Key Word: College Insurance (CI)

The new analyses on the Federal student loans data and trends led the Association to come out with a new maintained hypothesis. If this inference on student loans is failed to be rejected, i.e., it becomes the new reality, then the consequences could be devastating for the student borrowers.

After analyzing the DOE’s student loans data (2013{Q1-Q4} to 2018{Q1-Q2}), AAEA found out that, on average, the amount of student loans has grown by US $21 billion per quarter or $5.3 billion per month. Let us analyze this number deeper. Most US higher ed institutions operate under a semester system. There are some that operate in a quarterly basis such as the University of Chicago. Most Ivy league or State’s owned institutions will operate in tri semesters: fall, spring and summer.  That said, the most probable culprits or contributing factors which push the amount of loans to go up in a daily basis are (1). The interest charges or (2). Borrowers’ failure to pay in-time—where the past interest charges are added to the original principal amount. The implication of such a fact is scary for the borrowers and their family, but could be a welcome news for lenders.  On the other hand, the borrowers’ debts keep ballooning as time passes, and, perhaps, will never be able to pay-off the loans. Ever.  Read the real-life story toward the end of this article here.  Quoted below is one of the stories:

“Navient is a bear to content with. I paid on my $40k loan for 21 years, and from 2004 (when my loan came to be with Navient) until recently, EVERY SINGLE PAYMENT WAS INTEREST ONLY! I tried so hard to chip away at the principle by paying a few hundred extra a month when I could, and I just couldn’t do it. I called them about 3 years ago and was told I’d need to increase my monthly payment to $2500 to make that happen. That’s absurd! I was told unless I did that the loan will likely never be paid off as I would have continued to only pay interest. It was so frustrating. In April of this year I received a surprise inheritance from a relative and I was told it was for a down payment on a house, but I decided to pay off my loan instead. I’d rather rent for a few more years and be debt free…and damn doesn’t it feel wonderful!”

The Association is not trying to give new ideas how lenders can make more money—but hold your breath, they now may have pretty justified reasons for the student loans takers to take “CI” to cover the risk that borrowers will default their loans. CI stands for College Insurance that may cover many possible risks facing by the borrowers. Different type of risks lead to different amount of CI premiums. Both Fed and private lenders will be happy to increase additional revenue from CI. Loan takers really need to think and consider all possible options before signing the loan agreements. Regret may not be a good vocabulary in such a case.

Recently the WSJ wrote an article on tuition matching strategies that have recently applied by US Colleges to boost their enrollment.  Yes, the competition is getting more intense.

The WSJ article again confirms AAEA’s maintained hypothesis and bold predictions on what will happen in the US higher ed when the competition gets stiff.  AAEA has written article on October 9 and October 19, 2017 that the tuition price war will occur, and it does, but under different jargon (tuition matching).  On January 2018 article, the Association also mentioned potential changes that will occur in 2018.  Point#6 exactly mentioned about the tuition price war.

If our prediction keeps becoming a reality, perhaps, it will be the interest of the many players in the industry to keep what the Association has predicted in making or assessing their strategies.  Of course with a disclaimer.  AAEA did not, does not and never will claim that everything will occur exactly as it has been predicted.  So, please be mindful.

We are independent, no hidden interest whatsoever, except for the good of many, and self-funded organization.  We did intensive research based on publicly available data to support our forecasted events.  In its analyses, AAEA applied among others, but not limited to advanced econometrics, applied statistics, math programming, along with competitive analyses, public policy, managerial accounting, finance and economics just to name a view to support the conclusion.  Results then shared to the public with no cost.

Two years ago, AAEA has shared a discussion on the difference between Data Visualization and Data Analytics.  However, some people think they are the same.  While these two concepts are intertwined, they are not exactly the same.  For clarity, please click here.  In a more specific brand, data analytics applied on education industry is called Education Analytics or Institutional Research Intelligence (IRI).  Data analytics experts take visualized data one step further–that is, to tell the story behind them.  It has some sort of similarity between data and information found in Accounting concept first course.  Information is generated as results of processing the (raw) data which to be used in the decision making process.  Consequently, an Education Analytics (EA) expert has to understand and expected to have various background–not just stat, math, IT or databases.  But she or he should have a strong background in many other areas as it has been shown in the IRI elements.  Professionals with these skill sets are not many in the market.  Some higher ed institutions that can afford it, will hire different people to fill the shoes.  But those who do not have enough will only focus on IR instead of IRI.  Consequently, they cannot compete. An institution that has the professional, will be better off to make them happy–otherwise they can easily be recruited by others.

More than five years ago, the Association has written its prediction on the future applications of Education Analytics (IRI–Institutional Research Intelligence).  At that time, some may not be able to comprehend or think it will happen.  But it did.

When AAEA shared the ideas of Education Analytics or Institutional Research Intelligence (IRI) as a must needed tool for the US higher education institutions, most organizations are not ready with this new game.  The reason is simple, the “old”  profession has been built on the “outdated mindset”, i.e., reporting only functionality.  However, it took years for decision makers at different levels and at different entities–state, or federal, private or public institutions to make the change and follow the “new IRI paradigm”.  But now, we all see how the prediction has become a major break through in the US higher ed industry to help many parties or players overcoming a more painful consequences.  Some open-minded institutions such as Harvard has prepared and made the changes, but others cannot adopt the new paradigm and adapt to the new challenges fast enough.  May be they do not have the resources and supports to react fast enough.

Some higher ed institutions never been able to see that competition in the industry is real and exist.  Only recently, college decision makers start seeing the new reality, and  are trying hard to make the changes.  However, most institutions are facing difficulty to find the “right professionals” with the “right skill sets” which can help winning the contests.  The reason is simple, because these professionals and “rare” and some campus administrators are bounded with the “old hiring practices”.  Consequently, the institution as awhole suffers.  Colleges have to be willing to pay a premium price or additional incentives to lure such a person for taking the job.  Remember these professional are “scarce“.

Yesterday, Bloomberg reported how the ballooning of the student loans will impact the US economy.  One interesting note that Bloomberg made is that higher ed institutions may need to take some of the blames.

With Bloomberg notes, our discussion today focuses on a more micro level–the effects on the US higher Ed.  Needless to say that in an open economy, where everything is entangled, the impacts is pretty obvious.  A more relevant questions would be, which higher ed groups will be impacted the most?  The answer to this questions is also straight forward–that is the most vulnerable institutions.  So which one?  Please click here for the answers.  The next relevant questions, would be, what should they do?

Well, the Association has observed “the behavior” of many, but not all.  Usually the US higher ed decision makers are not willing to take the risk.  Simple reason, there is no incentives or rewards for them by doing so.  Rather, each person will compromise long-term students’ objectives with her or his short-term interests.  This safety-first strategy usually leads to a do-nothing policy.  The college decision makers’ motives are pretty obvious, to max-out their own interests (retirement, benefits, year-end bonuses, monthly salary, etc), rather than the students’. There is nothing wrong with that.  However, if the focus is unbalance then, they may make biased decisions on the students’ expense.  They would rather not to take any actions that will trigger a no confidence vote from the faculty.  In many cases, members of these groups hop from one institution to the other to avoid accountability or responsibility.  Past trends show that when the reckoning time arrives, they either will retire, or move to another institution, depending on their age group.

On August 20, 2018, Bloomberg reported how the student loans may or could affect the US economy.  The news then were quoted by several other news agencies.  Unfortunately the report started with the following sentence “its time of year….”.  However, this is not a seasonal issue, rather a strategic problem which may have impacts nationally.

The Association has completed many studies in the past based on publicly available data.  The results have been shared to the public many years ago.  AAEA has concluded that continued increasing students loans will not have favorable impacts to the country.  But, many players (perhaps, including the law makers, who knows) in the market and industry seem not to have the long-term interest to address (they may have, but stop just to address it, with no viable ways out, may be?) the issues.  Any solution seem to be directed toward short-term interests.  Unfortunately, they only address the symptoms and not try to solve the root of the problems.

However, AAEA has consistently reminded the public.  One can ignore the tooth-ache by taking pill killer, right?  But it is a short-term solution.  A root canal may be a more visible long-term solution, even though it is more expensive.  If one bought the dental insurance, he or she may not need to bare all the treatment expenses.  Why can smart Wall Street or Bankers in this country to explore this new market?  College Drop-out Insurance, simply CI insurance.  The Association has discussed this new trillion dollars market as well.  Go and grab it.  Just mention ya’ll get the idea from this site.  That is the only thing we expect to be accredited for.

In 2013 AAEA has written, shared and suspected that not all the School Board members may not have all the necessary skills, expertise and knowledge to manage a higher ed institution.  The answer of the above questions may be not, at least after reading the following article.  If this is the case, people may not be too surprise to see the current and all the challenges as well as the issues facing the American higher ed, at least in general terms.  As we have mentioned before, most of these Board members are chosen may not based on their appropriate skills and background needed to successfully manage a higher ed institution.  Rather, some of them were chosen because of their PR and lobbying ability, and capability to bring money to the institutions.  It is nothing wrong with that.  However, at least there should be one member who has the expertise in crucial areas such as finance and analytics.

Many projections have been shared to the public in the beginning of 2018 or even many years prior to January 1, 2018.  For example, if one clicks the above link and look at point #1, the Association has forecasted that demand for higher ed will decline.  Two main reasons for the drop, the first one are that less availability of resources facing by degree seekers.  Second reason is that increasing cost of higher ed plays a very important role in declining enrollment.  Readers need to remember that when the US unemployment rate is lower, one will expect more people will choose to work, instead of going to colleges.  This seasonal factor also affect the aggregate demand.  The Association also mentioned more regulations are coming, and they did.  For example, the Fed makes it more difficult for student borrowers not to pay their student loans or asking for loans forgiveness.

These are the simple reasons why more people visited the Association’s site.  For it presents the facts, independent & unbiased analyses, and an honest assessment & forecast before the events occur.  Most of the news media, as it natural role is to report what has happened.  But AAEA shares the info before they, the events happen so that decision makers, such as policy makers, Congress/lawmakers, college administrators, students and their family along with the American public can make a fully-informed and wiser decisions.

Perhaps, some of the readers may have received many free webinar offers from many different consulting or analytics software companies.  These institutions are trying to offer services which can help US higher eds to solve their problems with retention & graduation rate or increase student enrollment, fund raising, data analytics & visualization and others.  Well, how useful and helpful are these apps, gadgets or offered services and advices?

Here are a couple basic questions to ask:

1. What is the purpose of doing an investment?
2. Are the benefits of the investment measureable?
3. Always remember that the sellers always try to sell their product, regardless how it will benefit your institution in short or long-run.

Keep in mind, that there are at least two variables to make an equation, LHS and RHS.  In a more fancy terms, folks call it a dependent and an independent variable.  After the two basic variables are answered, can one put it in a mathematical form?  Which of these variables will be in the LHS or RHS?

Lets us take an example that institution A, which is a Liberal Arts college sees a downward enrollment trend.  What should institution A do, to at least stabilize the unfavorable metric?  Putting all the choice and independent variables into one or complex relations will help the College decision makers to take the right path.  Often, an investment made before this critical step is conducted.  When resources seem to be abundant in the past, institutions have the luxury to pass this critical process.  But it can be a game changer under the current situation.