Based on our research (please click here: recent research and analyses), the newly proposed College Affordability Rating (CAR) will have devastating impacts on lower income students who are attending smaller schools. Our analyses on colleges in Tennessee support the claim. A wise man said, fixing the education industry is equivalent to repair an old car. After reading the finding written on the link above, do you guys think any future policy changes will help to solve the complex problems? What consequences will happen to the country ability to survive financially if a do-nothing-policy is adopted?
Newly Proposed CAR Rating May Hurt Small Colleges
Based on our, (Please click here: recent research and analyses), the newly proposed College Affordability Rating (CAR) may not have significant impacts on top tier schools because federal funding or federal financial aid may not a big part of their revenue or income. However, for smaller schools, federal funding is about life-and-dead especially for low-income enrolled students. Needless to say that graduation rate (GR) which is one of the components in calculating the CAR is much lower at smaller colleges. On average, GR at the Ivy League institutions is well above 90% while smaller schools may have as low as 10%. It does not need to have a rocket scientist to figure out the reasons why. High achiever students will certainly prefer to attend top-tier schools, especially if they are lured with fat financial package.
Smaller school will have a harder time with the new CAR regulations. However, AAEA will help smaller schools to improve their graduation rate. To read the solution, please click here.
Please let us know What do you guys think? Please write your comments below.
Increasing Student Loan Debts after Loans Got Transferred to New Loan Servicing Company?
Reply
On July 12, 2013, the regulator announced that they have switched or transferred the loans to four profit financial institutions and 4 non-profit organizations as reported by Credit.Com on August 14, 2013. There is a good chance that good borrowers’ outstanding loan balances swell after their loans got transferred to the new servicing companies.
There are two possible reasons for increasing loans:
- Though, one does not know the real reasons of the transferring loans policy to other loan servicing company, it can also be inferred as selling (accounting jargon for it: factoring) the outstanding loans to those mentioned companies. The buyers of the loans will pick the borrowers with good payment history. The regulators will get their money back (perhaps including the bad loans from the buyers), and use the in-flow cash for the next cycle in the loans business. The new owners of the loans will pass any “transaction cost” plus “profit margin” plus the bad loans (if they are included in the agreed purchase price) to the borrowers.
- Another possible horrifying story is that when the loan got transferred from Department of Education to the new loans servicing entities; either profit, semi-profit or not-profit organizations then the total original borrowed amount and not the last and current loan balance was transferred. This means, payments that have been done prior to transferred date will not showed up on the borrowers’ account with the new loan servicing institutions. Therefore, the borrowers have to pay twice to different entities from the same original loans. Therefore, the “new loans” that the “good” borrowers have to pay may increase tremendously. New owners of the loans and the regulator are the apparent winners of this transaction, and the students are the clear losers, which is a tragic and unfortunate.
The Association has completed study on the student loans and find the answer. Please click here to read the complete results!
Please tell us your story.
College Affordability Rating (CAR)
On August 22, 2013, the regulator proposed to distribute federal financial aid such as Pell grant with a new rating system called College Affordability Rating or CAR. According to the announcement, this new system which will be implemented by 2015 is the latest effort to curb college cost increases. The rating depends on four factors:
- Average tuition.
- Graduation rates.
- Student loans debt and
- Average earning of graduates.
Except for point 4, colleges to some extend can affect the outcome of Factor #1, #2 and #3. Higher tuition, lower graduation rates and higher student debt potentially will lower the CAR. Higher rating (example AAA) perceived as better than lower one (example DDD).
Using the first three listed factors above and ten-year historical data, the Association has applied the IRI (education analytics) paradigms to calculate and complete a “proxy” rating studies by state for US colleges. Please click the following LINK to read the complete ratings. The results show that even with the least stringent conditions, rules or conditions, some colleges may potentially loss million of dollars on Pell grant alone if the CAR policy got implemented. Please share your thoughts or comments?
Forum: How to Solve US Student Loan Problems?
- Recent report stated that 7 millions student loan borrowers were in default as of August 15, 2013. Do you guys think the US will ever be able to solve the current student loan problems? Please share your thoughts how it can be done.
List of Financially Troubled (Underwater) Colleges:
Applying the IRI paradigms, AAEA recently finished a study on potential bankruptcy of US colleges. This study was triggered by the fact that college tuition kept increasing over many years in the past. What the driving factors of such increases are? This certainly a big question to answer. Therefore, the study is divided into smaller research projects. The first objective is to see how many colleges are underwater as measured by their Debt to Equity Ratio (DER). We found that about 8.20% (519 institutions) of total all type colleges in the US are underwater. The severity of the financial shortfall is different from one institution to the others. But, we did not attempt to classify them further. Rather, we let the readers to make that call. We then calculate the total liabilities and total net assets for the entire population of these financially and potentially troubled institutions. The research shows that the total liabilities are higher than the total net assets by $137 billion. Approximately 20% of the size 2008 bank bailed out money under the TARP (Troubled Asset Relief Program) program which was sign by President. George W. Bush on October 3, 2008. Please click on Research Results tab to find out more.
Let us not undermine the need of improving US Colleges operational efficiency and the power of Institutional Research Intelligence (IRI) paradigms, the new mindsets upon which US colleges need to be operated from. AAEA has identified Lambuth University falls under the RED group (DER greater than one and negative student enrollment growth). We found out later the following fact about the institution from the University of Memphis website on March 24, 2013.
“start quote.
In July 1991 the historic liberal arts “college” became a university. During the school’s 168-year lifetime, it earned an outstanding academic reputation and was recognized as one of the nation’s top colleges by U.S. News and World Report and The Washington Post.
As a small institution, Lambuth fell victim to dwindling fiscal resources, and as a result, it was forced to cease independent operation in May 2011. However, recognizing the important role the school had played in higher education in West Tennessee, civic leaders and government officials worked to maintain the Lambuth campus as a part of the University of Memphis, a public four-year research university that is part of the Tennessee Board of Regents system. In August 2011 the University began offering classes at the Lambuth campus in Jackson.
“end quote.
The End of College Tenure System and Matching Retirement Fund?
Some say there are two culprits that are responsible for colleges tuition cost increases. These two factors are:
1. The tenure system which bounds the colleges into unbreakable work contract. This means, once a college professor gets tenured only his or her death or voluntarily retirement can terminate the employment agreement between the college and the professor.
2. Matching retirement (TIAA-CREF) system. Colleges will match any retirement that a faculty member puts into his/her retirement account. For example, if a faculty member sets aside ten percent from his/her monthly salary into his/her retirement account, then the college is obliged to match that.
Supposed what people say above are true statements.
The above two policies work fine in the past when economic resources are available. However, when resources are tight, colleges may turn to the students to generate more income to keep the old system works. Or may be because of the binding contract, there is no place to escape from it. This might partially explain why colleges tuition keeps increasing. The end result is that students have to take more loans to keep point 1 and 2 above to work. The statement above may not be true for schools that have large amount of endowment fund, such as the Ivy League.
Update!!!!!!!!!!!!!! The Association (https://www.aaea.us/) has completed a research on this topic. Based on the statistical analyses we found intrigue results. Please click here to read the whole article. Update!!!!!!!!!!!!!!!!
Do you guys think it is the time colleges need to think differently? Can colleges abandon the tenure system? If increase tuition meant to partially support point 1 and 2 above, should the students bear the burden by taking loans? Please write your comment below.
New Operational Paradigms Needed for Managing Troubled US Colleges
Perhaps, only a handful people have expected the 2008 financial crises will ever happen in the US and the world. When the bankruptcy news of Lehman Brothers’ broke out the financial market communities from Shanghai to Frankfurt were stunned. The chain reactions followed by the collapse of other big banks have forced the US government to intervene in order to prevent further chaos in the global financial market. Will the same crises happen in the education industry? With the student loans default on the rise, fewer jobs are available to absorb the college graduates, less availability of taxpayers’ money to fund higher education, increasing excess supply of higher education services and the newly sequester and federal budget fights are the ingredients for a perfect storm for those colleges who operate under BAU mindset. Let us know what you guys think? Do we really need new concepts and approaches?
On April 2, 2013 it was reported by the Tennessean Newspaper that Vanderbilt University Medical Center is taking “reactive” (instead of being “proactive and preventive” by applying the new IRI paradigms) cost-saving actions. This may portray that majority of higher learning institutions may not use strategic planning efficiently in their organization. Complete article can be read below:
Partially quote:
The cuts are necessary to stave off layoffs, the medical center said.
“Rather than reduce wages or incurring mass staffing reductions, the next steps we’ve outlined are designed to further manage operational costs while keeping our workforce intact,” John Howser, Assistant Vice Chancellor for Medical Center News and Communications said in a statement.
The announcement is in response to recent federal and state action, Howser said. Last month, Congress voted to cut funding to many federal programs by 11 percent from 2012 levels. The move affects the medical center’s Medicare, Medicaid and the NIH programs, Balser said.
http://www.tennessean.com/article/20130402/BUSINESS/304020118/Vanderbilt-imposes-vacation-pay-freezes-because-federal-sequester-cuts
end quote.
High Administrative Cost has Caused College Tuition Increased Uncontrollably?
Guys: This information is taken directly from NCES (National Center for Education Statistics): http://nces.ed.gov/FastFacts/display.asp?id=76
Tuition costs of colleges and universities. AAEA has recently finished statistical analyses which confirm the increasing in the administration cost is one of the culprits of college cost spikes. Please click here to read more.
Question:
What are the trends in the cost of college education?
Response:
For the 2010–11 academic year, annual current dollar prices for undergraduate tuition, room, and board were estimated to be $13,600 at public institutions, $36,300 at private not-for-profit institutions, and $23,500 at private for-profit institutions. Between 2000–01 and 2010–11, prices for undergraduate tuition, room, and board at public institutions rose 42 percent, and prices at private not-for-profit institutions rose 31 percent, after adjustment for inflation. The inflation-adjusted price for undergraduate tuition, room, and board at private for-profit institutions was 5 percent higher in 2010–11 than in 2000–01.
SOURCE:U.S. Department of Education, National Center
With 42% and 31% increase, one may wonder why such phenomenal increase has happened? What are the stories behind such an increase? Do you guys know and wanna to share? Leave your comments!
Increasing College Tuition
Many have said that there is a positive and direct relationship between increasing college cost and increasing student loans. The student loans will not as high as we heard they are now, if the US colleges did not keep increase the tuition every year. Do you guys think that the regulator bodies have to put a cap and a break on college tuition? and Why so?