For-profits, student loans, new rules, and how these affect students in the USA, Canada and the UK

For profits are in the news again for several reasons.

The Obama administration has produced new rules that determine whether for-profit institutions will qualify for federal aid in the form of student loans. Schools will maintain access to government-paid tuition if at least 35 percent of its former students are repaying their loans, or the estimated annual loan payment of a typical graduate must not be bigger than 30 percent of his or her discretionary income, or 12 percent of his or her total earnings. (see Nelson, 2011, for full details of the new rules). Forbes magazine reports that the stock values of the major for-profit universities rose 12% on the news, since the final draft of the rules were clearer/simpler and easier to measure (and less severe than originally proposed).

At the same time, Apollo Group (the owners of the University of Phoenix) announced that it has written down the value of BPP, its UK-owned company, which suggests that it is less optimistic about making ‘easy money’ out of the attempt by the UK government to increase competition between UK universities. Nevertheless Apollo is still committed to the long-term future of BPP. Until the UK announces how it intends to ‘regulate’ competition between UK universities, BPP’s future will remain uncertain, but it looks like Apollo is taking a bet on the possibility that things will ‘open up’ for them in Britain. (See also: The calamitous state of higher education in the UK).

Also today, the Presidents of British Columbia’s four research intensive universities called for a reduction on the interest rates for student loans for students in public universities, which at 2.5% above prime, are the highest in Canada, and also with the shortest repayment time. The call is timely, because interest rates in Canada, which have remained very low since the 2008 recession, are predicted to rise from September.

Lastly, also this week, the Minister of Training, Colleges and Universities of Ontario announced that it will move away from funding post-secondary institutions solely by growth or number of FTEs, and will negotiate individually with each institution on its ‘strengths’, such as student satisfaction, employment rates and student mobility, with a special emphasis on excellence in teaching. (How this will be measured and rewarded remains to be determined).

Sources:

Nelson, L. (2011) Your guide to ‘gainful employment’ Inside Higher Education, June 3

Associated Press (2011) Sector Snap: Higher ed. stocks surging on new rule, Forbes.com, June 2

Baker, S. (2011) New doubts on for-profits in Britain, Times Higher Education Supplement/Inside Higher Education, June 3

Steffenhagen, J. (2011) Student loan interest rates too high, say BC universities, Vancouver Sun, June 2

Bradshaw, J. (2011) Ontario shakes up education funding, Globe and mail, June 2

Comment

Underlying each of these moves is a more fundamental question: what is public policy regarding the funding of higher education? How much should students pay? It seems that we are seeing an almost unexplained or certainly less than transparent shift in public policy away from the state funding post-secondary education to a user-pay system. The UK is leading the charge, with the backdoor move to privatization through for-profits and increased tuition fees in public institutions occurring quite rapidly in the USA. Canada is still supporting a state-funded system but is gradually increasing the proportion of cost paid by students through tuition fee increases and could be doing more to reduce the burden of student debt, at least in some provinces such as BC.

On the other side, the Obama rules for for-profits look very moderate. But why would these be restricted to the for-profit sector? Would it not be reasonable to ask the same of our public institutions? Shouldn’t they be ensuring that at least 35% of their students are able to repay their loans after graduation? This still leaves plenty of room for universities to produce scholars with no interest in getting jobs, after all.

I am not against the principle of students paying tuition fees, as long as they are not a major deterrent to poor or disadvantaged students going to university or college. What I would like to see though from our politicians is where they stand on the issue of public funding for universities. Is it both a public and private good (which suggests a mix of state and personal funding)? Once that principle becomes established, then it becomes easier to deal with issues such as student loans, student loan repayments, etc. What is not acceptable is policy by default, or stealth, or even worse, on an inconsistent case-by-case basis, which seems to be the situation in all three countries at the moment, with the possible exception of the UK, where the government’s intention to privatize higher education is quite clear (or, rather,  it became so after the election).

Also, while I support the idea of having some means of measuring ‘output’ or ‘quality’ of our post-secondary institutions, is it not somewhat bizarre that the only regulated measure in the USA is the proportion of people able to repay their student debt? Or perhaps that says it all about what their higher education system has become. Meanwhile, I welcome the move by Ontario’s Minister to look at other factors besides student numbers in funding post-secondary institutions, especially the idea of negotiating individually with each institution on its ‘strengths’. However, the government could well be replaced after a fall provincial election, but if it isn’t, it will be interesting to see how viable the new method will be.