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S

A Perfect Storm forHigher Education

in AmericaCharles J. Parrish

Professor and PresidentWayne 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 hasexisted 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.

S This system has consisted of:S Private elite institutions funded by high tuition and large endowments.S 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.

S Private small colleges that are primarily funded by tuition, a significant portion of which comes fromfederal financial aid sources.

S A system of state and local community colleges funded by a combination of state revenues and often localtaxes and tuition, a significant portion of which comes from federal financial aid sources.

S A number of for-profit institutions that have recently expanded in size and number and are almost entirelyfunded from federal financial aid sources.

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 domost of the nations research, both funded and unfunded.

S This system is being reshaped by strong influences fromvarious quarters. The only sector that has been relativelyunaffected has been the system of private elite

institutions. Ironically, they are the source of many of theMOOCs (Massive Online Open Courses) that havestirred so much interest and controversy.

S The sources of the attacks on the existing system ofhigher education is coming from the natural operationsof 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 onlineeducation (including MOOCs)

Conservative attacks on unions(of teachers) from ALEC and

their allies

The Obama-Duncan educationalpolicies

The educational foundationworld

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The Future of American

Higher Education

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

S States have reduced their support for higher education as they have cut taxes andhave 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, primarilystudents and their families and the federal government, are raising significantobjections 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 statelegislatures, Congress and the Executive Branch.

S There are ideological pressure from Tea Party politicos, plutocrat philanthropistsand foundations

S Emerging, and continuing to evolve, is a complex situation of economic crisis inhigher education.

The Rise of the For-Profits

S Beginning in the G.W. Bush Administration entrepreneurs, from formerpolitical 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 othereducational corporations, often with Wall-Street investors money, many

firms charged into the field and expanded rapidly using modernmarketing techniques to recruit students eligible for federal financial aid.

S The for-profit institutions expanded rapidly by convincing unsophisticatedstudents that through them they could acquire skills that would assure

them of good-paying jobs. As a result of their marketing to nave lower-

income prospects, within a few years they enrolled about 10% of allhigher 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), thelargest for-profit educational institution, received $1.1 billion intuition income from federal Title IV sources, but spent only $100million (9%) on instruction. The rest went to high-pressurerecruiting activities, administration and profits.

S In 2010, Apollo reported that 85% of all income came from TitleIV sources. Apollo collected $1.1 billion in Pell Grants alone in2010.

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 thepolitical crisis related to the high level of student debt.

Apollo Executive Compensation

Executive Title 2009 Compensation 2010 Compensation

John G. Sperling Founder and Chairman $8,617,597.00 $6,963,239.00

Joseph L. D'Amico President and COO $5,115,263.00 $5,500,246.00

Brian L. Schwartz Senior VP and CFO $2,345,379.00 $2,369,601.00

William J. PepicelloPresident, University ofPhoenix

$2,035,470.00 $2,035,470.00

Charles B. Edelstein Co-CEO $1,800,000.00 $1,636,950.00

Gregory W. Cappelli Co-CEO $1,659,712.00 $1,659,712.00

Total Compensation $21,573,421.00 $20,165,218.00

(Harken Committee Report, A pollo Group Inc., p. 280)

Gregory W. Cappelli received $21.1 million in compensation in 2011

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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 studentsenrolled 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 ChiefExecutive, Andrew Clark, $20 million.

S Ashford University was accredited by the Western Association ofSchools 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 itsrevenues 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 theseinstitutions. These funds are counted in the matching 10%. Attempts to

change these rules brings out legions of lobbyists who get a receptivehearing 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 havesought 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. Conservativesin 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 toaddress K-12 education is an example of how the smell of moneydrives the venture capital world.

S The proposals of the American Legislative Council (ALEC),funded primarily by the Koch brothers has played an importantrole 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 asimilar 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: TheRise of the All-Administrative University and Why it Matters(Oxford, 2011) makes a convincing argument that centralrole of administrators in making institutional decisions hasgiven rise to the expansion of the numbers and activities ofadministrators, and the professionals who work primarilyfor them, at the expense of the faculty in higher education.

S Ginsberg documents this process, pointing out the rise in thenumbers of administrators at a much faster pace than theexpansion of faculty. From 1975 to 2005, the number offaculty members expanded by 51%, while the number ofadministrators expanded by 85% and the number ofprofessionals, who report to senior administrators, in highereducation expanded by 240%.

Faculty, Administrators,

Professionals: 1975 and 2005

47%

13%

40%

2005

Faculty

Administrators

Professionals63%14%

23%

1975

Faculty

Administrators

Professionals

Ginsberg, p.25

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The Changing Business Model

of Public Universities

S The result of this is that student debt is presentlyapproaching $1.1 trillion in the country. The average studentdebt on graduation is about $25,000, with many accruinggreater debts than that and, given the contracting job marketopportunities, are so large that they will spend much of theirlives paying them off. In the expensive for-profits, thestudent debt burden is much higher.

S The increasing student debt situation has aroused politiciansto entertain alternative ways to deliver high educationinstruction cheaply. Online virtual instruction is at the top ofthe list for many of them.

Online Education

S The virtual Western Governors University, to which 19 state governmentsnow subscribe, presently enrolls 35,000 students online.

S An obstacle for-profit virtual education providers is that they arehamstrung 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 competenciesrather than credit hours. This creates problems for for-profit institutionsthat 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 supportof congressional delegations to ease life for online educationinstitutions.

S In 2005, Congress passed a provision to change the eligibility forfinancial aid from requiring that students register for 12 credithours each semester to allowing enrollment in competencycourses to be counted in applying for financial aid.

S Although WGU has not taken advantage of this so far, there areonline universities, such as Southern New Hampshire University

(SNHU) that are rushing to do so with the loosening of the credithours standard for financial aid. SNHU is spending $20 millionannually advertising. It has also marketing to companies for theiremployees, the College for America, in which credit hours dontcount at all. Only competencies count, 120 of which gets you adegree.

A New Business Model?

S The business model of the not-for-profit SNHU and for-profit online institutions is similar. Rock bottom budgets forinstruction, a sizeable revenue stream from federal Title IVfunds, and heavy spending on marketing.

S The for-profits also spend a huge amount of money onlobbying. TheWashington Postreported that since 2007 thefor-profit institutions spent about $40 million on lobbying in

Washington. The Apollo Corporation spent $1 million andKaplan (that owns the Washington Post)spent $1.4 million in2011 on lobbyists. This is one of the key reasons that theyhave been so successful in getting their way on importantpolicy issues.

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A New Business Model?

S The President of SNHU, Paul LeBlanc, recently toldBloombergBusinessweekthat currently the university is projecting a $29million profit from its online college (a 22 % margin). LeBlanc intends torecruit a regular faculty of 25 full-time professors. However, it primarilyrecruits, however, part-time instructors, called subject matter experts, at$2,500 per course, to actually handle the teaching.

S BloombergBuinessweekstates that, As the architect of the universitysonline strategy, LeBlanc has been deeply influenced by the ideas ofClayton Christensen, the Harvard Business School professor who coinedthe phrase disruptive innovation to describe the process by whichcompanies at the bottom of the market use new technologies to displacemore established competitors. In Christensens view, higher education,with its skyrocketing costs, is ripe for a revolution; he predicts that in 15years, half of all universities will be out of business.

The Political Context:

The Obama-Duncan Approach

S The Executive Branch has been busy providing leadership to theexpansion of virtual education in higher education, presumably,to cut the costs of tuition in universities and colleges.

S President Obama mentioned this initiative in his last State of theUnion address. His basketball buddy, Arnie Duncan, asSecretary of Education, has been a tireless supporter of virtualeducation at both the K-12 and the higher education levels. Thishas primarily been part if his privatization thrust in education.

S The effort at SNHU has been praised and encouraged by theleadership at DOE. In a recent speech, Secretary Duncan statedthat the competency approach needs to be encouraged. He said:While such programs are now the exception, I want them to bethe norm.

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The Obama-Duncan Approach

S The Chronicle of Higher Education (July 19, 2013) has documented theclose interconnection between the various actors in the policy arenawithin which policies affecting higher education are played out.Representatives of the foundations funding the educational reformsmeet 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 policiesthey endorse.

S The Chroniclenamed 16 senior foundation, non-profit, and/orgovernmental officials who are part of what it termed A Realm ofInfluence. Eleven of these officials were connected to the GatesFoundation. The Lumina Foundation recruited Zakiya Smith, thepresidents top higher-education adviser, and Julie Peller, a keyDemocratic congressional aide, to head up its new Washingtonoffice.

Obama and Other

Liberal Reformers

S The New America Foundation (NAF) is one of the institutionalvoices pushing the competency approach. Its higher educationdepartment has launched volleys against the system of credit-basedrather than competency-based accreditation. The NAF board ofdirectors is filled with heavy hitters in the financial world, includinga number of hedge fund managers, Google Chief Executive, EricSchmidt, and news-media star Fareed Zakaria.

S The NAF Education Policy Staff has tirelessly supported the movetoward greater online education. Amy Laitenen, its Deputy Directorfor Higher education, served as a policy advisor in the White Houseand in the same role to an undersecretary at DOE before moving toNAF. She is a champion of the movement to sever the tie betweencredit hours and Title IV financial aid and supports giving that aid toonline students pursuing competencies rather than credit hours atinstitutions like Southern New Hampshire University.

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The Foundations

S Diane Ravich has called it the Billionaire Boys Club indescribing the manner in which Bill Gates, Eli Broad, theWalton Foundation and others have invested themselvesand their money in the reform of the public educationsystem, 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 inRemaking Higher Education in the past five years. (July19, 2013)

The Foundations

S The Gates foundation wants nothing less than to overhaul highereducation, 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 Chronicleconcludes that there is an unusual consensus hasformed among the Obama White House, other private

foundations, state lawmakers, and a range of policy advocates, allof 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 ofsome the future of higher education: Innovation cheerleaders and flat-worlders like Thomas Friedman and Clay Shirky are very excited, forthey have seen the future of academe, and it consists of MOOCs. Theyhappily envision open and affordable online access to dynamic, learnedprofessorsthe kind once available only to students paying tens ofthousands of dollars in tuition at places like Harvard and Stanford.MOOCs will democratize education, they say, creating a more equal andconsumer-friendly world. Patrick J. Deneen,We're All to Blame forMOOCs. Chronicle of Higher Education. June 3, 2013

S Friedman has gone from one enthusiasm to another in his career, one ofthe more notable of these was his cheerleading for Bushs Iraq invasion.But you dont have to search among fatuous journalists to find those whosee the future of higher education entwined with MOOCs. If it is, theconsequences will be severe, particularly for mid-range public researchuniversities.

The MOOC Political Context

S The world of MOOCs is evolving daily. The President of San JoseState University has announced, to the dismay of many of its facultymembers, a commitment to the use of MOOCs at his institution toaugment the institutions curricular offerings. It is intended to cut costsand the need for tenured and tenure-track faculty members.

S San Jose State is committing to a system of addressing the credentialsissue 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 proceedingwith its MOOC program.

S A program boosting online courses featuring the Presidents of SanJose State and of Southern New Hampshire, and Kevin Carey of theNew America Foundation (NAF) was presented at the Newseum inWashington D.C. in July, 2013.

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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 facultymembers at elite universities. Its advisory board is replete with provosts from eliteuniversities. Cousera recently announced that is has cut deals with 62 institutionsacross the world, including 10 state-wide university systems, including the SUNYsystem.

S Coursera has had five of its courses approved for credit by the American Council onEducation (ACE). Coursera says charges will range from $60 to $90 for the proctoredexam and $30 to $99 for the Signature Track. As a result, ACE credit recommendationsfor 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 coursecan request a transcript with credit recommendations from ACE, which they can thenpresent to a college or university of their choice for prerequisite or undergraduate creditconsideration.( http://thenextweb.com/insider/2013/02/07/)

New Educational Entrepreneurs

S Coursera is not the only corporation planning to offer cheapfor credit courses. Udacity, was also founded by Stanfordprofessors, Sebastian Thrun, and Mike Sokolsky. It plans on

marketing course packages that cost $5,000 to $10,000 todevelop 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 haveto 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 whoactually hire the part-time subject matter experts.

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Entrepreneurial Pothole

S The purchase of online courses to be used by universities isalready 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 face-

to-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 hasbeen suspended for now.

The Future

S Kevin Carey, the Director of the Education Policy Program for NAF, and aenthuastast 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-costMOOCs to be transferable to traditional colleges, cutting into the profit

margins that colleges have traditionally enjoyed in providing large, lecture-

based 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 nodebt 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 State University of NewYork (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

The big news is that we have begun working with 10 US state university systems andpublic schools to explore the possibilities of using MOOC technology and content to

improve completion, quality, and access to higher education, both across the schoolscombined audiences of approximately 1.25 million physically enrolled students and

among Courseras global classroom of learners. Heres a full list of the new institutionsthat are joining Courseras platform:

Summary

S The future of higher education is looking bleak as the various relevant forcesat work pursuing their own agendas proceed.

S Online education, particularly the spread of MOOCs, will undermineregular 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 educationbudgets 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 highereducation to spread the federal education support student-aid funds farther.

S For-profit institutions will continue to grow. Stuart Eismen predicts that theywill 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 thatthreatens, in particular, public research universities. The policies that are beingsought by the Gates, Kresge and Lumina foundations and their allies in governmentfocus primarily on the costs of higher education. They are cocksure in the knowledgethat they have the answers. Professor Stanley N. Katz, Director of the Center forArts and Cultural Policy Studies at Princeton complained that although new tostudying higher education, the Gates Foundation thinks it knows how to solve itsproblems. Theyre making a priorijudgments and theyre pouring a lot of moneyinto college completionStrategic Philanthropy Comes to Higher Education,Chronicle of HigherEducation (July 19, 2013 p.A26), If they succeed in theimplementation of their proposals, they well may destroy the financial underpinningsof public research universities.

SResearch universities will face threats to the infrastructure necessary to do theresearch that wins external grants in this Brave New World. Too often some, bothwithin and outside the academy, consider research grants as if they are contracts wonby a profit-making firm. They see the overhead provided by agencies, such as theNIH, as comparable to a firms profit. Nothing could be further from the truth. Everysuccessful research institution must invest it own budgetary resources to maintain itsresearch infrastructure. With student tuition drying up, where will the funds come tosupport these investments in research? State Legislatures are running, not walkingaway from funding their research universities.

The Perfect Storm

S The system that has evolved to support public higher education faces afuture of piecemeal destruction as collateral damage in the policy battleover cutting tuition costs, shortening years to degree, substitutingcompetencies for credit hours, offering online education, and implementingthe various attendant reforms advocated within the echo chamber ofthe higher-education philanthropy world. Rip Rapson, President of theKresge Foundation stated: If they seem like an echo chamber after hearingabout the Gates Foundations expansive and compelling work, this isentirely intentional. (In the Foundation Echo Chamber, Chronicle ofHigher Education, July 19, 2013 p.A23). The higher education foundation

world has altered its focus in the last decade to emphasize broad-scalehigher-education issues such as completion, productivity, andtechnology. (Ibid.)

S As States continue to cut budgets for higher education and force a greaterand greater reliance on student tuition as a major source of revenue, thereform efforts envisions a virtual revolution of our higher educationsystem that will cut the cost of education drastically is a dagger at the heartof the public research university.

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The Perfect Storm

S The decline of the commitment to research in the United State has been noted by manyobservers. The Information and Technology Innovation Foundation issued a study inwhich it was noted that it is troubling that in 2008 the United States ranked 22nd out of30 countries in government-funded university research and 21st in business-fundeduniversity research. Moreover, we are falling even farther behind. (Robert D. Atkinsonand Luke A. Stuart, University Research Funding: The United States is Behind and Falling,(May, 2011))

S As Atkinson and Stuart note: While our public research universities used to be the envyof the world, 20 years of underfunding by state governments have meant that manypublic research universities have fallen in their capabilities relative to private researchuniversities. And while our research universities, public and private, are still a keystrength, their future is uncertain given the large cuts in state higher education budgetsand slow growth in federal support for university research.

S It is ironic and sad that the major reform proposals by leading foundation andgovernmental reformers in higher education, if adopted, will lead to a furtherdeterioration of the already declining research capabilities of our country. As the sayinggoes, The road to Hell is paved with good intentions.