, here and here).

Unfortunately, the author doesn’t tackle access or completion (or consider them in conjunction with his proposal for a three-year degree), but remains only focused on decreasing student debt.  Moreover, while I am a fan of the “One Grant, One Loan, and One Work-Study Program” put forth in a number of whitepapers (including, the House majority paper on Higher Education Act reauthorization), I would have liked to see what eliminating all those programs might do to the interests represented therein – in addition to what broadening the coverage of the grants will do on access and completion. Continue Reading

Great Article of the State of Things with the College Rating System

Posted in College Rankings, Higher Education News, Higher Education Policy

Dennis Cariello

As we have reported a few times, the U.S. Department of Education (Department) is currently working on college rating system. Libby Nelson, formerly of Politico and now the education reporter with Vox, has a great new piece up on the Obama Administration’s attempt at adding college ratings to the College Scorecard.  It provides a nice summary of where things for those new to the issue.  As she explains, the formula for the ratings is expected to be released later this Fall and “will probably be based at least in part on graduation rates, debt levels, and some information on graduates’ earnings.”  [Note – the current College Scorecard reports data  on Average Net Price, Graduation Rate, Loan Default Rate, Median Borrowing and self-reported employment statistics.]  She also discusses a number of the problems with the proposal, not the least of which is the likelihood – given the experience with the lists of colleges with the highest tuition and largest tuition increases – that students won’t consider the information.

While I am generally in the “more information is better” camp, I think there is good reason to think that this doesn’t add much to what is out there.  The Department can only focus on objective data in determining quality and, while those factors should be in the mix (and are considered in many other ratings formats), choosing a college is a fairly subjective process.  The best graduation rates in the world won’t mean much if the school is a bad fit for a particular student.  A definitive grade based on such criteria will, however, raise the potential of turning students off to schools that really would have been a good fit for them, despite not scoring well on Department criteria.

Moreover, although Ms. Nelson reports that the Department plans to address concerns that less selective colleges will be harmed in the scorecard because the student bodies in those colleges are more likely to dropout and take on debt, it seems hard to imagine how the Department will do so – without just awarding points for serving a large percentage of Pell-eligible students.  Such a reward would greatly benefit proprietary schools, which would be a very surprising outcome given this administration’s criticisms of that sector.

New California Law Requires Publication of Accreditation Documents

Posted in Accreditor News, Higher Education News, Higher Education Policy, State Authorization

Dennis Cariello

On September 17, 2014, California Governor Jerry Brown approved Assembly Bill No. 2247. As explained by the Senate Bill Digest, this law “requires all campuses of every public and private postsecondary education institution in California that receives state or federal financial aid funding to make available on the institution’s Internet Web site” specified final accreditation documents.

Codified as Section 66014.8 of the California Education Code, the law specifically requires publication of the final version of any:

  • accreditation visiting team reports;
  • accreditation agency action letters following an accreditation agency’s action relating to an initial accreditation, reaffirmation, comprehensive review, special visit, or
  • any sanction or adverse action taken against an affiliated institution.

An earlier version of the bill also required publication of a institution’s self-study, a provision that was strongly opposed by the Association of Independent California Colleges and Universities (AICCU).

The law applies to public colleges and universities in California, as well as “Private Postsecondary Education Institutions” (a “private entity with a physical presence” in California that “offers postsecondary education to the public for an institutional charge”) and “Independent Institutions of Higher Education” (“nonpublic higher education institutions that grant undergraduate degrees, graduate degrees, or both, and that are formed as nonprofit corporations in this state and are accredited by an agency recognized by the United States Department of Education”).  Some consumer advocates, such as Robert Shireman, the former Deputy Undersecretary of Education at the US Department of Education, have previously called for increased disclosure of accreditation documents for all institutions of higher education.