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).

It is not surprise to see, one-by-one the so-called for-profit higher education institutions are falling apart. The society now can see how the business models of these institutions are. As the business of education is getting tighter every day, we will read more about their closures. Unfortunately, almost in all cases, the damages have been done, and students as always are the losers. It will be nice if preventive actions can be applied, but this may not be possible. Not until ESCC is established, because DOE may not have the peripherals to do this job.  If it has, it may not effectively in exercising them or perhaps it does not fall under the DOE jurisdiction and scope of its work. The Association has long suggested that the current system does not have an entity that has the power to conduct audit and compliance on both academic and colleges financial condition. Because of these inherent weaknesses, most of the businessmen are able to get away after accomplishing their short-run objective. Take a real example of what has happened to the Corinthian Colleges. Cheaters will always find the ways to escape. All these facts that are happening in the US higher education industry confirmed how difficult it is to clean up these messes. Until then, the students will always be the one who pay the price.

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It is not a celebration, rather a reflection. As professional in both education and in the manufacturing industry, we noticed that the US education industry will not survive given its present practices. In order to make the society aware of the potential problems that the entire US citizens may have to face in the future, we then established the Association of American Education Analytics (AAEA) and to share the new mindset and paradigm to manage US higher education institutions (Institutional Research Intelligence).  When AAEA reveals the problems facing by US Higher Ed and introduced the IRI concept to deal with them, many are skeptical.  But several months later were indirectly confirmed by Harvard University’s VP and CFO, Dan Shore during his interview with Harvard Gazette.  Mr. Shore stressed that the current way to manage US higher education is unsustainable.  Therefore, a new mindset, approaches and paradigms are needed.
In March 2013 we launched AAEA website, since then the number of visitors per day have increased exponentially. We based our analyses on facts, historical data and maintained our independent analyses.  We also introduced the ideas of data-driven decision making process in the industry which may not be widely known prior to AAEA’s existence. Strategic decisions need to be based on research and scientific approaches such as econometrics, statistics and mathematical programming to solve the existing and persisting problems that the industry is facing. All approaches that have been applied by the manufacturing industry such as ABC costing, LEAN, Maket Intelligence, Managerial Economics or Financial Management principles supported by Big Data and Data Scientist capabilities have to be deployed to control the rising colleges’  reckless spending and inefficiency.  Declining enrollment, budget cut and decreasing alumni financial support are several examples of the public’s disapproval of what the US colleges have done in the past and are doing currently. Basically, there are five important changes which shape higher education institutions in the US:
1.Tighter revenue due to less donation money, budget cuts (reminder: Big files, may take awhile to upload) and declining student enrollment.
2. Inappropriate, inefficient pricing decision and reckless decision.
3. Over spending and over-investment.
4. Changes in consumer preference.
5.  An entity such as SEC in the Stock Market is badly needed to deal with current Ineffective compliance and accountability from various players in the industry.  A commission that can impose effective rules and regulations in the education industry needed to deter reckless behaviors.  AAEA has proposed to have ESCC (Education Standard and Compliance Commission) to accomplish such task.

All of the five factors, among others have caused skyrocketed tuition hikes. Some colleges are still BAU and not even understand that they are facing the new landscape of competition. If they know, they think, things will be okay or some of them even denied that there is any problem whatsoever.
However, it only takes a year and a half to see what we have predicted based on our research and intensive studied became realities. Some colleges have to be closed, downsized or got merged as results of less available of resources and increasing consumers’ dissatisfaction across the country. For example the student protests at UC system campuses in the last few weeks. The next questions one might have are that what will be next, what options are available and what needs to be done? AAEA has come out with the IRI paradigm to help ease the challenges. The problem that most US higher education institution is facing can be seen as structural problems in nature. Therefore, the solution to deal with these issues has to be focused on having long-run effects as well. Everything needs to be turned up-side-down in order to make it in order again. However, it may take years for the messes have been piled up during an extended period of time. There is no magic medication. Everyone has to work together to take care of the problem. This is the team work, this is the country problem and it is not just one college issue. It is the whole country problem. Without support from every player in the industry, nothing can be done and students will continue to suffer.

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Education budget cut did not just happen in CA, Washington’s Office of Financial Management recently warned the state’s public universities to expect around 15% budget cut.  AAEA will present what the revenue and operating expenses look like for selected state universities and Community Colleges in the state of Washington.  To see the graphs in detail, please click the figure below.

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Administrative or overhead cost is one of the most difficult expenses to manage.  Even in the manufacturing industry, overhead cost is one of the hot button issues for it directly affects the competitiveness of a company. Therefore, intensive research has been done in the areas for decades.  While the manufacturing industry has made important progress to control the overhead cost, the questions one might have if US colleges and universities have tried to  minimize, manage or control such cost?  Most people agree that the overhead cost does  have impacts on the tuition, raising college education cost and the amount of student loans that they have to take.  The Association has completed studies which focus on higher education institutions under the umbrella of UC System.  Please click the US map below to learn more (may take awhile to upload, big file).

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Students across UC campuses are continuing their tuition-hike protests, while the involved parties continued their heated debate. The Association has compiled and studied the student loans issues at selected UC campuses (2000-2010). To see the results, please click here.  Surely the amount of money students have to take is trending up across the schools under the UC system.

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