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New federal student-loan rules should be based on outcomes, not anecdotes

In case you missed it, 2,500 private-sector college students gathered on the west lawn of the Capitol in Washington, D.C., last week to support their choice in postsecondary education. We were also there, fighting for the future of our students at Herzing University — and for the future of our role as an educational choice in America’s higher education system.

At issue is a new federal Department of Education rule that proposes to hold only private-sector colleges responsible for the future earnings and loan repayment rates of all their students. In reality, the rule looks like a fairly well-laid plan to cripple for-profit colleges and universities like Herzing.
If enacted, the rule could eliminate meaningful programs by denying our students federal financial aid. As potentially damaging as this rule is to private-sector colleges, no data is available to determine the future outcome of the proposed rule, so we don’t even know which programs will be affected.

Let’s be clear. We agree with the concern the department is trying to address. The idea is that students should graduate with jobs that pay enough to enable them to repay their loans. We’re committed to students’ successes, so we would like to be part of any solution that helps further their success.

So what has gone awry?

Based on anecdotal information
The Department of Education proposed a rule based on anecdotal information from 16 unnamed for-profit colleges — information that no one is allowed to examine for accuracy. Worse, the “study” does nothing to compare graduation outcomes or debt levels of our students with public or nonprofit institutions serving similar student populations. It does nothing to reflect the scientific thinking the Department of Education itself is supposed to champion.

Both the “study” and the proposed rule to “fix” the problem ignore what we feel is so obvious:

• Our outcomes at Herzing and most other for-profits are better than the outcomes of many of our public and not-for-profit brethren serving similar students. As a for-profit, Herzing has to be better to stay in business. We aggressively update curriculum so we’re offering cutting-edge degrees in health care, technology, business and public safety. We know our graduates do well because we track their success, where most public institutions do not.

• Our students’ debt-to-salary ratios are reasonable. We take great care to help guide our students in their educational pathways so they are successful when they graduate. And because we’re career and job-oriented, our student’s debt-to-salary ratios are significantly better than that of many institutions. In fact, many private nonprofits charge unfathomably high tuition that has little or no correlation with after-graduation income. Indeed, Harvard Medical School graduates could not pass the Department’s “test.”

• We successfully serve many high-needs students such as adults trapped in low-end jobs, adults working full time, women with children at home — the very people our country would like to see lift themselves up. Our university changes people’s lives, giving them new self-confidence and hope.

• For taxpayers, we’re the best educational deal in America. We don’t require huge taxpayer subsidies or massive tax breaks. Just the opposite. We pay millions of dollars of sales, property and income taxes.

Apply outcome-based rules uniformly
We were in Washington to state the obvious. We were there to push for rules that will help all students.
We need rules based on the outcomes at every type of institution — and rules that are applied uniformly to Harvard, Minnesota State University, our technical colleges as well as for-profit schools.  

Without universally applied rules based on good scientific data, it is hard to see that this is little more than ruling by press release. We need to do better — and we’re willing to be part of the solution.
John Slama is the campus president of Herzing University — Minneapolis. Renée Herzing is the president of the Herzing Educational System.

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Comments (5)

  1. Submitted by Richard Schulze on 10/07/2010 - 06:54 am.

    The overarching problem—and this is something the reform package can’t really address—is that these reforms don’t put downward pressure on the runaway costs of college. Tuition is rising almost everywhere for almost every degree, and faster than inflation.

    Everyone always blames the new gym and the fancy dorms for tuition increases, but at least students are getting something for those expenditures. I’m much crankier about the massive apparatus that colleges seem to need now, whether it be counseling services, student life coordination offices, diversity initiative supervisors, or any of the other make work positions invented to improve the job placement stats for the art history department. My college experience consisted primarily of going to class. People should have their entire life and feelings managed on their own time.

  2. Submitted by Mark Kantrowitz on 10/07/2010 - 07:36 am.

    I was able to identify all of the colleges in the Missouri data set, including the 16 for-profit colleges. See for the list.

  3. Submitted by Vicki Klinowski on 10/07/2010 - 08:36 am.

    Arguments for outcome-based law applied uniformly to all higher education institutions ignore one thing: For-profit schools would not be in business if it weren’t for federal financial aid.

    Between Pell grants and federal student loans, these schools can count on around $13,000 per year, per student. And the rest of their tuition mostly comes from private student loans- either from the schools themselves, or through their partnerships with financial institutions. As long as the federal money is guaranteed and a small percentage of students repay the private loans, these schools can stay in business.

    Can the same be said for public schools or not-for-profits? If federal student aid was pulled from these schools, they would be able to stay in business anyway. They would have to be more restrictive in who they chose to go to their schools, but there would be enough demand for the schools from students who could afford to pay.

    What student who could afford to pay $23,000+ per year out of pocket would choose to go to a for profit school? The demand for these schools is entirely based on federal student aid and they should be held to higher standards for that reason alone.

  4. Submitted by Mike McHugh on 10/07/2010 - 08:06 pm.

    Completely disagree Vicki. Several studies have confirmed that the taxpayer impact of for-profits is lower than non-profits. True, for-profits could not survive without federal financial aid money. Likely true though that non-profits couldn’t either since most of the publics are struggling with state budget cuts. The bigger issue I have as a taxpayer though is that the non-profits get a portion of my local tax dollars and don’t pay any income tax. I have no chance of that money getting repaid, while the for-profits get no tax dollars and do pay income taxes. At least I may get my money paid back by their students. If anything the non-profits should be held to a higher standard because of all the subsidies they get.

  5. Submitted by Daniel Smith on 07/21/2011 - 01:37 am.

    When the federal government spends money, the costs are presented, or “scored”, in the budget on a “cash basis.” This means that if $100 million is spent this fiscal year on a particular program, the cost is reflected in the federal budget as $100 million. Student loan costs, however, are not treated in this manner. The costs of the federal student loan programs are shown in the budget on a “net present value” basis, as per a budget rule enacted in the Federal Credit Reform Act of 1990. The lifetime cost of a student loan is shown in the year that the loan is made. Under net present value budgeting, all future costs are discounted to reflect the time value of money. Even though the loan may be paid back over ten years, any funds that the federal government spends to support the loan over the repayment time are all reflected up front – the year that the loan is made.

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