Category Archives: Financially Troubled US Colleges

AAEA’s Comment On: Ratings Penalize Colleges that Serve the Neediest Students

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During a conference call between the US Secretary of Education and reporters as published in an article in Chronicle Journal of Higher Education on November 5, 2013 (please click here to read the whole article). Basically there are three points raised by the reporters on the application of CAR.

  1. Data aren’t good enough to calculate the rating.
  2. Ratings will penalize colleges that serve the neediest students; and
  3. Ratings will punish colleges and students for factors they cannot control.

A couple of months ago AAEA has published its research results and have made the above conclusion (second point).   One needs to understand the story why the CAR is finally—yes, finally is introduced.  It is long overdue regulations.  Though most of you have known the answer, let us reiterate here, “the motivation is to encourage US colleges to operate more efficiently”

Over hundred years US colleges have been given the privilege as a non-profit organization and whatever budget that they ask will be approved (mostly rubber stamped) by the lawmakers or school Board with minor adjustments.  Operating under leniency has made some of these institutions to forget that they are still required to operate based on “minimizing cost paradigms”, with its tax exempt status.

The prolonged inefficiency that has happened many years was reflected by college tuition increases without a sign of stabilizing, except in most recent years where the rate of increasing is slower, but the tuition still increases.  When the college graduates can find a job, no one cares enough to say something about the tuition hikes.  However, 2008 financial crises and starting in 2003, the society’s, students’ and tax payers’ outcries are much louder and almost every day the topics are covered by the media.  Therefore, the regulator just cannot ignore it anymore.  When the student loans hits the $1 trillion mark, things are getting really noisy.

AAEA has suggested that rather than whining, US Colleges are better off to do something useful which may help their institution to get a higher CAR rating.  AAEA has opened its arms and door widely to support US colleges that wanted to increase their graduation rate FOR FREE.  Four years may give enough time for an institution to get their graduation rate and other metrics improved.

Please write below what you guys think about colleges’ tax exempt status?  Should this privileged be granted forever or should there be any time limit?

 

AAEA’s Comments On: Data Imperfection for the CAR Application

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During a conference call between the US Secretary of Education and reporters as published in an article in Chronicle Journal of Higher Education on November 5, 2013 (please click here to read the whole article). Basically there are three points raised by the reporters on the application of CAR.

  1. Data aren’t good enough to calculate the rating.
  2. Ratings will penalize colleges that serve the neediest students; and
  3. Ratings will punish colleges and students for factors they cannot control.

AAEA would like to comment each of the issues which have been raised.  In this page we will comments on “Data aren’t good enough to calculate the rating”

Let us critically analyze the first comment on the data.  The skeptics argue that the ratings are calculated based on flawed data.  The Secretary of Education has admitted that the data may not be perfect.  He further said that “imperfect data should not be an excuse for inaction”.

AAEA’s comments:

  1. Imperfection of data will always be there.  However, there are statistical techniques and approaches which can be used to minimize such an imperfection.  For example, if the benchmark is calculated based on the state’s average (statistical mean) number; one can apply the standard deviation to overcome such random errors.
  2. Having said that in point 1, perhaps using the statistical average (mean) has advantages than of using the median.
  3. However, the median is better if the sample size has a lot of missing values and if observations from different institutions are unequal in size.

Please let us know your comments below.  Should or should not data imperfection be used as a reason for not applying the CAR?

AAEA’s Assessments on CAR are Confirmed by the US Higher Ed and the Regulator

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Based on our earlier research and analyses (about two months ago), we have said that the CAR will affect smaller colleges and it may impact economically disadvantaged students as well (for detailed, please click here and here).  These research findings and our assessments have been confirmed during a conference call between the US Secretary of Education and reporters as published in an article in Chronicle Journal of Higher Education on November 5, 2013 (please click here to read the whole article). Basically there are three points raised by the education institutions on the application of CAR. (1).  Data aren’t good enough to calculate the rating; (2). Ratings will penalize colleges that serve the neediest students; and (3).  Ratings will punish colleges and students for factors they cannot control.  Regardless of the comments, one thing for sure will happen is that the CAR regulation will make colleges to operate more efficiently.

AAEA has contributed to find the way-out on such delicate issues.  Our further comments on the four variables are as follow:

  1. The first three variables are justifiable (average tuition, graduation rate and average student debts) to be used.  Apply either the State mean or median number in the past ten-years to calculate and create the benchmark to assign the CAR ratings.  This number will be lower than using the most current years in calculating the median or the average.  Therefore, it will work in favor of higher education institutions and no one will get punished.
  2. Average tuition and student debts can be calculated based on the past ten years, and factor in inflation in the calculation (adjusted using hepi_scalar_2010 variable) i.e., use the real price instead of the nominal price.
  3. Applying ten years past graduation rate will answer questions from those colleges with lower success rate.  Logically, if the average graduation rate is flat in the past 10 years, perhaps nothing can be done in the next 10 years either.
  4. The average earning of graduates number will be difficult to use.  If it does, it surely will create unending, unnecessary and unproductive discussions.  Especially from those colleges who negatively impacted from the CAR new proposed regulation.

From reading the article, one may notice that some institutions start
worrying and whining about the CAR
.

Please tell us what you guys think? Should the regulator backs down?

 

 

Performance Based Funding

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Recently, the Chronicle of Higher Education has reported that two states (Missouri and Pennsylvania) have used student surveys and standardized tests to document learning—and linking financial rewards to the results.  This policy is certainly in line with the CAR, a newly proposed federal regulation which links federal funding such as Pell Grants and school/CAR ratings to award federal money.  With these new trends, there are small rooms left for colleges to escape, especially for institutions that are more dependent on both state and federal funding.  However, can US colleges change both students’ and other institution’s performance metrics in one or two academic years?

Please let us know how does this trend will affect students learning quality; and how will it impact student loans and cost of education; and what is going to happen to US colleges that are not going to make it?

If Colleges Are Dishonest Who Else Can We Trust?

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The media recently reported George Washington University’s dishonest on their admissions policy.  For complete article, please click here and here Students are put on  wait list simply because they cannot afford to pay the institution’s $61K cost of attendance.   This is another example that the application of newly proposed College Affordability Rating (CAR) is justifiable.
Please comments what you guys think?

College Tuition: Hidden Facts?

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AAEA is glad to learn that finally the rate (growth) of college tuition increases have slowed in the past two years as reported by the College Board and quoted and written by John Sandman for MainStreet. For complete article, please click here. Keep in mind that the tuition is still increasing, but at the slower rate (that is what it meant by declining rate of tuition increases). The article further mentions that tuition declining is also followed by decreasing government aids.
AAEA would like to take further analyses on college tuition pricing policy using an example. Suppose that Mr. ABC gets admitted to study at College XYZ and his financial award letter is shown in scenario A:

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Scenario A is a simple version of the financial award letter that the admitted applicants will receive. Let us analyze what are happening here.
1. If one compares scenario A and B, she or he noted that the Net Cost of Attendance is the same ($10,400). However, scenario A and B show two different things.
2. On scenario B, the tuition has dropped from $15K to $7K. This drop comes from subtracting $15K with the sum of scholarship A and B.
3. Potentially scholarship A and B are not real scholarships (sometimes it was disguised under college tuition discount or tuition subsidy). But were mentioned in the award letter to show that College XYZ is generous enough to “award” the candidate with “bogus” financial aids so that Mr. ABC feels good or at least feel that he is appreciated or that College XYZ cares of his future education. This strategy is closely tight with the college retention objective.
4. The actual tuition is not $15K, rather only $7K.
5. Some portion of the applicant groups may pay the $15K by taking student loans or his or her parents may take government Parent Plus loans to pay for the inflated tuition.
6. The tuition has been inflated by (8K/7K)=114%.
7. If the “extra” money ($8K) is spent to improve student learning outcomes then it is justifiable.
8. However, if it goes for spending sprees and to increase the administrators’ salary, then college pricing practice is questionable. Our study finds for each $1.00 taken student loans, more than 40 percent goes to support the college overhead cost, public services and full-professors’ salary.  For details of the statistical or econometric study on the topic, please click here.

All in all, we are not sure who started or recommended such pricing decisions and why the consumers are willing to bail out the inefficiency? After over 150 years the society does not really know what is going on and why alumni and contributors are still supporting the inefficient system. However, one thing that we know from this simple example in that colleges are failed to be the agent of development and the agent of change as they supposed to and as they have claimed. Rather, they almost make the US economy to go bankrupt.  Please read what the president of Converse College has said on how do US colleges make their decision on the tuition.
Readers, please write below your comments?

College Administrators And School Board Members Morally Are Obliged to Apologize to American Public

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As it has been reported recently by The Chronicle of Higher Education, some colleges have started to slash their tuition. The following quote are taken from the Chronicle.

[start quote] ”Betsy Fleming, channeling the late management guru Peter Drucker, says there are two crimes in business: Pretending to cost more than you do, and buying customers. “Colleges are in the business of doing both,” says Ms. Fleming, president of Converse College, a women’s institution in South Carolina. “We are not going to do that anymore.”
Last month Converse became one of the latest institutions to announce that it was going to slash its tuition, of $29,124, which no one paid anyway, and “reset” that price down 43 percent to $16,500[end quote].

This self-admitting statement confirms four mistakes: (1).  Yes, colleges have recklessly in their tuition-pricing decision; (2). Yes, colleges are managed based on inefficiency paradigms; (3).  Yes, colleges have committed business crimes in the past; (4).  Yes, colleges are to blame for the whole students loans crises that have happened in the country.

Therefore, it is only fair game if the college administrators PLUS the SCHOOL BOARD members to morally apologize to the American public and their graduates for much of the pains and financial burdens that they have caused.  They need to give the money accumulated from the overpriced tuition back to the taxpayers, students and their family.

Share with us what you guys have in mind.

US Colleges Shutdown?

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US Colleges are in a long wait and anxious if recent and on-going government shutdown will affect the federal student aids such a Pell Grant reimbursement. This is a real world example that shows how fragile the college operation is, especially to those colleges which are more dependent on the federal government. Perhaps, it is time to shift the strategies so that higher institutions are financially more independent. This is only can be done if colleges operate based on a balance budget policy. What is going to happen if this recent shutdown delays the government to channel the federal financial aids? Will there be college employees’ furlough as well at many US colleges?

Our research results show that more than 90 percent of them has higher operating cost than revenue generated from tuition.
Please write below what you guys think? Share your opinion with others.

Example Acts of Desperate College

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The following quote was taken from CBS Money Watch which quoted by Yahoo! News on example of college desperate acts to increase its enrollment number.

[start quote] “During the last admission season, Washington and Lee reported that 5,972 students applied for admission and only 19 percent were accepted. After obtaining internal records from the school, however, the Washington Post showed that more than 1,100 applications — about one out of every six — were never completed. The students failed to submit such things as standardized test scores, teacher recommendations, transcripts or other admission requirements.

If Washington and Lee had not counted the incomplete applications, the school’s acceptance rate would have increased to 24 percent, making it seem considerably easier for students to get in. “[end quote]

This is exactly a clear example of a short-cut that college administrators might do to increase “the money” through enrollment.  Rather than to work hard to improve the “value and quality” of their institution, they cheat.  However, it further damages the brand. Perhaps, applying the following strategies are better.

Our research results show that there are other objectives other than just to increase the enrollment numbers.  Enrollment becomes important only because of the money is needed to support both necessary and unnecessary expenses.  Controlling the spending will certainly ease the enrollment pressures.

Please write your comments below what do you guys think?

 

Could Government Shutdown Happen to Colleges Too?

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The stories about government shutdown dominate the news on October 1, 2013 morning. How will the shutdown affect colleges’ operation? Hopefully nothing now!

Well, at least one learns that shutdown can happen to any institution and not just to the regulator. We have discussed the subject many times in this blog that no US colleges can take for granted that enough “funding” or “money” will always be available to support their operation. It can go and puff away in seconds without early warning.

Hopefully colleges will take lessons from recent government shutdown. And convince themselves that perhaps the shutdown-day will also happen to colleges who are operating beyond their means i.e., more spending than revenue, over-investment or operating under inefficiency mindset. Our research results show that majority of US colleges are operating in excess of their operating revenue generated from tuition. Please click here (public colleges) and here (non-profit higher learning institutions) to see and analyze total revenue generated from tuition compared to total education and general expenses.

Please write your comments below what do you guys think?