Financial Times' John Dizard Misses the Point on Gainful Employment Issue

John Dizard of the Financial Times (“Reform of for-profit US schools could provide valuable lessons”) suggests the new “gainful employment” criteria under consideration by the Department of Education are a necessary step for the sector and ultimately a reliable method to determine the value of our education. Except that they are not. In fact, there are other methods already in place to measure value, most notably, the education marketplace itself. Students currently have a choice about where to seek higher education opportunities and in increasing numbers, they choose career colleges and universities. They do so even when given what, on the surface, seem to be less expensive alternatives. For the non-traditional student looking to obtain the skills training and education necessary for career employment in this deeply challenging economy, career colleges seem to be an awfully popular choice.

There is also the question of what this effort is intended to accomplish that is not already accomplished under the extant system. Nationally accredited colleges, the majority of institutions in our sector, must report and meet retention and job placement rates in order to continue to have their students eligible for federal aid. Traditional colleges and universities report none of this as a condition of Title IV eligibility.

The author also suggests that forcing the gainful employment issue is justified because the taxpayers are ultimately on the hook for federal students loans. He who pays the piper does call the tunes, but Mr. Dizard does not provide an accurate account of student loans repayment and how taxpayers benefit. The overwhelming majority of student borrowers repay their loans with interest (a profit to the government) and, even for those that default, the debt is not simply discharged. The government eventually collects every penny and then some.

Speaking of default rates, there is overwhelming evidence cohort default rates are tied to student demographics, not institutional ownership or quality. Community college students and those who attend minority serving institutions have similar average default rates to those in career colleges. The preponderance of those who default on their loans are those that never completed their course of study. Again, the overwhelming majority of students who do complete their studies ultimately repay their loans, an obvious indication that the outcome sought by the proposed “gainful employment” measurement is already being achieved.

Mr. Dizard’s piece also begs the question: if we are going to measure a return on investment strictly in terms of earnings, why is no one asking that these measures be applied to the other 90 percent of postsecondary institutions? Why single out career colleges for government price controls? While career education is the fastest growing sector of higher education, we are still just a fraction of the whole. Moreover, a new poll by the Higher Education Research Institute at the University of California at Los Angeles finds two-thirds of freshmen say they are either somewhat or very worried about their ability to finance their college educations. If more than 60 percent of the next generation of traditional higher education students are not sure they are going to be able to pay for their degrees, that should set off alarm bells over value in traditional higher education. Perhaps a double standard exists for both higher education students and institutions.

Mr. Dizard believes our schools should look to the pharmaceutical industry for an example of how government regulation helps establish “value for money.” Aside from the economic evidence that drug makers raise prices in anticipation of government price-fixing, the longstanding reality is that career colleges are indeed price sensitive and market driven. Institutions unable to adapt to changing markets or focused on obsolete career programs fail and close. This “natural selection” is based on reputation, word of mouth among students and employers, and the ability to meet specific educational outcomes. Suggesting onerous regulations could be responsible for the success of the career higher education sector is getting the facts and logic precisely backwards: our schools have succeeded despite bureaucratic hurdles. Adding more may jeopardize the ability of students to tap the many benefits of career education.

Finally, and not insignificantly, Congress has never given the Department of Education authority to fix prices for higher education. On the contrary, Congress, while both under Republican and Democratic majorities, has consistently rejected that approach. If the Department thinks higher education prices controls is a good idea, they should recommend it to Congress, have the appropriate legislative consideration, and see what our elected officials decide.