The Association of American Education Analytics is not surprised to learn that Southern Methodist University is going to cut 100 employees as recently announced. The Association has published the study many months ago on the potential challenges that most US colleges are going to face in the future. The results and the conclusions of the study have become a realty now. Will there be more college closures, mergers and downsizes in 2015? Only time will tell.
The 2015 new year begins with big education news splashes. Recently the administrator just announced the possible of free tuition for community colleges students. This program basically copied from what the state of Tennessee is trying to do. The Association has discussed this topic many months ago. For detail of the discussion please click here. The administrator has introduced many ideas from CAR then it was water-down to PIRS. The ideas will keep floating until it runs to the open ocean, i.e., nothing is going to happen. It won’t surprise anyone if this new idea is just trying to create new media hype with the probability of success is not that great because it does not solve the root of the problem that the US Higher Ed is facing now. If adopted this idea will push even further from solving the real problem that the Uncle Sam is experiencing right now which is college inefficiency and campus reckless spending culture. This is just another bail-out program where the institutions can increase whatever the price they want them to be and the tax payers will pay for the price tag, instead of the students. Surely enough, this creates potential conflicts of what PIRS program that they are trying to introduce to the public. As results, college cost will keep increasing, skyrocketing of inefficiency, and more and more for-profit colleges will enter the industry because they can make enormous margin from this price guaranteed program. This will be the greatest business opportunities if one needs to make money easily. This program sounds too good to be true because it will dry the Uncle Sam’s already tight money. If the country has to take $303 million away from the Pell Grant to fund some other programs, then one might ask where the potentially $60 billion fund will be coming from?
This morning we read an opinion article “if Californians have to support the Governor’s or the UC President’s idea on the future higher education in the state”. Yes, we agree that finally UC gets budget attention for the good of the students. Without data, anybody can make his own theories and suggestions. AAEA has compiled and completed research many weeks ago and we are sure this research finding will be shared at the right time. It is then the perfect time to share it to the American public.
The chart below shows pretty clear that public spending on education has been pretty stable until 2011. After that year, the spending has increased quite significantly and it is projected that it will keep going up a couple years before it levels off. As the pool of (tax) money will always finite, increasing spending on public education in the state has largely supported by taking away from other posts. In this example, we just showed it may have come from health care and welfare. During the same period of time, these last two posts have significantly decreased while spending in public education has moved toward the other direction.
Recently, Adrian College president made a very interesting statement that said “The College will pay all or PART of the student loans of its graduates if they cannot find a job that pay more than $37,000 a year. This statement has been nicely prepared where the escape clause is part of the big marketing campaign. Let us check the latest numbers which are taken from the College Navigator.
All Undergraduate Students: Table 1 – Aids Received
The question that one has is where the money will be coming from because in the past 10 years (look the chart below), the College has always been in a red. The average deficit in the past 10 years was $6.5million. In such a case, the loop hole clause (“The College will pay all or PART of the student loans of its graduates) will be used in that the College may just pay part of it. The school can pay $100, $10 or even $1.00 and the students have to pay the rest. Therefore, the administrator statement is correct in that the College pays part of the student loan as it has promised, even if it is only a $1.00. The bottom line is that this is another example of misleading statement. Several other points that readers have to pay attention of are that the administrator says the College will pick 30, 40 to 50 students (NOT All Students) to begin with. How to decide who are eligible to participate in the program has not been mentioned yet.
Check before you buy is the words of wisdom. This could be an example of a marketing gimmick comes out of desperation to jack the enrollment up (please read here for recent Gallup poll results on Liberal Arts Colleges enrollment challenges).
The Association published an article on December 19, 2012 on PIRS. We have said that among 11 factors that make up the rating, one can summarize them into three groups which are:
a. College Accessibility (point #1 to 4).
b. College Affordability (combine point # 5 and 6) and
c. College Accountability (combine point#7 to 11).
Utilizing publicly available data, the Association has completed the most recent research on PIRS. We utilize Zellner’s Seemingly Unrelated Regression (SUR) econometric analyses to determine various relationships within different groups of variables or metrics. There are 33150 observations in the data set. But, some of the colleges did not consistently make their data available. In other instances, several of them have changed their names. After the process of cleaning, the number of observations dropped significantly. One may think that these observations are randomly available for completing the analyses. They represent broad locations and type of schools in the US. All type (4, 2-year and others) of colleges from the following states are utilized in these analyses ME, MO, MT, ND, NE, NM, OH, TX, VT and WV. As long as the schools have great quality of data, then their information will be used in this study. All variables with monetary unit have been transformed into constant dollar of 2010. Graduation rate and Pell grant variable are a ratio variable. The estimation results on Affordability Equation are shown below:
On December 19, 2014, a new college rating system framework was announced and introduced to the American public for comments. This newly college rating system is called PIRS (Postsecondary Institutional Ratings System) which was known before as College Affordability Rating or CAR. The CAR was introduced to the public on August 22, 2013. Under the CAR, US Colleges will be ranked based on 4 factors:
Average tuition, Graduation rates, Student loans debt and Average earning of graduates
The CAR produces ratings that have a direct relationship with how much federal funding such as Pell Grant will be awarded to certain institutions. Therefore, the objective of the CAR is clear. It has the regulatory power aimed to control skyrocketed college education cost and college accountability. On the other hand, the PIRS policy in its present form does not relate the ratings, but indirectly with federal financial aids. PIRS will rank US higher education institutions into three groups, high, medium and low performers and the ratings are calculated based on the following metrics:
1. Percentage of students receiving Pell.
2. Expected family contribution (EFC) Gap.
3. Family Income Quintiles.
4. First-Generation College Status.
5. Average Net Price.
6. Net Price by Quintile.
7. Completion Rates.
8. Transfer Rates.
9. Labor Market Success, such as Short-term “Substantial Employment” Rates and Long-term Median Earnings.
10. Graduate School Attendance.
11. Loan Performance Outcomes.
One can summarize those eleven factors into three categories which are:
a. College Accessibility (point #1 to 4).
b. College Affordability (combine point # 5 and 6) and
c. College Accountability (combine point#7 to 11).
The plan describes that PIRS has several objectives and they are:
• To help colleges and universities measure, benchmark, and improve across shared principles of access, affordability, and outcomes.
• To provide better information about college value to students and families to support them as they search for select a college,
• To generate reliable, useful data that policymakers and the public can use to hold America’s colleges and universities accountable for key performance measures. In the future this can be used to help align incentives for colleges to serve students from all backgrounds well by focusing on the shared principles of access, affordability, and outcomes; ensuring wise and effective use of $150 billion in financial aid.
• In additional to federal efforts, and those of individual institutions, we believe the ratings system can help inform policy, accreditation and funding decisions by states education authorities, policies and practices of accreditors and others.
If one analyzes the PIRS policy objectives, it is pretty clear that the regulator will make their finding publicly so that other agencies might be able to use the results. But, it is not clear to what extent the finding will be used. It is just up to different institutions how they are going to use the information. It is just a fact finding and it seems that the regulator does not want to go any further than that. It limits its role only to present the results–no-more and no-less, just that. In other words, it does the minimum work to response to the public’s outcries about skyrocketed college cost. Therefore, in the short-run, the colleges are free to do whatever they want to do. They can completely ignore any public concerns and operate as BAU, as they have in the past. The only factor that can change them are the market forces.
The original plan, the CAR has been watered down significantly. Perhaps, this shows that the regulator has giving up hope, or it gives up because of the third parties’ pressures. As results, they may have chosen to side away from the students and majority of the American public (reminder: Big file). Or it may reflect the results of the midterm election and therefore no one believe that the law makers will pass the plan. So, rather than to push through and take the opportunities to make live-time changes for the good of Uncle Sam, the institution has chosen to scrap the plan before it even started and let the next guys in line to deal with it. Thanks goodness, the invisible hand of Adam Smith will keep working to ensure market efficiency and Pareto optimal resource allocations, regardless who will run the country after the next election.
In 2011, while writing Chapter 11 of Institutional Research Intelligence: Go beyond Reporting book, we look at Cheney University’s published data as shown below. It was pretty clear and overwhelm evidence that showed the institution needs a major overhaul on the way they run the programs in order to survive. Needless to say that on October 30, 2014 we found the article which shown major programs have been cut, followed by a December 17, 2014 official financial audit report. The audit results which were announced yesterday (December 17, 2014) was a little too late. Had the evaluation been done earlier and appropriate actions were taken years ago, one might hear different story than today’s. The audit can be seen as a reaction, but nothing can be done and it had little impacts or value other than justified the past. Colleges need to apply a proactive strategies, instead of reactive. This particular example just shows how difficult to change the mindset of the decision makers in the industry. In addition, this particular case proved that folks need to get away from the old approaches and they need to embrace the new IRI paradigm, an education analytics and data-driven decision making approaches in managing their institutions
Data cannot lie, had the institution take proper actions after looking at the evidence, it may be able to rescue the organization. Chaney University is not alone in its struggle (Example of the Association’s contribution to the public–big file over 1475 pages pdf file). Perhaps, many others facing the same situation, and waiting until the closing bell. Folks tend to pretend that there are no problems. But, denying such problems exist will only make thing worse. With the Pell Grant got sliced, and the possible implementation of PIRS (Postsecondary Institutional Ratings System or College Affordability Rating or CAR) it surely will makes it more difficult for many institutions to face future challenges. After the restructuring process is completed, only big institutions and most efficient ones will stay in the industry while others will be wiped out.
This is exactly the work of Adam Smith’s invisible hand which has motivated the establishment of AAEA and this BLOG to remind everyone before hand that phenomenal changes are occurring and that past strategies and old wisdom cannot be used to manage higher education institutions in the US. If the law makers, the regulators or any other players in the industry will not take actions, then the market forces will take it into their hand. No matter who will run the country after the next election, the restructuring process will go on such that the bad apples and rotten oranges will be minimized or completely driven out of the playing field.
About two years ago, we share to the American public on the possible falloff of US colleges that still working under the “old mindset”. In our paper which we have presented at North Carolina Community College Annual Conference in Raleigh followed by a presentation at SAS Users’ Group Conference in Houston, Texas we have argued that the US higher education institutions just cannot survive without making significant changes in the way their manage their institutions. A phenomenal change is necessary to be made, simply because the competitive environments where they are operating has undergone a important structural changes. At the meeting we publicly introduced a new paradigm which may help US higher education institutions to survive in the new sea of competition. This approach is totally different than what it was in the past. The new mindset helps the decision makers to utilize data: both historical institutional, macroeconomics and other competitors’ data to draft their strategic decisions. Including, but not limited to cut operating cost, increase retention and graduate rate, lower tuition, sharpen marketing and hiring strategies.
When the idea was introduced, people not even look at it and think that we are a bunch of non-sense. However, it is less than two years, what we have hypothesized is true. Below is just an example of what we have said in our paper and book became a reality. Without major changes on the way folks manage the institution, their organization may have to make three options: Get merged, Get bought or Get diluted.
In some cases, it is not that they do not know that the changes are coming, but do not know where to start. Some not even have the energy to start the change. Some are waiting until the time come so that they can exercise their retirement option. In addition, there are not enough people with the IRI (Institutional Research Intelligence) skills who can help the decision makers to make sound strategic decisions. Below are just a fraction of college downsizing examples. There are many other institutions cutting their programs, but do it silently with less drama. Budget crunch and decreasing student enrollment are the two major reasons cited for the program reduction and staff layoff.
There are certainly hidden messages that the law makers in Washington DC tried to convey to both US colleges and loan borrowers. Even though the law makers may or may not realize the positive impacts of cutting the Pell Grant and despite the fact that many young people are unhappy on recent Pell Grant policy changes, there are, however, a disguised grand positive objective from the US’ point of view. Reducing funding and grants is the first step to accelerate the process of restructuring the crippled industry. With so many parties taking advantages of the student loans in negative ways, that have created public outcries and may cause the Uncle Sam goes bankrupt. There are no other ways for the policy makers to re-engineer the outdated system without taking drastic changes such as to turn the lifeline off.
Cutting the Pell Grant is a beginning step to remedy the inefficient system. Right in this moment most important players in the industry seem not to care much on what is happening. People are giving up. Rather than trying to fix the system, they take whatever advantages that they can get. There is no sense of responsibility anymore. Rather, everyone is trying to max out their own (personal) benefit in expense of others, the tax payers. The institution becomes a vehicle (distribution center) where public money is taken then distributed among the peers. Smart people called it collegial system.
Squeezing the funding, one of the most important lifelines is a strategic move in effort to restructure the industry. All institutions will feel the pinch, but the ones that got chocked the most are the worst performers, the most inefficient organization in the system. This industry has attracted many politicians, businessmen or women to become school administrators as they retire or close to retire from politics or non-academic world? There got to be reasons why college president position is so attractive for many of them? Sad to say that their salary and benefits may have been funded partly by student loans, public money or indirectly grant money from the Uncle Sam. Reducing the availability of funding and grant indirectly serves two purposes. To get rid of both the bad apples and rotten oranges.
The American Public has recently learned how the law makers have proposed to slash $303 million Pell Grant money. There will be several scenarios how the reduction will affect the number of students who will negatively be impacted. However, it does not matter what the scenarios are, they certainly do not look good for both students and certain higher education institutions. There are, several things may happen:
1. Students will take more loans.
2. Students have to work more hours to fill the gap.
3. Theoretically, point # 2 above will have negative impacts on graduation rate.
4. Decreasing on college students enrollment may accelerated, and the magnitude will depend on the elasticity of demand for education services at a certain institution.
5. Drop-out rate may increase and time to graduate may take longer than what it was in the past.
6. Colleges will have to work extra hard to get money from other sources to fill the gap and staff layoff is imminent or has happened.
7. Small private and Liberal Arts Colleges will be impacted most from the new policy, unless they will have a successful capital campaign or fund raising. Harvard, Stanford, Yale, Cornell, Columbia and the University of Southern California correctly anticipated such an event to occur. However, smaller colleges are BAU.
8. More colleges will need to close their doors, unless demand for their education increases such that it offsets the reduction in the Pell Grant. Increasing in enrollment may not likely to happen, especially at small private or Liberal Arts colleges as evidence may have shown.
9. In order to survive, some colleges have or may need to downsize their program, especially institutions that are not funded by the state or tax payer money.
10. The growth on student loans debt will certainly increase faster than it has been in the past.
The Association has conducted a study to see the potential impacts of such reduction by state as shown below. Please note that the percentage calculation is just for first-time full-time (freshmen) degree seeking students who receive federal grants money (not just the Pell Grant).
