Monday, July 27, 2009

Whatever happened to fiduciary responsibility?

Seems like every day there's another story about a college or university that is in some form of financial distress. If it's not Harvard University dropping 11 digits worth of endowment value (check out the Vanity Fair article for interesting coverage), then it's the University of California and California State University systems furloughing their employees.

But the smaller, less prestigious schools generally don't receive the same kind of media coverage that the big boys do. One interesting story, though, is about Greensboro College, a small liberal arts school in the city of the same name in North Carolina. Like many of its peers, it has run into financial problems over the last year. It has had to layoff employees and cut the pay of most of the remaining staff by 20 percent. In fact, Greensboro got itself into such trouble that it was forced to turn to Bank of America for a loan to meet payroll and continue operations. And to get that loan, it had to put up as collateral all of its real estate and its entire endowment. Greenboro's long-time (16 years) president, Craven Williams, stepped down abruptly earlier this month.

Williams had embarked on an ambitious building and acquisition plan, using borrowed funds to do so. This had evidently exacerbated Greensboro's problems, causing the extreme measures it was forced to take this spring. What is striking, though, are some comments made by former trustees in an article in the local Greensboro newspaper, the News and Record. Here's what a couple of them had to say:
“There wasn’t a whole lot up for discussion,” recalled former trustee Tom Wright. “There would be a plenary session, but anything presented, it was as if the financial committee had already reviewed it.”

Said another former trustee, Richard Levy: “If you’re told, 'Everything’s running OK,’ and you’re not told about problems, you don’t go looking for them. You’re there to help.”

If they were accurately quoted, these are stunning admissions by the former trustees. Either they were purposely misled by the university's administration, or they were asleep at the switch in not being aware of the financial situation in which the college found itself.

Trustees play an important role in overseeing the fiduciary health of the institution, particularly in private institutions for which there is little or no government oversight and control. To let an institution get into such financial straits - caused not just by external economic and financial circumstances, but also by active decisions made by the institution's leadership and board - without the board being aware is an admission that at least some trustees were not paying attention. While it is easy to sit back and not go looking for problems, trustees have to be more proactive about asking the difficult questions.

Not to single out Greensboro; probably some of the same issues can be raised about the Harvard Corporation. Much has been written that Harvard is now reaping the downside of the aggressive endowment investment strategies that it has pursued for many years now (and for which it has very generously compensated the staff of Harvard Management Company). But perhaps there will be some hard questions asked about whether the university and others like it were too aggressive in pursuing increases in endowment value.

Tuesday, July 21, 2009

Making a silk purse from a sow's ear?

[Warning: severe sarcasm alert in this post]

Sunday's New York Times had an article about the independent college admissions consultant industry. The article had me from the intro:
The free fashion show at a Greenwich, Conn., boutique in June was billed as a crash course in dressing for a college admissions interview. Yet the proposed “looks” — a young man in seersucker shorts, a young woman in a blue blazer over a low-cut blouse and short madras skirt — appeared better suited for a nearby yacht club. After Jennifer Delahunty, dean of admissions at Kenyon College, was shown photos of those outfits, she rendered her review.

“I burst out laughing,” she said.

Seersucker shorts? Madras skirt? You have got to be kidding me, or to use one of my daughter's and her teenage friends' favorite colloquialisms, "WTF????" (I'll never admit to using it myself, of course). Any kid stupid enough to be seen wearing one of those outfits to a college interview should be denied admission on the spot on the basis of demonstrating exceedingly poor taste. The fashion show was of course organized by a college consultant, who I am sure has no shortage of clients in tony Greenwich. It is almost as if you can hear the consultant thinking to herself, "How outlandish an outfit can I get these guillible kids to wear as a way to demonstrate their desperation to get into college?" The article doesn't say if she is a member of the Independent Educational Consultants Association, but if so, she should have her membership revoked.

Another quote from Bruce Poch, admissions dean at Pomona:
[There are some] genuinely rational and knowledgeable folks out there doing this work. Some of the independents leave me looking for the nearest emergency shower.

Both Jennifer and Bruce are well-respected and knowledgeable in the admissions industry, particularly among those in selective institutions. Both also have a great sense of humor, and I know have had plenty of experience dealing with these consultants. And on top of it, Bruce is a dead ringer for Ted Allen of "Queer Eye for the Straight Guy." If you don't believe me check out this picture and this one (picture him with glasses on in this latter picture).

The Times article describes how some of the consultants charge families up to $40,000 to help prepare their child for competitive college admissions and help them get into their first choice college. It describes how the industry has flourished in recent years, growing from an estimated 2,000 consultants to 5,000 in just the last three years, no doubt preying on the anxiety families have about getting their best and brightest children into the most well-known and priciest colleges.

In some respects, this article would normally be a yawner, outlining some of the less-than-honest tactics (and in other cases, outright lies) of some of these consultants. After all, other media have covered this industry and its tactics in the past. But being on the front page of the Sunday Times does merit some recognition, and as my late mother-in-law was fond of saying, "If it's in the Times, it must be true."

There's always the possibility that these consultants will prey on poor families who know little about the college admissions process, and who have no or little access to high school counselors.
And in fact, some of them are starting to develop much lower-priced "products," such as DVDs, to try to expand their markets down the income ladder. I'll admit that I have yet to purchase any of them myself, but most of these sound like they are little more helpful (and honest) than the DVDs advertised on television that teach you how to buy houses with no money down. Don't hold your breath waiting for me to review any of them here.

The reality, however, is that the people spending $15,000 for a "junior/senior" package for their child or even better, $14,000 for a four-day college admissions "boot camp," likely have more than enough money to spend on making little Johnny or Janey look on paper as if they are something they are not, and on getting them into a college they probably would have stumbled into on their own even without the assistance of these consultants. So if they want to spend that money to make them feel better that they're doing all they can to help their children, all the power to them.

The boot camp is run by one of the admissions consultant industry's leading lights, Michelle Hernandez, who according to the article, offers a top-shelf package to families that costs $40,000. Hernandez is not shy with the press, and on her firm's website she proudly displays all the media which she has graced.

Her website displays her stellar credentials for the job:
As an Assistant Director of Admissions at Dartmouth College for four years and the academic dean of a private high school in South Florida, Hernández has crafted a unique angle for assisting students gain admissions to the most selective colleges, incorporating her “inside perspective” on the admissions adventure. She is one of a small handful of college consultants with years of hands on admissions experience and a ten year history of helping students through her work.

Dr. Hernández graduated Phi Beta Kappa from Dartmouth College in 1989 and went on to earn a Master’s degree in English and comparative literature from Columbia University and a doctorate in education from Nova Southeastern. She is married to Bruce Bayliss, former headmaster of the International School in Portland, Oregon. They have two children, ages 11 and 5, two golden retrievers and a Gordon setter. In her non-existent spare time, Hernández enjoys stargazing with her 16 ½ inch Dobsonian telescope, working out and reading obsessively. The family lives in Weybridge, Vermont.

16 ½ inches - wow, that's impressive!

She also displays "Michelle's Statistics," which trumpets the number of her clients who applied to specific universities and the number who were admitted ("1/1 to Carleton College, 4/5 to Colgate. . ." - and in case you were wondering, no, she does not provide "Michelle's Statistics" for Roxbury Community College, but she did have a 100%, 1 out of 1, success rate for Penn State this year). She of course does not tell you, because she does not want you to know and in fact, cannot tell you, how many of those applicants would have been admitted to those institutions without her help. But hey, why take the chance that little Janey won't get into the one and only college out of the 4,000 out there that will make her happy. So best to spend the $40,000 just to be sure.

When questioned about the high fees she charges, Hernandez responded to the Times with what can only be described as one of the most ridiculous and pompous quotes ever recorded on the pages of the New York Times:
“It’s annoying when people complain about the money,” the Vermont-based counselor, Michele Hernandez, said. “I’m at the top of my field. Do people economize when they have a brain tumor and are looking for a neurosurgeon? If you want to go with someone cheaper, or chance it, don’t hire me.”

Okay now, so um, college admissions is like brain surgery? I don't think so, but heck, if it helps her sell herself more, good for her.

As with anything else out there in the marketplace, caveat emptor.

Friday, July 17, 2009

Update on Penn State's tuition

Given the U.S. Department of Education's decision to return Governor Rendell's application for stimulus funding because of the exclusion of the four state-related universities, Penn State has decided to go with the lower set of tuition increases (3.7% to 4.5%) the Board of Trustees had authorized. This will certainly be a relief to students and their families, but is a risk on the part of the university. While the ED returned Rendell's application, there's still no guarantee Penn State will see any of the stimulus money. Here is Penn State's news release.

So the university is opening itself up to the possibility it will have to implement either large mid-year expenditure cuts and/or a mid-year tuition increase if the stimulus money does not come through. In addition, since Pennsylvania still does not have a budget (17 days into the fiscal year and counting), there's still the risk that the university's appropriation could require it to implement some of these mid-year measures. Stay tuned.

Wednesday, July 15, 2009

Update on the Keystone Cops

The Philly Inquirer reported today that Secretary of Education Arne Duncan told Governor Rendell that he cannot exclude the four state-related universities from his request for stimulus funding (see my post of last Monday for the full story). He instructed the governor to resubmit the application, including Penn State and the other state-related universities.

A spokesman for Governor Rendell said that the battle isn't over yet, according to the Inquirer article.

"Given the governor's unparalleled support for higher education, the department's decision reinforces the state's ability to decide how to allocate these federal funds among our colleges, and we remain committed to using those funds where they can have the most impact," Ardo said.
Guess we'll just have to wait and see who is going to win this battle.

Monday, July 13, 2009

The Not-So-Golden State and the Keystone Cops

Just when we thought the economy had bottomed out and things were starting to turn around, the news on the higher education financial front continues to be pretty dismal. As in past recessions, it's very likely that there will be a lag behind the general upswing in the economy and when higher education starts to benefit from it. And given the depth of this recession, the lag will likely be longer and more painful to endure.

Last Saturday's New York Times reported on the dire situation at the University of California, often considered to be the shining jewel among public higher education systems (I know the California papers have covered this story more thoroughly, but I can't get home delivery of the LA Times or San Fran Chronicle here on the East Coast). The UC system is trying to figure out a way to make up for a $640 million reduction in its state appropriation for this year (a combined $813 million reduction combining last year's and this year's cuts), and according to the article (and an announcement by President Mark Yudof), is implementing "furloughs, deferred hiring and cuts in academic programs" to close the gap.

While personnel cuts are never easy, UC should be applauded for the way they are undertaking it. Rather than across the board furloughs, as so many institutions have done, UC is doing it in a very progressive manner, with higher-paid employees being forced to take much longer furloughs (and therefore larger pay cuts). Faculty hiring is being reduced, and admissions to some academic programs - including the doctoral program in education at Irvine (which hits uncomfortably close to home for those of us in education schools) - are being halted. Also to Yudof's credit, the budget for the president's office in Oakland has been cut by a third. This is not just a symbolic move, as the president's office at UC is substantial and has long been accused by the ten campuses as suffering from administrative bloat.

The magnitude of the $813 million reduction in state funding over the two years can best be understood when examined on a per-student basis. Spread across the system's approximately 227,000 students, this means a reduction of over $3,500 per student, a substantial amount even if one considers that some of the reductions will (hopefully) be made in areas that do not directly impact students.

One can hold out hope that California will resolve its budget crisis in a way that does not penalize UC and the other two systems in the state in a fashion that will harm the quality of the systems in the long run. But it is hard to be optimistic given the challenges the state is facing.

Meanwhile, back at the ranch - aka, the wild and wacky Commonwealth of Pennsylvania - as I write we are now entering out third week of the fiscal year without having a state budget. The "budget held hostage" headlines throughout the media are getting just a bit tiresome. Governor Rendell and the state legislature are locked in a budget battle that can only politely be described as a high-stakes urinating contest in trading off cuts in expenditures versus increased taxes. If it weren't so serious it would be reminiscent of the old Keystone Cops movies.

The latest budget proposed by the Governor called for a cut of $60 million in Penn State's appropriation as compared to the initial appropriation the university received last year. This includes the $20 million rescission the Governor imposed in FY 2009, combined with an additional $40 million cut for FY 2010. The $60 million represents a reduction of 18 percent of last year's intitial appropriation. To compare to the appropriation cut being absorbed by the University of California, $60 million represents a reduction of approximately $650 per student over Penn State's 93,000 students.

Evidently Governor Rendell has a penchant for starting urinating contests of late. Earlier in the year, in introducing a new state-funded financial aid initiative (interesting move, considering the dire fiscal picture the Commonwealth is facing), he excluded from participation students attending the four state-related universities (Penn State, Temple, Lincoln, and Pitt) and private colleges, all of which participate in the existing state financial aid programs. The exclusion, according to an official in the Rendell administration was "because the state doesn't have as much control or influence over their tuition increases."

This was followed up by Rendell's request to Secretary of Education Arne Duncan to exclude the state-related universities from Pennsylvania's share of the federal stimulus funds. Rendell's initial plan to ED included the four universities, but the revised plan submitted late last month cut the $40 million that had been earmarked for them (approximately half of which would have gone to Penn State to offset the appropriation cuts) and shifted it to other public institutions. Echoing the administration's earlier statement regarding the financial aid program, this time it said that the governor "had to make very difficult decisions about funding and has very little control over Penn State expenditures."

Penn State's response to the governor's decision was predictable. In a letter to Secretary Duncan, Spanier wrote:
"By arbitrarily re-defining The Pennsylvania State University as non-public … the governor is setting a dangerous precedent that the Department of Education should address. If the department approves this application as it is written, it gives governors in every other state the ability to pick and choose which public institutions they may support with federal dollars."

We have yet to hear if Duncan has responded, but you can sure this is not the end of the battles over Penn State's (and the other three institutions') status as a state-related university.

Penn State's response to the Governor's proposed appropriation cut was quite pointed. President Graham Spanier threw down the gauntlet in a letter to the Penn State "family" (which includes the Governor, as an ex officio member of the Board) released in conjunction with last week's Board of Trustees meeting, threatening to pile the cut onto the backs of students by implementing large tuition increases. These increases would be on top of rates that place Penn State's University Park flagship campus as the most expensive (for in-state students) in the country.

At its meeitng last week, the university's board adopted two different tuition schedule. The first was based on a state budget that restored Penn State's appropriation to the initial level received last year, i.e., the level in place before the $20 million rescission by the governor. If the legislature passes and the governor signs a budget at this level (an event that most observers put as having a chance somewhere being slim and none), then the university's tuition increases will range from 3.7 to 4.5 percent (the amounts differing for resident and non-resident students at University Park, and students at other Penn State campuses). If a budget passes that includes the currently-proposed $60 million reduction from last year's appropriation, then the tuition increases will be:

  • Campuses other than University Park: 4.9%
  • Non-resident students at University Park: 7.9%
  • Pennsylvania residents at University Park: 9.8%

The university has been clear that it will not be expecting students to pay for all of the cuts, no matter which tuition schedule is ultimately implemented. It has documented a series of expenditure cuts it has already implemented, including the decision to not give any salary increases for the 2009-2010 year. Nevertheless, the university's announcement of these potential increases says to the governor and legislature, "If you cut our budget as you are talking about, it is your constitutents - the students and their parents - who will pay the price." The need for large tuition increases may have been somewhat undermined by another Penn State news release from the trustees meeting: "Philanthropy to Penn State sets records, despite recession."

Stay tuned for further updates.

Wednesday, July 1, 2009

The potential equity risks in online education

A friend posted a link in her Facebook profile to an article this week in Inside Higher Ed that described the Education Department's funding for free, online college courses. I responded that I had mixed feelings about the program and in the push toward more online education in general, raising concerns about the potential for more stratification in what is already a highly bifurcated postsecondary system in the country. My friend works on online education, and asked me to elaborate on my remarks. So I decided this would be the appropriate place to do so.

It's helpful to understand first how the current postsecondary system is stratified. This stratification is on a number of dimensions, including racial/ethnic, family income, as well as other measures of socioeconomic status and academic capital, but I'll focus here just on income. The National Center for Education Statistics (NCES), the data branch of the U.S. Department of Education, has very good, nationally-representative surveys that allow us to examine whether different types of students attend postsecondary education, and if so, where they attend.

The current NCES longitudinal survey, the Educational Longitudnal Survey of 2002 (ELS:2002), is of students who were sophomores in high school in 2002. After the initial survey in 2002, students were surveyed again in 2004 (when most were high school seniors), and in 2006 (two years after expected high school graduation). The 2006 data were analyzed in an NCES report to examine the high school graduation and postsecondary behavior of students. The following chart summarizes the findings for students based on their familiy's income in 2002 (you can click on the image to get a full-size view):

As a benchmark, the median family income in 2002 was $51,680, so the first two income categories roughly represent the bottom half of the income distribution, and the latter two the top half.

As is clear, the high school graduation and postsecondry enrollment patterns are highly stratified by income. Seventeen percent of students in the bottom income group (<=$20,000) either did not graduate from high school and/or received a GED credential, while only three percent of the highest income group (>=$100,000) did. While only 52 and 63 percent of students in the bottom two income groups, respectively, had some postsecondary enrollment by 2006, 78 and 90 percent of students in the highest income groups did. What is even more stark is where students attended college. Students in the upper income category were more than three times more likely to enroll in a 4-year institution than were those in the bottom group.

When you dig into the data, other patterns emerge. The following chart is from a presentation I gave last year at the annual conference of the Council for Opportunity in Education. It shows the college attendance patterns of dependent undergraduates who were enrolled in college in the 2003-2004 school year, using data from the National Postsecondary Student Aid Study (I need to update these with the most recent NPSAS data, but haven't gotten around to it yet).

These data divide all postsecondary students into family income quartiles. Over half of the students from the bottom quartile who were enrolled in college were attending either a community college or some other institution, the latter of which were primarily proprietary (for-profit) institutions. The higher income students were more likely to be attending a 4-year institution, and more likely to be attending full-time as well.

Okay, so having established the current stratified nature of the higher education system in the country, let me get back to my concerns regarding online education. When I speak to many policymakers, particularly those at the state level, there is a strong belief among many that online education will be the silver bullet that will help resolve the college cost crisis, as well as improving the state of college access. In other words, they believe that if we can only expand online education, we'll be able to get more students into and through postsecondary education for less money.

At some point, this may be true, but I don't believe there's compelling data yet to demonstrate that online education - in a true apples-to-apples comparison - is necessarily lower cost than traditional bricks-and-mortar postsecondary education (NB - I'm going to ignore the question for now of whether fully online education is "as good as" traditional education in terms of educational outcomes, writ large. I think my points are made even if one concedes this point). And more importantly, from my standpoint, I am concerned that if online education is perceived to be less expensive, that we will end up with a system that channels poor and underrepresented minority students into this option, reserving for more well-off students the option of attaining a postsecondary credential, and in particular a bachelor's degree, by attending a residential institution where the students benefits from all of the amenities and outcomes that are associated with that experience.

It is easy to envision of a set of student financing policies that would have this further stratification as an unintended consequence. Many states are examining policies that encourage students to start their postsecondary careers at community colleges, which are a lower cost (from the perspective of state funding) and price (from the perspective of the student) option as compared to many 4-year institutions, both public and private alike. In the same vein, they are looking into policies that help reduce both the opportunity cost of attending college (primarily that of being out of the labor markets, at least as a full-time worker) as well as the subsistence costs of attending college by finding options to the residential college experience. While these are certainly worthwhile exercises, I generally advise them to undertake these while ensuring that postsecondary opportunity and access to all the options that are available - community college, online education, and the more traditional, residential 4-year experience - are provided to students on as equal a basis as possible, regardless of their family's financial circumstances.

I am not arguing here that we should get rid of online education; I believe that there is certainly a place for it in our system. I think we do need much more and better research, however, that compares the full range of outcomes - academic, psychosocial, and developmental - of all the options before we start investing a lot more money in online education. But we need to be cautious that we do not create a system that is even more bifurcated than the one we already have in place.