8/19/13

A Perfect Storm for Higher Education in America

Charles J. Parrish Professor and President Wayne State University AAUP-AFT Local 6075 First Presented at the Annual Meeting, American Association of University Professors, Washington D.C., June, 2013 (Revised Version, August, 2013)

Rise of New Forces in Higher Education

S

The modern era has seen the rise in forces that together spell trouble for American higher education as it has existed over the past fifty years. The system that evolved in the period that became established in the era of the World War II G.I. Bill, is under an unprecedented threat from forces that are not well understood. This system has consisted of:
S S

Private elite institutions funded by high tuition and large endowments. State universities funded by the tax payers of each state and student tuition, a significant portion of which comes from federal financial aid sources. Research is activity of these institutions, much of it funded externally. Private small colleges that are primarily funded by tuition, a significant portion of which comes from federal financial aid sources. A system of state and local community colleges funded by a combination of state revenues and often local taxes and tuition, a significant portion of which comes from federal financial aid sources. A number of for-profit institutions that have recently expanded in size and number and are almost entirely funded from federal financial aid sources.

S S S

Each of these groups of institutions operate in different, but interconnected, political arenas.

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Rise of New Forces in Higher Education

S The large private institutions and the state institutions do

most of the nations research, both funded and unfunded. S This system is being reshaped by strong influences from various quarters. The only sector that has been relatively unaffected has been the system of private elite institutions. Ironically, they are the source of many of the MOOCs (Massive Online Open Courses) that have stirred so much interest and controversy. S The sources of the attacks on the existing system of higher education is coming from the natural operations of various actors and forces with interests in specific aspects of the higher education system.

Sources of Serious Attacks on the Higher Education System

For-profit institutions Venture capital funded

education corporations

University administrators Changes in budget

priorities by state governments Student tuition problems Liberal reformers

The expansion in virtual online education (including MOOCs) Conservative attacks on unions (of teachers) from ALEC and their allies The Obama-Duncan educational policies The educational foundation world

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The Future of American Higher Education

S In summary, there are political forces working to change our system of higher

education:
S States have reduced their support for higher education as they have cut taxes and

have had to fund expanding costs for corrections and Medicaid. Increasingly, undergraduate student tuition has become a more and more important source of funding of our public universities and colleges. S As tuition rises as a necessary substitute for state funding, those paying it, primarily students and their families and the federal government, are raising significant objections to the increasing costs of tuition. The dramatic rise in student debt has created political pressure to find ways to limit the cost of tuition in state legislatures, Congress and the Executive Branch. S There are ideological pressure from Tea Party politicos, plutocrat philanthropists and foundations S Emerging, and continuing to evolve, is a complex situation of economic crisis in higher education.

The Rise of the For-Profits

S Beginning in the G.W. Bush Administration entrepreneurs, from former

political appointees to hedge fund managers, discovered the lucrative world of federal and state funding of K-12 and higher education.
S Led by the Apollo Corporation (University of Phoenix) and other

educational corporations, often with Wall-Street investors money, many firms charged into the field and expanded rapidly using modern marketing techniques to recruit students eligible for federal financial aid.
S The for-profit institutions expanded rapidly by convincing unsophisticated

students that through them they could acquire skills that would assure them of good-paying jobs. As a result of their marketing to nave lowerincome prospects, within a few years they enrolled about 10% of all higher education students, and they were rewarded by getting 25% of all Title IV dollars (Pell Grants and Stafford loans). (See, Harkin Report, U.S. Senate, 2013)

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The Rise of the For-Profits

S In 2009, the Apollo Corporation (The University of Phoenix), the

largest for-profit educational institution, received $1.1 billion in tuition income from federal Title IV sources, but spent only $100 million (9%) on instruction. The rest went to high-pressure recruiting activities, administration and profits. IV sources. Apollo collected $1.1 billion in Pell Grants alone in 2010.

S In 2010, Apollo reported that 85% of all income came from Title

S In 2010, Apollo booked 27% of income as profits. S The debt among students of for-profit institutions is much higher

than among those attending public institutions, aggravating the political crisis related to the high level of student debt.

Apollo Executive Compensation

Executive John G. Sperling Joseph L. D'Amico Brian L. Schwartz William J. Pepicello Charles B. Edelstein Gregory W. Cappelli Total Compensation Title Founder and Chairman President and COO Senior VP and CFO President, University of Phoenix Co-CEO Co-CEO 2009 Compensation $8,617,597.00 $5,115,263.00 $2,345,379.00 $2,035,470.00 $1,800,000.00 $1,659,712.00 $21,573,421.00 2010 Compensation $6,963,239.00 $5,500,246.00 $2,369,601.00 $2,035,470.00 $1,636,950.00 $1,659,712.00 $20,165,218.00

Gregory W. Cappelli received $21.1 million in compensation in 2011 (Harken Committee Report, Apollo Group Inc., p. 280)

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Rise of the For-Profits

S The foregoing is but the tip of the for-profit iceberg. S Bridgepoint Corporation established by Warburg Pincus, a private

equity firm in 2003, purchased a failing college (Franciscan College of the Prairies with 312 students), got its regional accreditation and changed its name to Ashford University.
S Through vigorous marketing it expanded the number of students

enrolled online to 77,000 by Fall, 2010. It got over half a billion dollars in income from Title IV sources in 2010. It paid its Chief Executive, Andrew Clark, $20 million.
S Ashford University was accredited by the Western Association of

Schools and Colleges, July 13, 2013.

Attempting to Regulate the For-Profits

S The Harkin Committee Report states (p. 296) that: S Between 2001 and 2010, the share of Federal financial aid flowing to

for-profit colleges has increased from 12.2 to 24.8 percent and from $5.4 to $32.2 billion. Together, the 30 companies investigated by the committee derived 79 percent of revenues from Federal student aid funds in 2010, up from 69 percent in 2006.
S The DOE rules say that no institution shall get more that 90% of its

revenues from Title IV sources, but all of them receive funds from the post-9/11 G.I Bill and from tuition aid for active military enrolled in these institutions. These funds are counted in the matching 10%. Attempts to change these rules brings out legions of lobbyists who get a receptive hearing in Congress and from the Department of Education rule makers.

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Venture Capital Education Corporations

S The foregoing provides a few examples of how venture capitalists have

sought profits out of higher education. These influences are related to the assault on K-12 public education by similar financial institutions.
S The ideology of the free market corrupted this process. Conservatives

in state legislatures, Congress and elsewhere have argued effectively, if erroneously, that poor performance in schools is primarily due to bad teachers, protected by union rules, and that what needs to be done is to establish methods to overcome these limitations. These include vouchers given to students families to pay for education, the expansion of charter schools, the measurement of teacher performance by testing students (No Child Left Behind), the abolition of teacher tenure and similar reforms.

Venture Capital Education Corporations

S The rapid expansion of for-profit educational corporations to

address K-12 education is an example of how the smell of money drives the venture capital world.
S The proposals of the American Legislative Council (ALEC),

funded primarily by the Koch brothers has played an important role in the expansion of legislation at the state level of these kinds of reforms. The attack from this quarter seems to stem from the deep antagonism of the Koch brothers to teachers unions.
S ALEC has recently turned its attention to higher education with a

similar destructive intent. (See: Vickie E. Murray, 10 Questions State Legislators Should Ask About Higher Education, ALEC, 2011)

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University Administrators
S Benjamin Ginsberg, in his book, The Fall of the Faculty: The

Rise of the All-Administrative University and Why it Matters (Oxford, 2011) makes a convincing argument that central role of administrators in making institutional decisions has given rise to the expansion of the numbers and activities of administrators, and the professionals who work primarily for them, at the expense of the faculty in higher education. numbers of administrators at a much faster pace than the expansion of faculty. From 1975 to 2005, the number of faculty members expanded by 51%, while the number of administrators expanded by 85% and the number of professionals, who report to senior administrators, in higher education expanded by 240%.

S Ginsberg documents this process, pointing out the rise in the

Faculty, Administrators, Professionals: 1975 and 2005

1975 2005

23% 14% 63%

Faculty Administrators Professionals

40%

47%

Faculty Administrators Professionals

13%

Ginsberg, p.25

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The Increase in Part-Time Faculty

S Ginsberg observes, as have many others, that

administrators frequently tout the fiscal advantages of using adjuncts. In 2005, half of the teaching faculty were adjuncts and, as we all know, that number has risen since then.
S The increasing reliance on poorly paid adjuncts is one

by-product of the cuts that have taken place in state budgets in higher education as the fiscal pressures have expanded on state governments; expanded online courses in various forms is becoming another.

The Changing Business Model of Public Universities

S Where once the business model of public universities

involved essentially income primarily from state budgets and secondarily from tuition, today for many public universities that model has been turned on its head.
S The increasing reliance on tuition has increased the

cost to students of going to the university. For low income students there is financial aid plus loans. For middle class students there are loans and whatever resources their parents can come up with.

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The Changing Business Model of Public Universities

S The result of this is that student debt is presently

approaching $1.1 trillion in the country. The average student debt on graduation is about $25,000, with many accruing greater debts than that and, given the contracting job market opportunities, are so large that they will spend much of their lives paying them off. In the expensive for-profits, the student debt burden is much higher. to entertain alternative ways to deliver high education instruction cheaply. Online virtual instruction is at the top of the list for many of them.

S The increasing student debt situation has aroused politicians

Online Education
S The virtual Western Governors University, to which 19 state governments

now subscribe, presently enrolls 35,000 students online.

S An obstacle for-profit virtual education providers is that they are

hamstrung by the DOE requirement that students receiving federal financial aid register for 12 credit hours in order to qualify. DOE has become increasingly willing to accommodate them.
S Virtual education institutions would like to emphasize competencies

rather than credit hours. This creates problems for for-profit institutions that depend for their livelihood on federal financial aid and, additionally, for their students in transferring credits to traditional institutions.

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A New Business Model?

S The governors of the states supporting WGU enlisted the support

of congressional delegations to ease life for online education institutions.

S In 2005, Congress passed a provision to change the eligibility for

financial aid from requiring that students register for 12 credit hours each semester to allowing enrollment in competency courses to be counted in applying for financial aid.

S Although WGU has not taken advantage of this so far, there are

online universities, such as Southern New Hampshire University (SNHU) that are rushing to do so with the loosening of the credit hours standard for financial aid. SNHU is spending $20 million annually advertising. It has also marketing to companies for their employees, the College for America, in which credit hours dont count at all. Only competencies count, 120 of which gets you a degree.

A New Business Model?

S The business model of the not-for-profit SNHU and for-

profit online institutions is similar. Rock bottom budgets for instruction, a sizeable revenue stream from federal Title IV funds, and heavy spending on marketing. lobbying. The Washington Post reported that since 2007 the for-profit institutions spent about $40 million on lobbying in Washington. The Apollo Corporation spent $1 million and Kaplan (that owns the Washington Post) spent $1.4 million in 2011 on lobbyists. This is one of the key reasons that they have been so successful in getting their way on important policy issues.

S The for-profits also spend a huge amount of money on

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A New Business Model?

S The President of SNHU, Paul LeBlanc, recently told

BloombergBusinessweek that currently the university is projecting a $29 million profit from its online college (a 22 % margin). LeBlanc intends to recruit a regular faculty of 25 full-time professors. However, it primarily recruits, however, part-time instructors, called subject matter experts, at $2,500 per course, to actually handle the teaching. online strategy, LeBlanc has been deeply influenced by the ideas of Clayton Christensen, the Harvard Business School professor who coined the phrase disruptive innovation to describe the process by which companies at the bottom of the market use new technologies to displace more established competitors. In Christensens view, higher education, with its skyrocketing costs, is ripe for a revolution; he predicts that in 15 years, half of all universities will be out of business.

S BloombergBuinessweek states that, As the architect of the universitys

The Political Context: The Obama-Duncan Approach

S The Executive Branch has been busy providing leadership to the

expansion of virtual education in higher education, presumably, to cut the costs of tuition in universities and colleges. Union address. His basketball buddy, Arnie Duncan, as Secretary of Education, has been a tireless supporter of virtual education at both the K-12 and the higher education levels. This has primarily been part if his privatization thrust in education.

S President Obama mentioned this initiative in his last State of the

S The effort at SNHU has been praised and encouraged by the

leadership at DOE. In a recent speech, Secretary Duncan stated that the competency approach needs to be encouraged. He said: While such programs are now the exception, I want them to be the norm.

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The Obama-Duncan Approach

S The Chronicle of Higher Education (July 19, 2013) has documented the

close interconnection between the various actors in the policy arena within which policies affecting higher education are played out. Representatives of the foundations funding the educational reforms meet regularly with Department of Education officials, give policy briefings to Washington insiders, lobby congressional staff members, etc. In short they do all the things that lobbyists do to push the policies they endorse. governmental officials who are part of what it termed A Realm of Influence. Eleven of these officials were connected to the Gates Foundation. The Lumina Foundation recruited Zakiya Smith, the presidents top higher-education adviser, and Julie Peller, a key Democratic congressional aide, to head up its new Washington office.

S The Chronicle named 16 senior foundation, non-profit, and/or

Obama and Other Liberal Reformers

S The New America Foundation (NAF) is one of the institutional

voices pushing the competency approach. Its higher education department has launched volleys against the system of credit-based rather than competency-based accreditation. The NAF board of directors is filled with heavy hitters in the financial world, including a number of hedge fund managers, Google Chief Executive, Eric Schmidt, and news-media star Fareed Zakaria. toward greater online education. Amy Laitenen, its Deputy Director for Higher education, served as a policy advisor in the White House and in the same role to an undersecretary at DOE before moving to NAF. She is a champion of the movement to sever the tie between credit hours and Title IV financial aid and supports giving that aid to online students pursuing competencies rather than credit hours at institutions like Southern New Hampshire University.

S The NAF Education Policy Staff has tirelessly supported the move

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The Foundations
S Diane Ravich has called it the Billionaire Boys Club in

describing the manner in which Bill Gates, Eli Broad, the Walton Foundation and others have invested themselves and their money in the reform of the public education system, supporting the expansion of charter schools, vouchers, teacher testing, etc.

S Higher education has not escaped the notice of the Club. S The Chronicle of Higher Education points out that the Gates

Foundation has spent almost half a billion dollars in Remaking Higher Education in the past five years. (July 19, 2013)

The Foundations
S The Gates foundation wants nothing less than to overhaul higher

education, changing how it is delivered, financed and regulated. (Chronicle, July 19, 2013, p.A19) Presently, the foundation is in the fifth year of a 20-year program of spending to further this goal.
S The Chronicle concludes that there is an unusual consensus has

formed among the Obama White House, other private foundations, state lawmakers, and a range of policy advocates, all of whom have coalesced around te goal of graduating more students, more quickly, and at lower cost, with little discussion of the alternatives.(Ibid) It also note that the Gates Foundation has subsidized media outlets that cover higher education, including two contracts amounting to $850,000 with the Chronicle.

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The Impact of MOOCs

S The future of Massive Online Open Courses (MOOCs) is in the view of

some the future of higher education: Innovation cheerleaders and flatworlders like Thomas Friedman and Clay Shirky are very excited, for they have seen the future of academe, and it consists of MOOCs. They happily envision open and affordable online access to dynamic, learned professorsthe kind once available only to students paying tens of thousands of dollars in tuition at places like Harvard and Stanford. MOOCs will democratize education, they say, creating a more equal and consumer-friendly world. Patrick J. Deneen,We're All to Blame for MOOCs. Chronicle of Higher Education. June 3, 2013 the more notable of these was his cheerleading for Bushs Iraq invasion. But you dont have to search among fatuous journalists to find those who see the future of higher education entwined with MOOCs. If it is, the consequences will be severe, particularly for mid-range public research universities.

S Friedman has gone from one enthusiasm to another in his career, one of

The MOOC Political Context

S The world of MOOCs is evolving daily. The President of San Jose

State University has announced, to the dismay of many of its faculty members, a commitment to the use of MOOCs at his institution to augment the institutions curricular offerings. It is intended to cut costs and the need for tenured and tenure-track faculty members. issue by providing proctoring for exams for those enrolling in MOOCs. Clearly, this process will be seen as a way to cut faculty costs. There have been objections from the faculty, but the University is proceeding with its MOOC program. Jose State and of Southern New Hampshire, and Kevin Carey of the New America Foundation (NAF) was presented at the Newseum in Washington D.C. in July, 2013.

S San Jose State is committing to a system of addressing the credentials

S A program boosting online courses featuring the Presidents of San

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The New Educational For-Profit Entrepreneurs

S New corporations have been created to provide prepackaged courses to universities. S Coursera, founded by two Stanford professors and funded by venture capitalists, is on a

mission to provide universities with cheap courses taught online by senior faculty members at elite universities. Its advisory board is replete with provosts from elite universities. Cousera recently announced that is has cut deals with 62 institutions across the world, including 10 state-wide university systems, including the SUNY system.

S Coursera has had five of its courses approved for credit by the American Council on

Education (ACE). Coursera says charges will range from $60 to $90 for the proctored exam and $30 to $99 for the Signature Track. As a result, ACE credit recommendations for the equivalent of two to three college credits per course will have a total cost of between $90 and $190. Once thats done, students who complete a pre-approved course can request a transcript with credit recommendations from ACE, which they can then present to a college or university of their choice for prerequisite or undergraduate credit consideration.( http://thenextweb.com/insider/2013/02/07/)

New Educational Entrepreneurs

S Coursera is not the only corporation planning to offer cheap

for credit courses. Udacity, was also founded by Stanford professors, Sebastian Thrun, and Mike Sokolsky. It plans on marketing course packages that cost $5,000 to $10,000 to develop and will pay $2,500 to those who teach them.
S Many university administrators will love the Udacity deal.

Their institutions can save money and they dont even have to hire adjuncts, who might organize themselves into unions to improve the starvation wages they are presently paid. That would be a problem for the private companies who actually hire the part-time subject matter experts.

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Entrepreneurial Pothole
S The purchase of online courses to be used by universities is

already proving to be problematic. In the Udacity Remedial/ Developmental Math course there was a disappointing 29 percent pass rate compared to an 80 percent pass rate in the regular faceto-face SJSU course. in the online College Algebra course, only 44 percent of San Jose students achieved the required C pass rate compared to a 74 percent C pass rate in the face-to-face version. Here again, only 12 percent of non-SJSU students in the online version achieved a C. MOOC Mashup: San Jose State University -- Udacity experiment with online-only courses fizzles San Jose Mercury News (7/19/2013)
S San Jose States first effort under the agreement with Udacity has

been suspended for now.

The Future
S Kevin Carey, the Director of the Education Policy Program for NAF, and a

enthuastast for the electronic transformation of American higher education, summarizes his vision of the future in the following way: S Political pressure will continue to grow for credits earned in low-cost MOOCs to be transferable to traditional colleges, cutting into the profit margins that colleges have traditionally enjoyed in providing large, lecturebased college courses. At the same time, people with huge student loan burdens from overpriced institutions will be undercut in the labor market by foreign-born workers willing to work for less because they incurred no debt in getting valuable credentials in the parallel higher education universe. Colleges with strong brand names and other sources of revenue (e.g., government-sponsored research or acculturating the children of the ruling class) will emerge stronger than ever. Everyone else will scramble to survive as vestigial players. The Washington Monthly (5/24/13)

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Coursera Announcement
The big news is that we have begun working with 10 US state university systems and public schools to explore the possibilities of using MOOC technology and content to improve completion, quality, and access to higher education, both across the schools combined audiences of approximately 1.25 million physically enrolled students and among Courseras global classroom of learners. Heres a full list of the new institutions that are joining Courseras platform:
The State University of New

York (SUNY) Tennessee Board of Regents University of Tennessee System University of Colorado System University of Houston System

University of Kentucky University of Nebraska University of New Mexico University System of Georgia West Virginia University

Summary
S The future of higher education is looking bleak as the various relevant forces

at work pursuing their own agendas proceed.

S Online education, particularly the spread of MOOCs, will undermine

regular on-campus class offerings as the university administrations embrace them as cost-saving devices.
S State university administrators will continue to cut costs as state education

budgets shrink through the hiring of adjuncts instead of costly tenure-track faculty and the contracting with for-profit providers of MOOC-type courses.
S The federal government will continue to push the expansion of virtual higher

education to spread the federal education support student-aid funds farther.

S For-profit institutions will continue to grow. Stuart Eismen predicts that they

will garner over 40% of the federal Title IV funds within 15 years.

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The Perfect Storm

S The Perfect Storm in which higher education is now finding itself is one that

threatens, in particular, public research universities. The policies that are being sought by the Gates, Kresge and Lumina foundations and their allies in government focus primarily on the costs of higher education. They are cocksure in the knowledge that they have the answers. Professor Stanley N. Katz, Director of the Center for Arts and Cultural Policy Studies at Princeton complained that although new to studying higher education, the Gates Foundation thinks it knows how to solve its problems. Theyre making a priori judgments and theyre pouring a lot of money into college completion Strategic Philanthropy Comes to Higher Education, Chronicle of HigherEducation (July 19, 2013 p.A26), If they succeed in the implementation of their proposals, they well may destroy the financial underpinnings of public research universities. research that wins external grants in this Brave New World. Too often some, both within and outside the academy, consider research grants as if they are contracts won by a profit-making firm. They see the overhead provided by agencies, such as the NIH, as comparable to a firms profit. Nothing could be further from the truth. Every successful research institution must invest it own budgetary resources to maintain its research infrastructure. With student tuition drying up, where will the funds come to support these investments in research? State Legislatures are running, not walking away from funding their research universities.

S Research universities will face threats to the infrastructure necessary to do the

The Perfect Storm

S The system that has evolved to support public higher education faces a

future of piecemeal destruction as collateral damage in the policy battle over cutting tuition costs, shortening years to degree, substituting competencies for credit hours, offering online education, and implementing the various attendant reforms advocated within the echo chamber of the higher-education philanthropy world. Rip Rapson, President of the Kresge Foundation stated: If they seem like an echo chamber after hearing about the Gates Foundations expansive and compelling work, this is entirely intentional. (In the Foundation Echo Chamber, Chronicle of Higher Education, July 19, 2013 p.A23). The higher education foundation world has altered its focus in the last decade to emphasize broad-scale higher-education issues such as completion, productivity, and technology. (Ibid.) and greater reliance on student tuition as a major source of revenue, the reform efforts envisions a virtual revolution of our higher education system that will cut the cost of education drastically is a dagger at the heart of the public research university.

S As States continue to cut budgets for higher education and force a greater

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The Perfect Storm

S The decline of the commitment to research in the United State has been noted by many

observers. The Information and Technology Innovation Foundation issued a study in which it was noted that it is troubling that in 2008 the United States ranked 22nd out of 30 countries in government-funded university research and 21st in business-funded university research. Moreover, we are falling even farther behind. (Robert D. Atkinson and Luke A. Stuart, University Research Funding: The United States is Behind and Falling, (May, 2011)) of the world, 20 years of underfunding by state governments have meant that many public research universities have fallen in their capabilities relative to private research universities. And while our research universities, public and private, are still a key strength, their future is uncertain given the large cuts in state higher education budgets and slow growth in federal support for university research.

S As Atkinson and Stuart note: While our public research universities used to be the envy

S It is ironic and sad that the major reform proposals by leading foundation and

governmental reformers in higher education, if adopted, will lead to a further deterioration of the already declining research capabilities of our country. As the saying goes, The road to Hell is paved with good intentions.

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