In the last a couple of days, we heard  many comments on how to fix US student loans problem after the Bill on student loans proposed by Senator Elizabeth Warren has been blocked at the Senate floor on June 12, 2014.  The opponents of the bill cited that the proposed bill has no impact to lower college education cost or to lower the borrowing.  AAEA has mentioned the possible flaw of the Bill on its January 30^th,2014 assessment as written in the Association’s blog which is exactly been cited by the opponents of the Bill.  Other comments reported in the media just general comments which may not even touch the substance of the problems.

The rejection to the proposed bill may indirectly show the opponents’ support of the regulator’s CAR (College Affordability Rating) proposed on August 22, 2013 which aimed to curb reckless college spending practices that have driven education cost up uncontrollably.  The Association has completed other studies which statistically show and prove that the US college administrators do not operate and apply minimum cost paradigms in managing their respective institution.  They have their own agenda and unfortunately the agenda may not be in line with the American public’s and students’ interests.

The student loans is such a big mess so it will not and cannot be solved only by one or several bills and it cannot be strategically handled quickly in a pretty short time.  The defeated bill is just a small step to “ease” the problem which may help solving a miniscule part of the existing problems which have been built within an inefficient system in the past hundred years.  The law makers need to work harder and smarter than just concern with short-run problems.  The motivation to write a bill not just to gain the votes needed in the re-election process. Rather it should be based on serving the best interest of the United State of America.

Bailout student loans have been discussed as early as in 2011. In the past few days, the ideas resurfaced again as written by the US media which confirmed that the US taxpayers may have to bailout the loans through different programs introduced by the regulator in dealing with massive current student loans.  Programs such as Student Debts Forgiveness, Pay as You Earn (PAYE) or Income-Based Repayment programs ease some of the financial pressures that college graduates and their family have to deal with.

AAEA has studied the issues and has made its research findings accessible to the American public many months ago.  Sadly, the current repayment (bailout) programs while help lessening family’s financial pressures, they do not however, solve the root of the problems.  The Association has repeatedly mentioned that the colleges’ inefficiency and the old operational mindsets used in managing US colleges are no longer relevant in the new economy.  Given the current economic conditions and dynamic competitive environment changes that are occurring in the global world, the old mindsets need to be improved, revitalized, completely abandoned or changed.  Simply shifting all the inefficiencies to the students while it worked well in the past, will no longer relevant in the new world. 

Please let us know what do you guys think?

AAEA has assessed and shared the results to the American public on finding the driving factors behind student loans crises in the US.  There are three variables which have positive correlation with the skyrocketed of higher education cost as well as student loans increases.  These three factors are administrative/overhead cost, spending on public services and full professors’ salaries. The American Association of University Professors (AAUP) on its recent report has confirmed part if not all of these findings.  Though, the objective of AAUP’s and our studies are geared toward answering a slightly different question, the results pointed out on the growth of administrator’s spending may have caused college education cost to increase uncontrollably.  Our studies went deeper than that of AAUP’s and we found that in addition to the administrator’s salaries, full professors’ salaries have positive correlation on student loans, but not for Associate or Assistant’s Professors salaries.   

These findings have many implications such as:

1. Past regulators and governing bodies have less successful efforts to identify the problems for many years which led to the student loans crises in the US.
2. Both internal and external audit function (as addressed in Generally Accepted Auditing Standards) and other compliance efforts need to be established to prevent such problems to reoccur in the future. This requires each business unit/department/program to develop its owned Standard Operating Procedures (SOP) which is rarely if ever found and practiced by majority US colleges.  Without these guiding principles almost nothing can be done appropriately.
3. School Board members’ responsibility need to be extended not just to rubber stamped any requests from the school’s administrators, but to conduct its own studies to justify any request on increasing tuition or staff and administrative salary.  The Board needs to have its own capable staff members to carry out such tasks.  The members of the board need to deeply understand the business and economics of education.
4. Sound budgeting can be implemented at the Department level using cost center approach as discussed in managerial (cost) accounting.
5. The college education cost increases and students loans rises have triggered the state lawmakers to find ways to solve the problems.  Recent example can be found in Tennessee.

Please let us know what do you guys think?

Legislators in Tennessee are getting closer to pass the law to help all students to attend Community College for free as reported by Yahoo News on April 5, 2014.  AAEA has consistently supported, suggested and promoted the idea in the past.  Therefore, the it applauded such a plan.  The Association is glad to see the progress toward making higher education more affordable for all US citizens.  If this model becomes a reality, then soon other states will follow suit.  Otherwise, they will experience significant population decrease for families will move out and relocate to other states (such as going to Tennessee) where college education is more affordable. AAEA is eagerly waiting to see which state in the US will pioneer free college education, not just for Associate degree programs. But, for all bachelor or undergraduate degrees.

What does this mean to both state-run and private (profit and non-profit) 4-year colleges?

Several consequences will happen:

1. Majority if not all freshmen students will take their GenEd (General Education) courses at community colleges before transferring to a four-year college of choice. This will significantly lower student loans and partially solve current US $1.2 trillion serious student loans problem.
2. Private Liberal Arts, expensive colleges with lower retention and graduation rate will potentially experience and suffer worse financial crises.
3. For-profit colleges could be wiped out from the competition.
4. Reduction (lay-off) of instructors who teach GenEd classes at 4-year colleges are imminent, but the reverse is true at 2-year higher institutions.
5. Freshmen students’ enrollment will drop significantly at 4-year colleges and the opposite is true at Community Colleges.  However, transferred students’ enrollment may increase at 4-year colleges.
6. Four-year colleges’ recruitment effort will no longer be focused on freshmen degree seeking students, but on transferred students.
7. In the near future, the model for higher education will shift significantly as we have predicted months ago.  Undergraduate program in the US will be run by two entities–community colleges and 4-year colleges.  Freshmen and sophomore classes will be offered by two-year institutions while traditional 4-year colleges will only run upper level classes for junior and senior degree seeking students.  These changes will significantly affect the whole organization structure as one ever known in the past.
8. Management team at traditional 4-year colleges will be forced to change their operational mindset if they want to survive.   As the Association has hypothesized again and again, there is no way out now for not to control their spending.
9. Some 4-year colleges will experience reduction on their revenue generated from federal government such Pell Grants or federal student loans due to decreasing enrollment on GenEd classes (see point #4 above).
10. All of these dynamic changes will trigger new regulations including, but not limited to how and to whom data are reported and new skills needed to manage higher education more efficiently.

This is surely an exciting change that will have a strong support from the American Public.  Aside from what has been mentioned above, many families with college aged children will flock to Tennessee, especially in the Nashville area where several community colleges are situated.

Please let us know your comments!

There are a number of preliminary conclusions that one can possibly extract from the AAEA’s research results on College Affordability Rating (CAR).

1.      State or flag universities tend to perform well on two components–lower tuition and smaller amount of their student debt compared to other private colleges.

2.      State-run institutions’ graduation rate tends to be higher compared to others’.

These findings have very important consequences for private institutions, both for-profit and not-for-profit higher education institutions.  The negative impact on the survival and going-concern will be greater on privately managed colleges when the federal funding gets smaller.  One may see that some of these colleges may have downsized their learning centers or campuses before the implementation of the CAR in 2015.  Some may keep denying that such regulations may finally impact their operation.  However, those that keep ignoring possible decreasing future federal financial assistance may face greater risk of financial failures compared to their counterpart.  Learn what is happening at Harvard University.

The CAR regulation then can be interpreted as one of the effective means for the regulator to shut down inefficient and dying institutions which is in-line with the American’s public interests.

Please let us know what do you guys think?

A while back, we have heard from the industry on the importance of utilizing big data in making strategic decisions.  However, the industry is struggling to find the right people with a set of skills who can make the “data talk”.  The minimum required skills include, but not limited to knowledge of statistics, computer programming, managerial economics, research methods, financial and managerial accounting and analytical thinking.  On March 26, 2014, Harvard Gazette wrote an article on the big data class which is just recently introduced and being taught to Harvard students at the Department of Statistics.  In this class, the students were introduced to the world of big data.  AAEA has written many months ago, that this expertise can help US colleges to study internal, external and competitive environments which will help them to improve both institutional and student metrics such as debt-to-equity ratio, students’ drop-out  risk, enrollment management, retention rate and graduation rate.  Needless to say that currently, the majority of US colleges’ efforts and resources are focused on supplying or reporting data to both federal (IPEDS) and state agencies, as well as to other private institutions such as US News, Barron’s, Paterson or Best Colleges.  Therefore, less time is available to analyze both institution’s and students’ and other competitive environment data to generate strategic and meaningful information in the decision making process.  Lack of statistical knowledge and its application on different type of data, fear of making any new changes as well as rejection on the new reality also contribute to the inability to conduct analyses beyond simple graphs generated by Excel.

Please let us know what do you guys think?_

Almost every day, one can find articles written on student loans.  Let us deepen the analyses and check what portion of $1.00 taken by the students will be used for?  AAEA has pulled a ten-year data, and based on this data set, the Association has broken down the loans and checked how they were spent.  Fortunately, the regulator has calculated the share and made them available to use without further need to recalculate each component.  The components are (1). Instruction share; (2). Student service share and (3). Administrative share.  The Association has checked that the sum of these components is 100 percent. 

We take the information and apply it to US colleges.  Cost component one and two have direct relationship with student education activities while component category (3) includes the portion of spending on academic support, institutional support, and operations and maintenance ascribed to the education function.  In other words, component number 3 does not have direct relationship with the student class room activities.  As shown in Table 1 (click here: read the whole article), these unrelated expenses make up the largest portion.  On average and for the whole colleges in the US, the overhead cost is about 40%.  What does it mean is that for every $1.00 that the students borrow about $0.40 will go to pay the overhead cost?

Let us work together and make every effort possible to lower the cost of education simply because we are the one that can make this country a better place for everyone, every single family, and future generations~~we are the United State of America.

Please click here to read the whole article.  Please let us know what do you guys think?

The article points out how the student loans borrowers are the winners on recent decision of the Department of Education on letting them to access rankings of loan specialists.  To read detail of the news, please click here.  Readers need to be careful while reading the article.  The borrowers will not win until they only have to take a fair amount of student loans.  The cause of the problem is not about who the providers or lenders of the student loans are.  Rather, why they have to take loans?  Do they have to take a fair amount of loans?  One needs to critically think that the loans are the result.  The higher the operating inefficiency or the more inefficient higher education institutions are managed the higher the amount of loans that the “trapped” students have to take to finish their studies.  In other words, they have to bail the inefficiency out which simply passes to them by the school’s management.  In the statistical jargon, there is a clear positive correlation between the cost of education, the student loans, the overhead (administrative expenses) and salaries received by the full professor.  Each links above showed and reported the results of AAEA studied in the past months on such topics.  While it is easy to get distracted, the American public has to understand the cause-and-effect logic behind all of the student loans and cost of education issues.

As reported by the media on February 26, 2014, CFPB (Consumer Financial Protection Bureau) has filed a lawsuit against a for-profit education institution.

The court ruling will have significant consequences not only for other for-profit institutions, but also for its sister institutions (not-for-profit).  Moreover, if the court finds any inappropriate policies, the next questions would be what kind of consequences, either jail-time or monetary fines will be imposed to the institution or both?  If it is the jail-time, who will stay in the big house?  Would it be the School’s Board members, or the management (what level, president and its cabinet members?) or both or all?

This case may tell us that, in the future, being a president of a higher institution will be as riskier as any other management position at other industries.

Please let us know what do you guys think and why?

Well, more regulations on student loans.  This time the issue touches Parent PLUS loans.  To read more about the article, please click here.  When parents’ ability to borrow money is reduced, it will certainly affect demand for higher education services.  Meaning, students have to take more loans or colleges have to award more scholarships or financial aids so that the students are able to finish their program.  Consequently, any new regulations on student loans which may affect the amount of loans that borrowers can take may put more pressures on students’ ability to enroll for classes.  It then will decrease colleges’ ability to survive, especially for tuition-dependent colleges such as small private Liberal Arts Colleges or other for-profit institutions.

Please let us know what do you guy think?