For-profit

  • By John Bailey
    April 5, 2011

    HBR is running a blog series on innovation in education.  Be sure to check out Bruce Dixon's entry on gaming and Joanne Weiss's on smart capital.  

    Joanne's piece I found to be particularly thoughtful about how the the education market is broken.  However, based on some of our survey research, I think misses some key elements contributing to the problem.  Participants at theAspen Education Innovation Forum ranked the barriers as the following:  

    1. Procurement rules and regulations at the state level (54%)

    2. Procurement processes at the local level (48%)

    3. Bias against for‐profit entities (48%)

    4. Structure of the marketplace (43%)

    5. Regulatory and statutory obstacles (43%)

    6. Insufficient investment opps (28%)

    Download the whole report here (PDF)  

    I think Joanne is right that Common Core adoption will help in some ways, but mostly in lowering development costs.  However, it doesn't change the complexity of the procurement processes that districts and states have set up.  So a startup may not have to develop multiple versions of a product or service, but they still have to struggle with chasing lengthy and complicated RFPs with a small development team (sometimes only one or two people). Or the RFP process includes requirements that make it incredibly difficult for startups to compete, like performance bonds or state-based award preferences.  One recent RttT RFP including this helpful guidance: "All respondent materials must be packaged so that each box of materials shipped to the Department does not exceed 25 pounds."  Good to know we're cracking down on proposal obesity.

    Another issue not mentioned is that policy often contributes to the market brokenness by favoring non-profit providers instead of creating a level playing field for both for-profit and non-profits. We see this reflected in the legislation that limited I3 eligibility only to non-profits and the proposed Gainful Employment regulation that only applies to for-profit higher ed institutions even though many community colleges and HBCUs would fair no better under the same metrics.  

    The policy and regulatory environment exacerbates the market brokenness instead of helping mitigate the risk for investors and innovators, the way we see the Department of Energy creating opportunities for cleantech startups through loan guarantees, tax credits, and grants.  It isn't about giving for-profits an advantage as much as it is giving them the same opportunities as nonprofits to compete for funding.

    I'm heading out to the ASU Innovation Summit where these issues will be discussed on several panels.  Should be some thoughtful discussions and debates.  


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  • By John Bailey
    September 23, 2010

    Matt Miller has a must read column over at the Washington Post today.  Read the whole thing but below are a few excerpts:

    • But on college, or health care, or schools, the problems are actually deeper. Here the president has talking points on things he's "done." But he doesn't really have answers. To see why, think of America as a set of "industrial complexes."

    • Or take the Higher Education Industrial Complex. For years tuition has soared much faster than inflation and family income -- increases that are enabled by federal loans and subsidies. Yet college presidents and professors act offended and resist fiercely if asked how much student learning we're actually buying for these excess billions.

    • Then there's the K-12 Industrial Complex, which leaves us spending more than other wealthy nations, even as we're stuck in the middle (or worse) on international tests.

    • More money for K-12 gets swallowed up by the "blob." And when rare leaders like Adrian Fenty and Michelle Rhee take on the status quo, voters turn them out -- fretting more about ineffective teachers who lose their jobs than poor children who lose their shot at an education.

    • Is there a way to break this fatal interest-group stranglehold? Olson said war or depression could wipe society's slate clean, but that's a bit grim as a strategy. The better path is to promote entrepreneurial innovation and harness capitalism's bottomless capacity for finding new ways to deliver more for less.

    • A central theme of Obamanomics 2.0 should be "disruptive government" -- making the world safe for such innovations to challenge wasteful establishments in sectors critical to middle class well-being.

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  • By John Bailey
    September 23, 2010

    Some interesting developments related to the Administration's gainful employment proposal.  

    There's a good discussion over at the National Journal's Education Expert's blog about the issue.  My response ishere (also below). 

    I've been struck by the 80,000 comments this proposal generated.  It is the most comments generated for any Department of Education regulation. And it is exceedingly high when compared to other agencies too.  For example, DOL's proposed FMLA changes generated 20,000 comments back in 2008 and the Federal Reserve's 2008 proposed credit card reforms generated 56,000 comments.  More recently the Administration's proposed Meaningful Use standards for electronic medical records generated only 2,500 comments.  So the volume by itself is significant.

    And the concerns are coming from an odd, bipartisan mix: Democrats form the Congressional Black Caucus,Republicans, the U.S. Chamber of Commerce, a former Brigadier General, just to name a few.  Lanny Davis, a former Special Counsel to President Bill Clinton, raised questions about the proposal over at the Huffington Post:

    Suppose that a conservative Republican Administration, in the middle of high unemployment and an economic slowdown, proposed new regulations that would most hurt lower income people and minority groups and the for-profit colleges and universities that serve them? Can you imagine the cries of outrage from liberal critics, condemning "hard-hearted" Republicans targeting the most vulnerable young people in our society?  ...

    If any regulation is necessary, then Mr. Duncan owes it to the most vulnerable students who will be disproportionately hurt by the current version to use a scalpel, not a hatchet, and to address the issue of excessive student debt at all higher education institutions - not just at for-profits, but at non-profits and public universities as well.

    All of the concerns raised by these comments and individuals might explain why the Administration is considering a delay of the regulation.  Secretary Duncan hinted at this yesterday but we've heard from some Congressional contacts that a delay could be announced as early as this evening. 

     

    Regulation Should Be Delayed

    At a time when the Obama Administration is searching for additional stimulus ideas in response to a struggling economic recovery, it is ironic that the Administration would consider advancing a proposal that will only contribute more economic uncertainty and limit important job training efforts moving forward.

    Career colleges play an important role in our diverse system of higher education. They offer flexible course schedules and use online technologies to meet the unique needs of working adults, single parents, and other non-traditional students many of whom have been hit the hardest by the recession.

    The proposed gainful employment regulation risks disrupting career opportunities for millions of these Americans, many of whom are minorities. It also undercuts the President’s goal of leading the world in college graduates by 2020. Here are a few of the flaws with this proposal:

    • Only Targets One Segment of the Higher Education System.  Protecting students and taxpayers from low-quality programs and unwieldy debt burdens should be a priority, but these are issues we face across the whole system of higher education. Yet, the Administration has decided to only target the career colleges sector with a series of tests that many public institutions could not meet. For example, Harvard’s Medical School would fail to meet the loan repayment standard given their current repayment rate is 24%. And it is not just career college students who may struggle with their loans. At CNBC’s Town Hall meeting with the President held earlier this week, a law school student expressed his frustrations with managing his student loan debt, mortgages, and having a family.

    •  Penalizes Schools for Broader Economic Trends: Michael Mandel pointed out that college debt has become more burdensome for students because of flattening wages. While college costs have risen faster than the rate of inflation, the real earnings of college graduates – regardless of the institution they attended - have gone down since 2000, particularly during the recession. The proposed gainful employment equation doesn’t reflect this and instead penalizes institutions for economic trends outside their control.

    • May Decrease Low-income and Minority Student Access:Instead of increasing low-income and minority student access to higher education, the proposed rules will limit capacity and opportunity. The new rules could also create the perverse incentive for institutions to discriminate against lower income students or anyone who might be a credit risk. This would be a bitter pill to swallow since many of these same individuals probably have the most to gain.

    • Insufficient Analysis: The proposed regulation would introduce far-reaching changes with repercussions for both students and employers but the Department lacks sufficient data to assess the full impact of this complicated and confusing regulation on the economy, students, and the broader system of higher education. There also remain unanswered questions about how public institutions could absorb so many displaced students at a time of declining public funding

    • Targeting the Wrong Problem at the Wrong Time. The Administration’s concern for unwieldy debt is also laudable, but the focus of such effort should be on housing. As the Federal Reserve Bank of New York's report on household debt and credit shows, the major debt challenges are not student loans, but rather mortgages which account for 74% of all household debt. More than 24% of all residential mortgages are in negative equity – meaning they owe more than their house is worth – and more than eight million home loans are in delinquency, default or foreclosure. This is not only slowing the broader economic recovery but it also contributes to lower repayment rates on other forms of debt, such as student loans, especially as individuals shift more of their income to mortgage payments to prevent foreclosure. If helping individuals manage unwieldy debt is a concern, the Administration should focus their efforts here, especially after so many have acknowledged that the HAMP program has failed to provide any meaningful assistance.

    For all these reasons, it is not surprising that the proposal has attracted broad, bipartisan opposition ranging from students, to brigadier generals, to the Rev. Jesse Jackson. More than 80 members of Congress, including members of the Congressional Black and Hispanic Caucuses, have expressed concerns. The U.S. Chamber of Commerce argued that the “Administration is attempting to regulate America into an economic recovery and causing tremendous uncertainty in yet another sector of the economy.” Local chambers in innovation centers such as Silicon Valley and Redmond, Washington have expressed concerns that the regulation could hurt our nation’s global competitiveness. And more than 80,000 individual comments were filed, the most in the Department of Education’s history.

    The Administration should delay enacting this regulation. At minimum, more time should be given until there is better data upon which to craft a proposal and assess its full effects, especially because of the number of aspiring students and job seekers that would be impacted during very challenging economic times. The Administration should also look for ways to encourage more private sector investment in our education system, not less, particularly in developing the job training programs needed to keep our nation’s innovation edge. And any discussion of quality must include all segments of the system, not just the career colleges.

     

    (Full disclosure, we work with a number of groups involved in both for-profit higher education as well as community colleges and public institutions of higher education.  We also work with investors who have been tracking higher education regulations). 

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  • By John Bailey
    September 9, 2010

    NASFAA recently released a summary (pdf) of the Department's proposed Gainful Employment regulation.  And today is the deadline for public comments.  So far, more than 8,000 comments are already listed over at Regulations.gov but the actual number could be more than 45,000 according to some reports.  

    Lots of comments from students but also a number of local Chambers of Commerce raising concerns about the impact of the reg given the weak economy and need for job training.  Also a surprising number of comments submitted by members of congress and state legislators.  CCA also submitted a comment suggesting the comment period be extended to 90 days since the Department didn't release all the data at the beginning of the process.  Quick timeline for how this has played out over the last 45 days:

    • This version of the Gainful Employment proposal as released on July 23, 2010

    • Officially published in the Federal Register on July 26, 2010

    • The Department releases of data and technical documentation on August 13, 20103

       

    It's doubtful the Department will extend the comment period but it will be an enormous challenge for staff to sift through all these comments over the next few months and also deal with some of the legitimate concerns raised around the complexity of the proposal.  Those interested in K12 education reform need to pay attention to this debate since the politics here will have implications for what happens with ESEA reauthorization next year.  

    Submit comments online by visiting here.

     

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  • By John Bailey
    August 24, 2010
  • By John Bailey
    May 25, 2010

    Whiteboard team members Andy Rotherham and John Bailey recently offered some thoughts in response to the National Journal's Education Experts question:  Should more public school districts look to partner with for-profit EMOs? Does making a profit present a conflict of interest in serving the educational needs of children? Read more

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