You can find my current blog at:

http://usfblogs.usfca.edu/donaldheller/

Please visit my new blog

I've moved this blog over to the site at my new job as Dean of the College of Education at Michigan State University.  So please come visit there, where I am broadening the scope of my observations  beyond higher education to include K-12 education and other topics.

Time for a hiatus

The Itinerant Professor blog is going on a hiatus until after the first of the year.  I've recently accepted a position as Dean of the College of Education at Michigan State University, beginning January 1.  I'm going to be spending the next six months finishing up work here at Penn State, and working on the transition to MSU.

Look for the blog to return after I begin the new position, possibly with the assistance of my colleagues at MSU.  In the meantime, if you have ideas for a new name for the blog (something more creative than "The Itinerant Dean"), please send them my way.

It's not about excessive executive compensation, it's about tax rates

This past Sunday's New York Times  business section had a story about how executive compensation at large corporations has returned to pre-recession levels.  Here's the total compensation (salary, bonuses, perquisites, and stock options) of the top 5 CEOs in 2010 (change from 2009 compensation in parentheses):

1. Philippe Dauman, Viacom: $84.5M (+149%)
2. Ray Irani, Occidental Petroleum: $76.1M (+142%)
3. Lawrence Ellison, Oracle: $70.1M (-17%)
4. Michael White, DirecTV: $32.9M (n/a - new in 2010)
5. John Lundgren, Stanley Black & Decker: $32.6M (+253%)

Poor Larry Ellison, who had to take a pay cut this year.  Don't feel too badly for him, however - the article notes that his holdings of Oracle Stock are worth over $26 billion.

The Times  article discusses shareholder concerns over rising compensation, and whether companies are truly getting value for what CEOs and other executives are paid.  But as much as the federal government has tried to control compensation through regulation, i.e., Sarbanes-Oxley, passed in 2002, it has had little impact.

The real issue is not how to control executive compensation, but the fact that tax rates on these mega-millionaires are as low as they are.  Each one of these CEOs paid the same marginal tax rate last year - 35% - as anyone who made over $373,650.  And they paid only 10 percentage points above the rate paid by someone with an income as low as $68,000.

The chart below shows the marginal tax rates for married couples with the mean income in each quintile, the top 5% of all earners, and the top marginal tax rate, from 1969 through today (click the chart to see a larger version of it).  The largest reductions have come for the top rate, dropping from 77% to 35%.  In contrast, the bottom rate has decreased only five percentage points.  For families in the middle, there has been a nine point drop.

The fix to this problem is far simpler than crafting legislation to try to control how much corporations pay their executives.  All Congress (and the president) needs to do is to have the fortitude and political courage to increase the top tax rate.  I am not arguing to return the top marginal tax rate to the 1960s level of 90% or even the 1970s level of 72%.  But can anyone convince me that any of these CEOs would work any less hard if the top marginal tax rate was increased to the pre-Bush tax cuts level of 39.6%?  Or even a ten percentage point increase to 45%?  I'm ready to listen to your arguments.

What does this have to do with educational policy?  The debate about controlling federal government spending - much of which of focuses on discretionary spending, including spending for education at all levels -  could be made easier if upper-income Americans paid a fairer share of taxes.

More on bogus rankings - "The Best Colleges"

Last year, I wrote about what I described as "embarrassingly bad" rankings published by Bloomberg Businessweek.  Those rankings were based on the return on investment earned by students attending various colleges, and in the post I described why they were suspect.

Last week, Penn State issued a press release touting its World Campus' selection as the "the No. 1 online institution for 2011."  This designation was conferred by the website, TheBestColleges.org, which I had never heard of before - and I've seen lots of different rankings over the years.  So I spent a little bit of time going through the website, and after about 30 minutes or so, I sent this message to Penn State's Director of Public Information:

I read your press release, and not having heard of “Best Colleges,” took a look at the website.  Unless you have some information establishing the validity and/or reputation of the website, I’d be a little cautious about how much you want to promote the WC and other rankings from this site.  While they say “We do not accept paid placements for our school rankings,” it appears to me that this is a site supported entirely by advertising fees from universities.  When you do a search for any of the degrees they show there (not the rankings, but a degree search), no matter what the degree, you get a list of for the most part for-profit and online universities, and very few of what most of us would consider more traditional universities whose quality and rankings are more universally recognized.

Here are the “criteria” they say they use to calculate the rankings for the 25 best online universities:

“We’ve relied on the following criteria to generate our online colleges and universities rankings: student satisfaction (as measured by graduation and retention rates), peer and instructional quality (as measured by acceptance rate and student-teacher ratio), affordability (as measured by tuition costs and availability of financial aid), and credibility (as measured by years of accreditation, reputation and awards).”

To be blunt, this is garbage.  Graduation and retention rates are not measures of student satisfaction, any more than acceptance rates and student-teacher ratios are measures of peer and instructional quality.

We can all agree there are problems with the U.S. News & World Report rankings, but they are at least considered reputable by most parties.  I would be cautious about trumpeting rankings from “Best Colleges” externally unless you know more about this organization (which I’d be interested in hearing).

Don Heller

There may be more substance to this website and their purported "rankings," but I certainly couldn't see it.  If you click on the "About" page for the website, this is all it says:

The Best Colleges reviews publicly available data and then produces independent ranking assessments of colleges in various disciplines. Our goal is to produce resources that are useful to prospective students. We recognize that no ranking system is perfect, and for this reason we recommend that our ratings be used only as a general guide when choosing a quality school.

We do not accept paid placements for our school rankings as this would defeat our primary goal of creating resources that students find useful.

They may not "accept paid placements" for their school rankings, but it appears that they do have quite a bit of advertising from many of the schools that do end up being ranked. And I'm guessing that they get click-through fees for students who go from their website to these schools.

I'd be happy to hear from anyone who has more information about this website.

Is it possible to make Georgia HOPE even worse?

The answer evidently is, "Yes."  The state of Georgia has managed to find a way to make the HOPE Scholarship Program even more inequitable than it already was (see two Civil Rights Project reports I co-edited with Patricia Marin in 2002 and 2004 for more on this).  NPR had a story this afternoon about the changes to HOPE, with a sound bite from me.  The state has upped the GPA requirement - to 3.7 - to receive a full tuition scholarship, and added the requirement of achieving at least a 1,200 on the SAT (or 26 on the ACT).  These changes are likely to mean that lower-income and minority students will receive less money, and upper-income and white students will be more likely to retain the full scholarship.  Not exactly a step in the right direction for a state that still has large gaps in college access and attainment between white and minority students.

When Tennessee was considering implementing its lottery-funded scholarship program back in 2004 - which, not coincidentally, was modeled on Georgia HOPE - it ran some simulations based on high school GPA and ACT scores.  The data showed that white students were approximately 10 times more likely than black students to have a GPA of 3.76 or greater and an ACT score of 26 or more.  Similarly, students from families with incomes of $100,000 and above were about 5 times more likely to have this level of achievement than were students from families with incomes below $36,000 (which was about the median income in the state at the time).  It is likely that the results in Georgia would be very similar.

Governor Corbett's spring break surprise

It's spring break at PSU, so things have been pretty quiet here in Happy Valley.  At least they were until Tuesday, when Tom Corbett released his first budget as governor of Pennsylvania.  Governor Corbett ran on a "no tax increase" pledge, and since the Commonwealth was facing a roughly $4 billion budget deficit, and Corbett was not seen as a friend of public higher education, everyone expected that this first budget would likely not be very favorable to Penn State.  Discussions I had had with senior leaders of the university pointed to an absolute worst-case scenario of perhaps a 25 percent cut in Penn State's appropriation.

So nobody was prepared for the 52 percent, or $182 million, cut in Penn State's appropriation contained in the governor's FY 2012 budget.  Penn State was not singled out; overall, appropriations to Pennsylvania's state-related (Penn State, Pitt, Temple, and Lincoln) and state-owned (Pennsylvania State System of Higher Education) institutions were cut by 50 percent, or $660 million.  This is most likely the largest proportional cut in appropriations to higher education in the history of any single state, though the $660 million is dwarfed by Governor Jerry Brown's budget for next year, which cut $1.4 billion in total from the appropriations to the U. of California, California State U. system, and the California Community Colleges.

Penn State's response was swift and critical.  Al Horvath, Penn State's chief financial officer, said, "A reduction of this magnitude would necessitate massive budget cuts, layoffs and tuition increases, with a devastating effect on many students, employees and their families."  If the governor convinces the legislature to go along with such a large cut, Penn State will likely face some of the draconian responses other public systems have implemented during the current recession, including larger-than-normal tuition increases, layoffs, and furloughs.  President Graham Spanier, in a press conference the next day, even admitted that the possibility of closing one or more of the university's 24 campuses may be on the table, a measure that had not been considered in recent memory.

In the press conference, Spanier made the point that Penn State and the other public universities in the state were not responsible for the budget deficit the Commonwealth faced.  He showed the chart at the top of this post (you can click it for a larger version), which shows that the appropriations to the university have been largely flat over the last decade.  He also showed the chart on the right, which shows that while overall spending in the Commonwealth grew approximately 40 percent over the last decade, appropriations to the four state-related universities increased by only 5 percent (through the current year).

It is still unknown whether the legislature will go along with cuts of this magnitude.  Even though Republicans (who control both houses of the legislature) will want to support the new governor, they will face intense lobbying to restore some of the cuts.  State Senator Jake Corman, who represents the local district and is chair of the Senate Appropriations Committee, said, “It will be important for all institutions ... to come in and tell us what the ramifications of such cuts would be," a position that may be signalling an open door to restoring some funding for the universities.

I've been serving for the last year on a university-wide committee, chaired by Provost Rod Erickson, that has been charged with identifying ways of cutting the university's budget by $10 million per year over the next few years.  I can attest to the challenge of the effort, as this committee has been reviewing data on every single academic program and administrative unit in the university.  A number of programs and departments have already been slated for closure or merger, including some in the College of Education.  Even with these moves, however, finding $10 million of savings has been difficult.  As I said in an article this week in The Chronicle of Higher Education, the $10 million now "looks like a rounding error after the governor's announcement."

Are college costs a major problem?

David Leonhardt, economic columnist of The New York Times, published a post in his Economix blog last month stating that "College Costs Aren't the Main Problem" facing higher education.  While we could all have a nice debate about what the major problem facing American higher education is, I took issue with one thing Leonhardt said.  His post implied that there was plenty of financial aid out there, the problem was just that poor students didn't know how to apply for it.

I wrote to him, taking issue with that statement, and pointing to some research I have done with my Penn State colleague John Cheslock and our graduate assistants Rodney Hughes and Rachel Frick Cardelle.  That research demonstrates that students from low- and moderate-income families face large amounts of unmet need, i.e., the gap between their resources and grants they receive, and what it costs them to attend college.  You can read a summary of what I wrote to Leonhardt, along with his response.

Making progress on more hockey bucks

Right on the heels of my post about hockey money at Penn State, the university announced that it has received a donation of $1 million toward the $10 million still needed to be raised to bring hockey to Penn State. Bring on the puck!

More blockbuster gifts - but not for hockey

Back in September I wrote about the $88 million donation Penn State received - the largest in its history - from alumnus Terry Pegula and his wife, with the total amount dedicated to hockey.  Well, truthfully it's not all for hockey; some of the money is going to build a 6,000 seat arena directly across the street from the Bryce Jordan Center, Penn State's 15-year old, 15,000 seat multipurpose arena.  Interestingly enough, nobody has clearly articulated why the BJC could not have been adapted for hockey use; I have been in there for the circus, and it appears to have more than enough space for an NCAA Division I-caliber hockey rink.  One explanation given for building the new arena is that it will provide two rinks.  But this ignores the fact that Penn State already has one rink in the Greenberg Ice Pavillion where its current club-level hockey team plays.

One sad aspect of this story is that the $88 million is not even enough to build the rink and support the creation of Division I men's and women's teams.  In the latest issue of Town and Gown magazine, Joe Battista - long-time head coach of the men's club team, and now in charge of development of the new rink and programs - was quoted as saying that he has to raise an additional $10 million, bringing the overall cost to almost $100 million.

An unnamed source (yes, The Itinerant Professor has unnamed sources) informed me that before announcement of the Pegula's gift, the Penn State fund raising apparatus worked hard with them to try to earmark some of the money, or an additional amount, for academic purposes.  The Penn State leadership was most assuredly aware of what kind of impact the announcement of the Pegula's gift would make, with the sum total dedicated to athletics.  These efforts were apparently for naught, and while I'm sure there is still ongoing cultivation of the Pegulas for more money, we have yet to hear anything.

This largesse for athletics is in sharp contrast to two other recently-announced gifts of similar scale to public, flagship universities.  Last month, UCLA announced a $100 million donation from an alumnus, with the money earmarked for

"...academic programs and capital improvements that bolster UCLA's efforts to harness intellectual capital, engage the public and serve as a resource in addressing leading civic and societal challenges, particularly in the Los Angeles region. It will be equally divided between the UCLA School of Public Affairs — the campus home for scholarship and teaching in public policy, urban planning and social welfare — and a planned residential conference center that promises to expand dialogue between scholars, government and business leaders, and the public at large."

"Addressing leading civic and societal challenges" - quite a contrast with the similar sum of money to be spent by Penn State, unless you consider the leading challenge in our region to be the lack of Division I hockey and a dedicated rink in which to play it.

Our Big 10 competitor Ohio State just announced its own $100 million donation from alumnus Lesley Wexner (founder of The Limited chain of women's clothing stores) and his foundation.  The press release states

"The gift will primarily benefit The Ohio State University Medical Center and The Arthur G. James Cancer Hospital and Richard J. Solove Research Institute. It will also benefit Ohio State’s Wexner Center for the Arts and select other university initiatives."

Again, quite a contrast with Penn State's big-ticket donation.

In all fairness, Penn State hasn't been without large donations for other than athletics.  Almost fifteen years ago, alumnus Bill Schreyer (who recently passed away) and his wife donated $30 million to endow an honors college at the University Park campus, later giving an additional $25 million to the college that now bears their name.  But there have been few blockbuster gifts of this type in contrast to our competitors, even those in the public sector.  And with very few exceptions - including Phil Knight (founder of Nike) at the University of Oregon, and oil magnate T. Boone Pickens at Oklahoma State - gifts in the range of $100 million rarely are purely for athletics.  Even Pickens followed up his large donation to OSU athletics with a $100 million donation for endowed chairs and professorships.

Last April, Penn State announced the kickoff of its $2 billion "For the Future: The Campaign for Penn State Students." The campaign priorities are listed as:

• Scholarships: Ensuring Student Opportunity
• Enhancing Honors Education
• Student Life: Enriching the Student Experience
• Building Faculty Strength and Capacity
• Research: Fostering Discovery and Creativity
• Colleges, Campuses, & Programs: Sustaining a Tradition of Quality

If Penn State is going to achieve its goals of supporting these areas, it is going to have to work hard to find large-capacity donors who are willing to support something other than athletics.

Perish or publish?

Well folks, The Itinerant Professor has not disappeared from the face of the earth. He's just been swamped with work and other responsibilities that have kept him away from his blogging.  But I promise you'll be hearing from him very soon, with a post about the college admissions frenzy.

Update: English tuition hikes

Students surrounded a Rolls Royce carrying Prince Charles and Camilla tonight, and attacked it in protest against the tuition hikes.  Here's a story about it.

More on tuition increases in England

It's been a busy autumn in England for the higher education sector.  Lord Browne finally released his review committee's recommendations for reforming the student fee system (the full report can be found on the Browne Review website).  The Conservative/Liberal Democrat coalition government quickly follow-up with its plan, which adopted many of the Browne recommendations but added some of its own, including a proposal to cut funding to universities (the rough analog of state appropriations in the U.S.) by roughly 40% over the next four years.  The £3 billion pound cut is part of a larger, £83 billion cut in all government spending designed to help restore the British budget deficit to a more reasonable position.

Today, the Parliament passed a key component of the Government's plan: an increase in the fee cap from the current level of £3,290 to as much as £9,000, or about $14,000, in the fall of 2012. This is designed to offset the government funding cuts by shifting the burden of financing to students.  From the release of the Browne Review committee, through to the Government's proposal, and on to Parliament's vote today, students have been protesting the funding cuts and fee increases.  The picture above shows a protest organized by the National Union of Students in response to today's vote (see my blog post on fee protests that occurred while I was on sabbatical in London).

Once I get out from under the end-of-semester crush, I'll be writing more about how student financing is  changing in England, and the implications these changes are likely to have on students and universities there.

$42 million for the CEO of Strayer Education Inc.

Bloomberg reported yesterday that the chairman and CEO of Strayer Education, Robert Silberman, was paid $41.9 million in compensation last year.  Or, as Bloomberg put it, "That’s 26 times the compensation of the highest-paid president of a traditional university."  Bloomberg went on to note that Strayer receives three-fourths of its revenue through federal student loans and grants.  And Silberman is not the only executive in the proprietary sector receiving this kind of compensation; the Bloomberg article indicates that Charles Edelstein, co-CEO of the Apollo Group (corporate parent of the U. of Phoenix, the country's largest postsecondary institution) received $6.5 million in compensation last year.

Compensation of executives of for-profit education companies has been in the news of late, with all of the focus on this sector and its dependency on revenues through federal Title IV funds.  Much of Silberman's compensation was in the form of stock options granted last year, so it's not as if he was paid the $42 million in salary.  Nevertheless it is tempting to compare Silberman's compensation - and his responsibilities - with the heads of other postsecondary institutions.

Here's a comparison of Strayer, Penn State, and the State University of New York system (all figures are for FY2009):

System	Total Revenues	Number of students	Campuses	CEO compensation
Strayer	$512 million	54,300	87	$41.9 million
Penn State	$4.042 billion	92,613	24	$642,760
SUNY	$8.456 billion	218,528	64	$654,996

You can draw your own conclusions.

The problem of comparing student loan repayment ratios across colleges

Earlier this year I published a post about Businessweek's ridiculous attempt at ranking colleges based on the return on investment students earn from attending the institution.  I listed the problems with Businessweek's methodology, many of which were based on its decision to use data on salaries from a firm called PayScale, which invites people to complete an on-line survey and post information about what college they attended, their major, what they earn, etc.  Beyond the obvious problems with data like these being collected non-randomly, using data like this to come up with a single measure for the return on investment of a college education makes absolutely no sense at all.   If you don't want to read my entire post, here's the key part of my conclusion:

Most of the evidence from labor economists (see the work of Card and Krueger, or Ehrenberg) points to the fact that differences in returns to college are driven more by within college variation (i.e., differences in the choice of majors or academic experiences once enrolled in a particular college) rather than differences between colleges.  What this means is that the decisions students make about what to major in, what courses to take, and what other experiences they have in college have much more influence on their post-college earnings than does the choice of which college to attend.

And now another website, called CollegeMeasures.org (sponsored by the American Institutes for Research), is using the same PayScale data to come up with ratios of student loan payments to earnings for individual colleges.  CollegeMeasures has a very good intent - to try to provide institutional officials and policymakers with more information about the outcomes related to higher education.  The website's stated purpose is:

. . . to provide measures of performance for four-year colleges to the trustees and state government officials who are responsible for their success. Our goal is to present measures that are informative and thought-provoking, using the best data available. The data are collected from widely-respected sources and represent the best of what is available at the current time.

It repeats information available from many other on-line sources on things like first-year retention rates and graduation rates.  It also calculates some other measures from publicly-available data, including a cost to produce each undergraduate degree and an annual cost per student.  And it then ranks each institution compared to all institutions, as well as all institutions in its own sector (public, private not-for-profit, or for-profit).

I want to reiterate that the CollegeMeasures website has good intentions.  But its attempt at calculating ratios of student loan payments to earnings is, I am afraid, likely to be of little if any value to policymakers, institutional leaders, or even consumers.  There are plenty of caveats about the data used in the fine print of the website, but I doubt most readers will get that far.  The basic issue is that coming up with just one measure for this ratio requires the use of average (or median) student loan and earnings data.  And the problem is that both of these measures are likely to have very broad distributions on any one campus, thus making a single measure - used to compare across all institutions in the country - of little or no value at best, and entirely misleading, at worst.

Let me use my own institution, Penn State's University Park campus as an example.  You can see PayScale's salary data for the campus on its website.  Here's an excerpt (you can click on an image to enlarge it):

 

It's unclear from the PayScale website whether these are the only salary data they have on Penn State graduates, or whether this is just a sample.  And similarly, you can't tell from the CollegeMeasures website which PayScale data they use in calculating their loan repayment ratios, other than they say they are using median salary for people with five or less years of experience.  But look at the salary ranges shown in the graphic above -- they are huge.  In some cases, the student loan repayment ratios for students at the top end of the salary range would be less than half that of students whose salaries are in the bottom end of the distribution.  So which one is the "best" repayment ratio on which to base a decision to attend Penn State or on which to judge Penn State's performance?  We have no way of knowing.

There are obviously large problems with the non-random sample nature of the PayScale salary data.  For example, you cannot tell who's completed their survey, and how representative they are of all Penn State's graduates.  Another problem can be clearly seen in the graphic above, which shows that 65 percent of the PayScale data come from men, and 35 percent from women.  But according to data from the U.S. Department of Education's IPEDS Data Center, 46 percent of bachelor's degree recipients at Penn State's University Park campus in the 2008-09 year were women.  Given that men and women are non-randomly distributed across different majors, and that the earnings of men and women are quite different, the PayScale data for Penn State are clearly biased toward men.

Clearly, coming up with good measures of the return-on-investment of attending college is a difficult task. There are too many individual variables that affect the calculation, and attempts to simplify the process by coming up with a single measure - and then using that to compare across institutions - do not help us understand anything about institutional performance.

Rising health care costs hit home

The rising cost of health care is one of the public policy topics that probably receives more attention in the press than the rising cost of college, the latter of which I know a lot more about.  For almost 30 years I've worked at universities almost without interruption, and the five years I wasn't working at a university I was covered by my wife's health insurance under her union contract as a teacher, which was similar to what I received as a university employee.  Having worked in universities and benefited from the very generous benefits many universities offer, I've been largely protected from the challenges that many families face in gaining access to and paying for health care.  I recognize that not all higher education institutions offer such generous benefits, but the ones at which I've worked have had very good coverage.

For example, the current coverage at Penn State (which self-insures its employees) costs me $247.62/month for coverage for our family.  As a benchmark, I have a close friend who is my age and self-employed, and has to buy insurance for himself.  He pays over $500/month just for individual coverage that is nowhere near as comprehensive as I enjoy as a Penn State employee.  And for my monthly premium, the coverage my family receives is close to universal; we pay small ($10-$20) co-pays for office visits, and beyond that, most office visits for primary care physicians, specialists, hospital stays, procedures, etc. are covered in full.  There are of course exceptions; you do pay more if you go outside the approved network of providers (20% of the cost), but the network is fairly inclusive of health care providers, at least in our area around State College.  We also have relatively good prescription drug coverage.  Many preventive procedures are free.

As an example, a couple of years ago, our youngest daughter was in the local hospital for four days.  She had no surgeries or unusual procedures, other than a X-ray or two.  The bill came to over $15,000, and we paid nothing other than a $50 co-pay for our emergency room visit before she was admitted to the hospital.  This comprehensiveness of the coverage is similar to, and priced in roughly the same ballpark (adjusting for health care inflation) to what I enjoyed when I worked at MIT and at the University of Michigan.

Well, the other shoe has dropped here at Penn State.  Earlier this month the university announced the details of changes to the health care coverage effective next January 1.*  The monthly premium for family coverage is going up 12% (the individual premium is increasing at the same rate), not an unusually large rise given recent history.  However, the coverage that Penn State employees receive is changing radically.  The university is instituting two types of charges that didn't exist in the past.  The first is an annual deductible, something that is common in many other health insurance plans.  Families will pay a $500 deductible, which means that the subscriber has to pay the first $500 of health care costs in a year, before the insurance coverage kicks in.

In addition, the university is instituting a co-insurance charge of 10%, meaning that the subscriber is now responsible for paying 10% of all charges, with the health plan paying the remaining 90%, up to a maximum of $2,000 per year (including the deductible) for a family, or $1,000 for an individual.  While 10% doesn't sound like much, you have to remember that under our current coverage the plan pays 100% of the costs.  Here's a link to the details of the new plan.

Thus, the impact of the deductible and co-insurance charges is that many families will end up paying $2,000  (in addition to their monthly premiums) above and beyond what they're paying this year.  The combination of the increase in the premium along with the out-of-pocket additions means that my cost for health care next year is likely to go up by about $2,400. This represents an increase of about 80% in the out-of-pocket costs, not including co-pays.  But the co-pays are going up also, so 80% is probably a reasonable estimate of the increase.

Before you run off and blame the federal government's health care overhaul passed earlier this year, for causing these increases, I can comfortably say that that's not the reason.  Rather, the university - like many employers - has been struggling with rising health care costs and how to control them over the last couple of decades.  This has been a topic discussed in two university-wide panels on which I have served in the last few years, the University Strategic Planning Council, and the current Academic Program and Administrative Services Review Core Council.

The university has taken some steps, such as instituting wellness programs, to try to help control the demand for health care services among its employees.  It also waives the co-pay for visits to two local clinics staffed by employees of Penn State's Hershey Medical Center, in order to encourage employees and their families to use these services (at presumably lower cost) than opting to go to other providers or an emergency room for care.

But eventually Penn State must have realized that more of the costs had to be shifted from being borne by the university to being paid by employees.  The changes being implemented effectively accomplish this.  There are obviously large equity issues at play here.  The additional out-of-pocket costs represent a little over 2% of the gross income of a professor or administrator making $100,000, but it's 8% of the income of a secretary making $36,000.

Now that it has instituted deductibles and co-insurance for the first time (at least in the eight years I have been here), it is unlikely that these will ever go away.  Penn State employees covered by this plan should realize that they still benefit from health insurance coverage that is probably better and relatively less expensive than what most people in the country have access to.  But they should also realize that these costs will continue to rise in the future.

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* Last January 1st, the university drastically changed the health care coverage for retirees, with new employees hired after that date receiving a defined contribution health care plan in retirement, while existing employees enjoy a defined benefit health plan.  But that's a topic for another day.

A delay on gainful employment, but a commitment to move forward

The Education Department announced yesterday that it was going to delay issuance of some of its gainful employment rules in order to examine more closely some of the 83,000 comments submitted.  At the same time it announced that it was still planning on releasing the rest of the rules on November 1, as it had originally planned.

As I wrote in my last post, the for-profit sector had kept the pressure on even after the comment period on the rules was over.  In an apparent attempt to improve its image and perhaps sound more like the other sectors of the higher education industry, the Career College Association has just changed its name to the Association of Private-Sector Colleges and Universities, or APSCU, an acronym uncomfortably close to that of AASCU, the American Association of State Colleges and Universities. Or, as APSCU states on its website, ""CCA is changing because there comes a time when only change can get you where you need to be."  I have no idea what that means.  The new tagline for the organization is prominently displayed on its homepage:

The notion of providing options to students has been at the crux of the organization's argument against the Department of Education tightening regulations.on the industry.  "Committed to putting students first" seems rather facetious given that these are all for-profit companies, and their primary responsibility is to their shareholders, not their customers.

One of the interesting tidbits in the Chronicle of Higher Education's article about the delay was the revelation that Corinthian Colleges, Inc., the company that started the "My Career Counts" public relations campaign I wrote about in my last post, is spending in the "high seven figures" on the campaign.  Probably money well spent if Corinthian and APSCU is successful in getting the gainful employment rules delayed, or better yet for them, significantly weakened.

The for-profits keep the pressure on gainful employment rules

Even though the comment period on the Department of Education's gainful employment rules is over, the for-profit sector is clearly keeping up the fight.  This morning's New York Times (Washington edition) has a big, full-page ad (split across two pages) in the front news section (click on the picture to see a larger version of it).  Navigating to the URL shown in the ad, www.mycareercounts.org, takes you to a website with all the reasons why the proposed gainful employment rules should be tossed out.

It's a little difficult to figure out who created the website, until you look at the very small print at the bottom of the page:

The website is sponsored by Corinthian Colleges, Inc., one of the nation's largest for-profit higher education providers.  A recent report by Education Sector on the impact of the proposed gainful employment rules found that 15 percent of the Corinthian Colleges programs would face restrictions under the rules.  The report also noted that the firm had recently reported to analysts that "89 percent of its revenue comes from federal aid programs and only about 1 to 2 percent comes from cash payments from students."  Yes, you read that correctly: student payments represented only 1 to 2 percent of the firm's total revenues.  Clearly, the loss of eligibility for Title IV federal student aid funds poses a major threat to the firm's continued growth and viability.

Don't be surprised to see continued pressure and lobbying from the for-profit sector, at least until the Department's rules are finalized (due by November 1).  The Chronicle of Higher Education reported this week that the industry had given almost $100,000 in campaign contributions in the first seven months of the year to members of Congress who had sent letters to Secretary Duncan asking him to reconsider the rules.  Many of these letters are prominently featured on the "My Career Colleges" website.  The Chronicle also tallied the hundreds of thousands of dollars in lobbying costs incurred by for-profits this year, an amount that represented a large increase over last year.  For example, the article noted that Corinthian Colleges spent $310,000 in lobbying costs in the second quarter of this year, an almost 200  percent increase over last year's $110,000.

[Update]  When I finally got around to reading the rest of the Sunday Times, I discovered this full-page ad on the front of the second news section (again, you click to see a larger image):

Newsflash! Penn state receives an $88 million gift for. . . . .

Penn State announced today the receipt of the largest single gift in its history, $88 million, from alumnus Terrence Pegula and his wife Kim. As one could imagine, a gift of this magnitude coming at a time when the university is facing such constrained resources is a huge boost for the institution.

Pegula made his money in the natural gas business, and evidently had invested much money in the Marcellus Shale, the huge gas field that spreads across parts of Pennsylvania, New York, Ohio, and West Virginia.  Earlier this year, East Resources Inc., the privately-held firm of which he was founder, CEO, and a principal shareholder (according to the Penn State press release), was sold for $4.7 billion to Royal Dutch Shell.

The campus is buzzing and the excitement is impalpable as people think about the potential for such a large gift. Well, at least until you read past the headline and discover that the $88 million is going to be used for. . . . hockey. Yes, you read correctly: $88 million for hockey.  To be a bit more precise, the money is going to help build a "state-of-the-art, multi-purpose arena," as well as provide operating funds for the men's and women's hockey clubs to move to Division 1 status, according to the press release issued by Penn State today.

Penn State is fortunate in that it has not faced the same kind of funding constraints faced by other public universities, especially those in states such as California, Arizona, Florida, and Nevada. Nevertheless, the last couple of years have forced the university to make some difficult choices, including raising tuition at rates well in excess of inflation, withholding raises and keeping salaries flat last year, and instituting additional cost sharing for health insurance for employees (to be implemented next January 1).

Penn State is not a poor university by any means; according to the Chronicle of Higher Education's endowment database, Penn State had the nation's 45th largest endowment as of June 30, 2009, at $1.23 billion (since increased to $1.4 billion as of last June 30, according to a report provided to the trustees yesterday).  A key difference between Penn State and our peers with billiion dollar plus endowments, however, is the size of the university.  Penn State's endowment has to support 24 campuses and approximately 90,000 students.  Contrast this with Wellesley College, two spots above PSU at number 43, whose endowment of $1.27 billion supports its one campus and 2,324 students.  For those who don't want to do the math, this means that Wellesley's endowment per student is 40 times greater than Penn State's.

It is difficult for any university to look the proverbial gift horse (or alumnus, in this case) in the mouth and say, "No thanks" to any gift, particularly one as sizable as this. Those of us who work in universities and study their operation know that when donors get an idea in their heads of what they want to fund, it can often be difficult to get them to consider more pressing needs. I don't know how much the university tried to convince the Pegulas that Penn State had higher priorities than a new ice rink and Division 1 hockey teams. But clearly this was a priority for them, and in a couple of years we'll be able to gaze upon our new "state-of-the-art" hockey rink, right next door to the nation's second largest football stadium, our four year-old baseball stadium (capacity 5,406 and 20 luxury suites), and the now somewhat aged in comparison Bryce Jordan Center.

One can't wonder about what else $88 million could have bought for the university, if the Pegulas had been convinced to invest in the core of the university's business, i.e., teaching and research, rather than intercollegiate athletics. But here are just a few ideas of what $88 million could purchase:

1. The university could announce attainment of its goal of raising  $100 million in its Trustee Matching Scholarship Program.  Announced in 2002, the university had achieved 63% of the original goal (as of last November).  This is a wonderful program, with the scholarships all going to undergraduates eligible for Pell Grants, meaning they come largely from families with incomes below $50,000.  Yet raising the money has been a bit of a struggle for the university.  The Pegulas could have allowed the university to reach its $100 million goal and still had plenty left over.
2. Roughly 1,500 full-tuition, 4-year scholarships for enternig freshmen this year.
3. Roughly 2,500 half-time graduate assistantships this year (stipend and tuition waiver), or tuition waivers for approximately 5,300 graduate assistants
4. 88 endowed professorships throughout the university (such as in the Department of Education Policy Studies in the College of Education, to provide just one suggestion)
5. An endowment that could fund annually into perpetuity:
   -- 300 undergraduate full-tuition scholarships, or
   -- 270 graduate tuition waivers

I'm sure many on campus and off will be rejoicing over this gift, and as I stated earlier, nobody wants to look a gift donor in the mouth.  You may even find me in a few years sitting at the new Pegula Arena cheering on the Penn State hockey team when Michigan comes to town.  But it is hard not to speculate about some of the missed opportunities of such a sizable gift.

One more time on gainful employment

After taking a summer hiatus, The Itinerant Professor is back in full swing. Yes, just like network television shows, this blog takes a summer hiatus. And just like major league baseball stars, it also refers to itself in the third person.

Enough posturing. The big news this fall is the overwhelming response to the proposed gainful employment rules published by the Department of Education in the Federal Register in July.  "Overwhelming" as in over 83,000 comments on the rules submitted to the Department, according to The Chronicle of Higher Education, far in excess - by scores of thousands - of any other proposed rules by the Department in recent memory .

As Inside Higher Ed pointed out in a recent article, the vast majority of these came in from students, employees, and supporters of for-profit institutions, often coordinated by the Career College Association (CCA), the lobbying arm for the for-profit sector.  These were not the result of grass roots efforts, but more akin to the "astroturf" campaigns where companies or other organizations try to make contacts with Congress or federal agencies appear to come from individuals alone, rather than as part of an orchestrated campaign.  The IHE article described how Education Management Corp. hired a "Republican-affiliated strategy firm" to encourage and assist employees of its many for-profit institutions to write letters in response to the gainful employment rules.  The article noted that the CCA "also coordinated bulk submissions of hundreds of comments."

The story about Education Management Corp. was first published by Stephen Burd of the New American Foundation's Higher Ed Watch blog:

“This week, employees throughout EDMC and our schools will be receiving phone calls during business hours from our partners, the DCI Group, to assist you in crafting personalized letters to U.S. Secretary of Education Arne Duncan detailing for him your own views on Gainful Employment,” Todd Nelson, EDMC’s chief executive officer, wrote last Tuesday to the company’s approximately 20,000 employees in an e-mail, which was obtained by Higher Ed Watch.

 “You will be asked a series of short questions that will help DCI Group create a unique letter. These personalized letters will then be delivered to you for a signature, along with a pre-addressed stamp envelope,” wrote Nelson. “We encourage you to mail the letters as quickly as possible so that your comments are received before September 9. The entire process should take no more than 10 minutes of your time, but its impact on EDMC would be immeasurable.”

One of the major criticisms of the rules raised by the CCA campaign is that they would likely force many for-profit institutions, or at least some of the programs in those institutions, to close, as students in them would no longer be eligible for federal Title IV student aid funds.  The campaign has emphasized how this would severely affect access to higher education by poor and minority students, since they are disproportionately enrolled in this sector.  A recent press release by the CCA stated that:

By closing programs and placing others in a tenuous “restricted” category, the ED gainful employment proposal has the potential to push 2.3 million students out of higher education, according to a CCA commissioned economic analysis prepared by Charles River Associates. This number includes 790,000 fewer females, 210,000 fewer African-Americans, and 190,000 fewer Hispanics.

[In the interest of full disclosure, I should note that the CCA had approached me earlier this year about hiring me to conduct this study for it, but I declined.]

The question now is how the Department is going to react to all these comments.  It clearly knows that a good portion of these are the result of the astroturf campaign, and thus, are likely to be discounted in importance.  Secretary of Education Arne Duncan has been fairly strident in his criticism of the for-profit sector and the need for the gainful employment rules, and has shown little inclination to back down on the preliminary rules published in July.

My guess is that the Department will stand its ground, and attempt to implement the rules largely as published.  An early indication of this was the press release issued by the ED earlier this week when it announced the most recent student loan default rates for FY2008, which rose from the previous year - not a great surprise, given the recession.  But in releasing the data, Secretary Duncan noted that:

"The data also tells us that students attending for-profit schools are the most likely to default," Duncan continued. "While for-profit schools have profited and prospered thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use. This is a disservice to students and taxpayers, and undermines the valuable work being done by the for-profit education industry as a whole," Duncan continued.

So stay tuned.  The Department is scheduled to issue the final rules on November 1, with the rules scheduled to take effect next July 1.