Thursday, February 26, 2009

Battening down the Education Hatches

Educational Testing Service has released its report "America's Perfect Storm," on the grim state of education in the U.S. Today I went to a conference at ETS , sponsored by the Greater Philadelphia Chamber of Commerce and other chambers, that explored survival tactics.

A couple of excerpted stats:

Elizabeth Maher Muoio of the Mercer County Office of Economic Development and Sustainability, quoted stats saying that a 10 percent increase in capital brings a 3.4 percent increase in productivity, a 10 percent increase in hours brings a 6.3 increase in productivity, but a 10 percent increase in education results in an 11 percent increase in productivity.

Edward Kurocka of Mercer County Workforce Investment Board and OnSight Advisors, quoted the equation "Ability plus motivation equals performance," and noted that if students don't have motivation, the results are zero.

Mark Schweiker, CEO of the Greater Philadelphia chamber, plumped for more emphasis on vocational training, not trying to shunt all the students into an academic track.

Kurocka said, afterward, that the real problem is guidance counselors who devote all their attention to the college bound. For more, see

Wednesday, February 25, 2009

Excerpt from President Obama's Address to Joint Session of Congress 2-24-09

In a global economy where the most valuable skill you can sell is your knowledge, a good education is no longer just a pathway to opportunity - it is a pre-requisite.

Right now, three-quarters of the fastest-growing occupations require more than a high school diploma. And yet, just over half of our citizens have that level of education. We have one of the highest high school dropout rates of any industrialized nation. And half of the students who begin college never finish.

This is a prescription for economic decline, because we know the countries that out-teach us today will out-compete us tomorrow. That is why it will be the goal of this administration to ensure that every child has access to a complete and competitive education - from the day they are born to the day they begin a career.

Already, we have made an historic investment in education through the economic recovery plan. We have dramatically expanded early childhood education and will continue to improve its quality, because we know that the most formative learning comes in those first years of life. We have made college affordable for nearly seven million more students. And we have provided the resources necessary to prevent painful cuts and teacher layoffs that would set back our children's progress.

But we know that our schools don't just need more resources. They need more reform. That is why this budget creates new incentives for teacher performance; pathways for advancement, and rewards for success. We'll invest in innovative programs that are already helping schools meet high standards and close achievement gaps. And we will expand our commitment to charter schools.

It is our responsibility as lawmakers and educators to make this system work. But it is the responsibility of every citizen to participate in it. And so tonight, I ask every American to commit to at least one year or more of higher education or career training. This can be community college or a four-year school; vocational training or an apprenticeship. But whatever the training may be, every American will need to get more than a high school diploma. And dropping out of high school is no longer an option. It's not just quitting on yourself, it's quitting on your country - and this country needs and values the talents of every American. That is why we will provide the support necessary for you to complete college and meet a new goal: by 2020, America will once again have the highest proportion of college graduates in the world.

I know that the price of tuition is higher than ever, which is why if you are willing to volunteer in your neighborhood or give back to your community or serve your country, we will make sure that you can afford a higher education. And to encourage a renewed spirit of national service for this and future generations, I ask this Congress to send me the bipartisan legislation that bears the name of Senator Orrin Hatch as well as an American who has never stopped asking what he can do for his country - Senator Edward Kennedy.

These education policies will open the doors of opportunity for our children. But it is up to us to ensure they walk through them. In the end, there is no program or policy that can substitute for a mother or father who will attend those parent/teacher conferences, or help with homework after dinner, or turn off the TV, put away the video games, and read to their child. I speak to you not just as a President, but as a father when I say that responsibility for our children's education must begin at home.

Also included in the recovery plan is a $2,500 tax credit for all four years of college for families struggling to pay tuition costs.

Saturday, February 14, 2009

The Coming College Bubble?

Maurna R. Desmond

America's undercapitalized independent schools could be the next industry to pop.

In June, 157-year-old Antioch College decided to "suspend operations" at its flagship campus despite a push from alumni to rescue the flailing institution. At that point, only 60 students were enrolled, and their $40,000 per year tuition was being heavily subsidized by Antioch's five newer campuses.

Antioch Chancellor Toni Murdock said the plug had to be pulled. "It was a downward spiral where fewer students led to fewer professors, and eventually the deficit was projected to be so large that the other schools no longer wanted to subsidize their mother school."

They may soon have company. Home builders and banks aren't the only ones facing economic headwinds these days. America's undercapitalized independent colleges are staring at a spiral of major threats to solvency as penny-pinching students and parents consider cheaper options, and funding sources dry up. As a result, they could be the next bubble industry to pop.

The crush is coming fast. According to a September 2008 study by the National Association of Independent Colleges and Universities, of the 504 member institutions surveyed, one-third said the credit crunch had hurt enrollment, and about a fifth of respondents said they had fewer returning students than expected. Roughly the same number said they had a smaller incoming freshman class than expected.

But while head counts slide, needs rise. Demand for student aid is up, but charitable donations from foundations and individuals will fall during a downturn. Ditto for investment returns. And thanks to tanking tax revenue, federal aid may take a hit, too. Taken together, many independent institutions start to look vulnerable. "They are financially precarious for sure," says Sandy Baum, a Skidmore College economist and senior policy analyst at the College Board.

"Country Club" Closed?

The crunch will be particularly bitter for the institutions that drained coffers to build "country club colleges" complete with luxury dormitories, spas and top of the line sports complexes to lure choice students, hoping that a sharper crowd would lead to more accretive diplomas, entering a profitable cycle of more successful alumni and increased donations.

Comment On This Story
Many had little choice. "If a college decides we're not going to have fancy dorms or build a shiny new gym, students are not going to that college," says Baum. "People are not choosing the lowest price college, and that's a consumer issue, not a public policy problem."

Adds William Powers, the president of the University of Texas at Austin: "The market is choosing quality regardless of incremental costs."

Blowing Bubbles

This is at a price. College tuition has increased by more than three times the rate of inflation for the last 20 years, despite U.S. wages flat-lining since 2000. The average tuition at a private four-year institution grew 6.6% year-over-year in 2007 to $23,712, according to the College Board. This is pricey in itself, but when you add in all the luxe living expenses, the total bill touches $50,000 a year at the high end.

To the chagrin of financial advisers, students are increasingly turning to higher interest private loans to meet the burgeoning college bill. Private loans made up 24% of total education loans in 2006-07, up from 6% a decade ago. In 2008, students secured $20 billion in private loans--amounting to roughly a fifth of total undergraduate borrowings for the year. Taxpayers pony up, too, chipping in an average $4,000 per student through government loans and grants to private institutions, which usually come up with $3,720 in aid (often in the form of discounted tuitions) as well.It's a scenario familiar to anyone who watched the housing bubble blow. "We are at a trend line that cannot be sustained," says Matt Snowling, an analyst at Friedman, Billings and Ramsey, who covers the student loan industry. "Tuition must go down, or there will be limited demand at high-priced private schools."

Not Everyone

Yet for many schools, tuition is the lifeblood of their finances. There isn't much to fall back on. In 2006, the College Board reported the wealthiest 10% of private four-year colleges and universities had an estimated average of about $454,100 in endowments per student, compared to about $15,000 at median institutions.

Larger academic systems with deep capital reserves, like the University of California or the 28 Jesuit institutions in the U.S., are in much better shape. At UT Austin--a public university in a state with a $12 billion budget surplus and a football program that brings in $5 million a year--the only cuts Powers is looking to make involve thinning out the number of five- and six-year undergraduate seniors on his campus. Getting students to graduate "expeditiously" saves a bundle, he says.

Consolidation Is Coming

Private colleges will be the next fragmented industry to consolidate as a result of this over-expansion, says Terry McCarthy, a managing director at executive search firm Horton International, in much the same way large hospital groups rolled up smaller and weaker rivals in the 1990s.

Absorption by stronger and possibly more academically recognizable universities will be good news for some schools. The trouble, he says, is that students who hold diplomas from the then defunct universities will risk a "loss of recognition" in their quality of education.

Others will fight the trend, too. "Particularly for schools that are financially weak, you might see some mergers," says Joel Seligman, president at the University of Rochester. "But faculty who are powerful at universities resist mergers because they have a lot to lose."

Resistance may prove difficult. Pinched students and parents are likely to be more curious about whether prospective institutions are at risk of going bust. Expect to see college marketing materials with increased emphasis on growing enrollment, robust endowments and healthy long-term financial prospects.

Antioch's Murdock sees opportunity in the troubles ahead. "Now we're developing a growth move because of the programs we offer for professional adults," she says. "Perhaps we'll merge with other campuses that are in trouble."

Friday, February 13, 2009

Docs in Hock

David Whelan
Forbes Magazine, February 02, 2009

Once upon a time becoming a doctor meant a lifetime of affluence. These days a doctor is more likely to spend his free moments trying to balance his checkbook or dickering with an HMO over a $35 office visit.

At $250,000 a year on average, according to search firm Merritt Hawkins, doctors earn four times what the typical college grad earns. (Primary care physicians--internists and pediatricians, for example--average $160,000.)

Yet in a recent survey only 18% of physicians termed their practices financially stable. What's making things tougher these days is the liability side of physicians' balance sheets. Doctors are leaving school carrying average debts of $155,000. That's up from an inflation-adjusted $50,000 in debt 25 years ago and represents eight times the debt load of the typical college graduate. Doctors' debt has jumped from 20% of their average pay to 60% today.

That adds up to very sobering financial prospects for doctors interested in the profession's lower-paying specialties. Intent on becoming a primary care physician, Linda McGee decided to let the National Health Service Corps pick up the $32,000 annual tuition for three of her four years at Wake Forest's medical school. In return McGee was required, after completing her residency in 1999, to work for three years in an underserved area of Hagerstown, Md., where she earned $110,000 a year.

It was a financial stretch given that McGee left school with $80,000 in student debt, even with the Corps' help obtaining her medical degree. After completing her service she remained a family doctor, despite the relatively low pay. A decade out of school McGee still owes $18,000 on her student loans but has no regrets.

"I enjoy being a primary care physician," McGee says.

In many other cases, entire medical careers are shaped by tightening economic realities. Ravi D. Goel, a Cherry Hill, N.J. eye surgeon, racked up $18,000 in debt getting his undergraduate degree from Yale in 1993. He opted for New Jersey's Robert Wood Johnson program because its $14,000 annual tuition was 45% below what private medical schools cost.

Comment On This Story
Goel added $87,000 in debt during medical school. Then came four years of residency, when he earned $35,000 annually. To get by he deferred loan payments. Interest compounded. By the time he completed ophthalmology training in 2001, Goel's bill had ballooned to $130,000.

Fearful of spending his life in debt, Goel went straight into practice rather than pursuing a research fellowship. He consolidated his debt and locked in $105,000 in federal loans at 5.6% over 30 years. He's paying off another $15,000 in Sallie Mae loans over 10 years at a floating rate (currently 4.3%). The remaining $10,000 is split between a rate of 2% from a Florida foundation and 8% from the Medical Society of New Jersey.

Goel, 37, clears around $200,000 a year (before income taxes) and pays $12,000 of it to lenders. He says he's lucky he chose ophthalmology. It would be "crazy" to try to become a primary care physician given today's ballooning debt, he says.

A growing number of medical students who fail to get that message are ending up deadbeat doctors. A government Web site names 119 with $17 million in unpaid federal student loans. The deteriorating economics of medicine has not deterred prospective doctors. Last year 42,000 applied for 18,000 medical school spots.

Subprime Student Loans

Forbes Magazine, February 02, 2009

As college costs have risen at twice the inflation rate, students have resorted to costly private loans. Now rising bad debt is harming borrowers and lenders alike.

The Great College Hoax

Kathy Kristof
Forbes Magazine, February 02, 2009
Higher education can be a financial disaster. Especially with the return on degrees down and student loan sharks on the prowl.
As steadily as ivy creeps up the walls of its well-groomed campuses,the education industrial complex has cultivated the image of college as a sure-fire path to a life of social and economic privilege.

Joel Kellum says he's living proof that the claim is a lie. A 40-year-old Los Angeles resident, Kellum did everything he was supposed to do to get ahead in life. He worked hard as a high schooler, got into the University of Virginia and graduated with a bachelor's degree in history.
Accepted into the California Western School of Law, a private San Diego institution, Kellum couldn't swing the $36,000 in annual tuition with financial aid and part-time work. So he did what friends and professors said was the smart move and took out $60,000 in student loans.

Kellum's law school sweetheart, Jennifer Coultas, did much the same. By the time they graduated in 1995, the couple was $194,000 in debt. They eventually married and each landed a six-figure job. Yet even with Kellum moonlighting, they had to scrounge to come up with $145,000 in loan payments. With interest accruing at up to 12% a year, that whittled away only $21,000 in principal. Their remaining bill: $173,000 and counting.

Kellum and Coultas divorced last year. Each cites their struggle with law school debt as a major source of stress on their marriage. "Two people with this much debt just shouldn't be together," Kellum says.

The two disillusioned attorneys were victims of an unfolding education hoax on the middle class that's just as insidious, and nearly as sweeping, as the housing debacle. The ingredients are strikingly similar, too: Misguided easy-money policies that are encouraging the masses to go into debt; a self-serving establishment trading in half-truths that exaggerate the value of its product; plus a Wall Street money machine dabbling in outright fraud as it foists unaffordable debt on the most vulnerable marks.

College graduates will earn $1 million more than those with only a high school diploma, brags Mercy College radio ads running in the New York area. The $1 million shibboleth is a favorite of college barkers.

Comment On This Story
Like many good cons, this one contains a kernel of truth. Census figures show that college grads earn an average of $57,500 a year, which is 82% more than the $31,600 high school alumni make. Multiply the $25,900 difference by the 40 years the average person works and, sure enough, it comes to a tad over $1 million.

But anybody who has gotten a passing grade in statistics knows what's wrong with this line of argument. A correlation between B.A.s and incomes is not proof of cause and effect. It may reflect nothing more than the fact that the economy rewards smart people and smart people are likely to go to college. To cite the extreme and obvious example: Bill Gates is rich because he knows how to run a business, not because he matriculated at Harvard. Finishing his degree wouldn't have increased his income.

All the while students have been lulled into thinking of the extra $1 million that will be theirs, they have been forced to disgorge an ever larger fraction of it in pursuit of the degree. While the premium that college grads earn over high schoolers has remained relatively constant over the past five years, the cost of acquiring a degree has risen at twice the rate of inflation, dramatically undermining any value a sheepskin adds.

Offsetting that million-dollar income discrepancy is the $46,700 four-year cost of tuition, fees, books, room and board at a public school and $99,900 at a private one--even after financial aid, scholarships and grants. Add all this to the equation and college grads don't pull even with high school grads in lifetime income until age 33 on average, the College Board says. Even that doesn't include the $125,000 in pay students forgo over four years.

"I call it the million-dollar misunderstanding," says Mark Schneider, vice president of the American Institutes for Research, of the prevailing propaganda.

Not only are college numbers spun. Some are patently spurious, says Richard Sander, a law professor at UCLA. Law schools lure in minority students to improve diversity rankings without disclosing that less than half of African-Americans who enter these programs ever pass the bar. Schools goose employment statistics by temporarily hiring new grads and spotlighting kids who land top-paying jobs, while glossing over far-lower average incomes. The one certainty: The average law grad owes $100,000 in student debt.

"There are a lot of aspects of selling education that are tinged with consumer fraud," Sander says. "There is a definite conspiracy to lead students down a primrose path."
Warped as the numbers are, they don't begin to account for the hidden cost of higher education: financing it. Borrowing has doubled over the past decade, to roughly $85 billion in new student loans in the 2007--08 academic year, bringing total student debt owed to well over half a trillion dollars. The average borrower went $19,200 into debt for a diploma in 2004, a 58% increase after inflation since 1993, according to the Project on Student Debt.