Is There a Higher Education Bubble About to Burst?

With last week’s release of student loan repayment data by the Education Department, I am beginning to again hear chatter about the so-called “higher education bubble.” It began with an informal conversation I had with an enrollment manager and since I have heard similar grim predictions from two reputable financial analysts that track the higher education industry for investors in for-profit schools.  No one can argue that this is a turbulent time in higher education.  The fundamentals of the business of education are changing before our eyes due to economic realities, the distribution channels are being revolutionized with the maturation of online education, and greater accountability is taking shape in the form of increased regulatory scrutiny as well as greater consumer savvy.  Do all these factors, however, portend the bursting of a bubble the likes of which we have not seen since the housing or bubbles?

University of Tennessee law professor, Glenn Harlan Reynolds, has been an extensive promoter of the bubble idea.  Reynolds has warned students to refrain from taking on student loans.  He goes as far as to warn some students to “rethink college entirely.” The basis of Reynolds’s argument is that it is likely one day soon that people will wake up and realize their education is not worth the money they borrowed for it. Reynolds further argues that the vast majority of growing occupational fields no longer require a traditional college education but instead an apprenticeship and/or career education.

Reynolds’ foreshadowing of the burst of the higher education bubble is also based on the ideas that institutions have for too long been living way beyond their means, that the flow of easy credit (student loans secured by the federal government) is not sustainable, and that the market (students and employers) will demand significantly greater value from post-secondary institutions.

It is difficult to argue with many of Mr. Reynolds’s points. In the just released US News & World Report 2010 college rankings edition, the top headline on the cover reads “Are They Really Worth It?” and the opening article pointedly declares that “if colleges were businesses, they would be ripe for hostile takeovers, complete with serious cost-cutting, and painful reorganizations.”

As we have seen over the past few years, even our most prestigious Ivy League institutions with hefty endowments are suffering. Many tuition dependent institutions are teetering on the brink of insolvency and once renowned state systems such as the California State University have suffered irreparable damage due to the new financial realities.

In our own practice, where we support nearly 680,000 prospective and existing students annually, we see a level of savvy from students we have not seen in the past. Students, particularly adult learners, are wanting to know what their education will tangibly accomplish for them, will their program of study provide them with the practical knowledge they need, and what real career placement assistance will be provided to them.

We are also seeing the federal government consider new regulations that will in effect restrict the flow of credit to institutions (particularly for-profit schools such as Kaplan, Strayer Education, and Corinthian Colleges) that fail to achieve certain benchmarks as it relates to student loan repayment.

Employers are also beginning to chime in. Earlier this year, a survey commissioned by the Association of American Colleges and Universities (AACU) found that only one in four employers feels that our institutions of higher learning are preparing students for the “challenges of the global economy.” Closer to the ground, we are seeing students that for the past several years had been clamoring towards pursuing an MBA to better their career prospects now demanding advanced degrees that provide more specialization such as masters degrees in finance, taxation, and accounting. Students are reporting that employers are just no longer excited by an MBA education unless it is from a very selective institution. Unfortunately, many schools that launched MBA programs over the past decade (especially online), are beginning to see declines in enrollment because they are not keeping up with consumer preferences – both student and employer.

Finally, there is the student loan issue that is becoming an increasingly serious problem. After all, according to the Wall Street Journal, student loan debt has now exceeded credit card liabilities and the Education Department’s recently released repayment data suggests only 51% of outstanding student loans are currently being repaid. There is little question that this issue will continue to adversely impact some student borrowers as well as the taxpayer.

As evidenced by both data and trends, Mr. Reynolds’s arguments are based on several highly accurate assumptions – factors that have been and will continue to radically alter the higher education landscape.  Things will need to change – everything from tuition pricing growth to what schools teach. We, however, find it difficult to subscribe to Mr. Reynolds’s darker overall theory that stakeholders – whether they are students, parents, employers, or the government, will wake up one day and determine that a college education is not “worth” the investment.  College-going rates continue to increase and expanding college completion is a big priority of many policymakers. It is also necessary if our nation hopes to maintain its leadership position in the global economy. Further, the same AACU survey mentioned earlier, found that 97% of employers intended to place the same or increased emphasis on hiring candidates with at least a bachelor’s degree over the next year. While there is plenty of constructive debate on whether higher education is worth it, one just needs to look at July’s unemployment numbers.  Only 4.5% of college graduates were unemployed while over 10% of individuals with just a high school diploma were.

There will be plenty of fallout and any higher education stakeholders that do not take the realities we are seeing seriously do so at their own peril but we would not spend much time worrying about the entire sky falling on higher education.

Gainful Employment Into Gainful Advantage

How Non-Profits and For-Profits Can Turn the Tables

It has been over two weeks since the gavel came down at the U.S. Senate hearing examining for-profits and deceptive recruitment/financial aid tactics. The highlight was the release of videos of congressional investigators catching the largest for-profit schools “in the act.” While the hearing was little more than a forum for politicians to pontificate, it had a devastating impact. The secret-shopper scenes could not be defended and ever since, the media has been full of highly critical articles of how for-profit schools are taking gross advantage of students and taxpayers.

Over the past week, much of the chatter has turned to the implementation of so-called Gainful Employment regulations that would in effect establish price controls and eliminate certain occupational programs. These career programs are some of the most popular and profitable offerings for companies such as Kaplan, EDMC, and Corinthian Colleges. While the proposed regulations would apply to all institutions, the impact would mostly be felt by for-profit entities. Ironically, many of the schools that were highlighted by the secret-shopper videos are schools that would be most impacted by Gainful Employment.

Many of the larger for-profit education corporations have warned investors that regulatory changes and most specifically Gainful Employment could have a materially adverse impact on their businesses. These warnings coupled with all the negative press out there are not only hammering stock prices but also leaving many of the for-profits with questions on what to do next and what may happen next. Conversely, many non-profit institutions are trying to determine how they might be able to benefit from all of this.


Let’s start with ideas for the for-profits. The largest obstacles for having students obtain “gainful employment” so that they are in a position to benefit from their education and repay their student loans are a) making sure students actually persist until completion and b) securing appropriate employment opportunities for students. For-profits that have found ways to address these two issues (and there are ones that have) have a significant advantage.

For-profits should consider implementing proactive retention strategies as well as career placement solutions. This starts with providing each and every student with a caring, dedicated Retention or Reenrollment Counselor. The focus of this counselor should be to get to know each and every student as well as their unique needs. Furthermore, this counselor should make consistent contact with the student to check-in, motivate, and mentor. Whether it is providing a bridge to student services, social services, academic advisors, or financial aid; this counselor should be trained and empowered to help remove any and all obstacles that might prevent a student from completing a specific program. In essence, a counselor should act as a student’s advocate and be just as passionate about seeing a student graduate as an Enrollment Counselor might be to matriculate a prospective student.

Retention Counseling should be supplemented by professional Career & Education Advisors who not only help students write a resume or show them how to login to but can prepare students for interviews, build confidence, and work as each student’s partner in securing employment. These advisors should be available to students not only before graduation but long afterward.

Another key strategy is administering a simple online personality assessment to all new students that measures student strengths and weaknesses in 15 key areas. The assessment provides counselors, career advisors, and faculty with a proactive glimpse of how each individual needs to be motivated, mentored, or coached.

These solutions seem costly and complex. The reality is they are, however, the ROI is substantial. Clients of ours that utilize these solutions see on average a 26% improvement in graduation rates and a 39% improvement in career placement even in today’s challenging economy. Not only do these solutions allow schools to better serve their students while providing better outcomes but they also help schools with their bottom line. Finally, schools that promote the existence of these services will recruit more students – especially in the current press climate!

For-profits also need to ensure their programs are at the cutting edge of employment demand – ensuring that students have a better chance to secure employment and maximize earning potential. The cumulative effect of all these strategies is to enhance enrollment revenue and profitability, possibly enabling schools to lower prices without reducing their margins which is so important to Wall Street.


There is no way to sugar coat it. With each passing day, the for-profits are gaining a worse reputation than BP and the common cold combined! This provides non-profits with a unique opportunity to benefit at least in the short-term. While I prefer strategies that allow for long-term gains, a short-term advantage can help many non-profits generate more momentum that can produce long-term results. So what are the 3 key steps that every tuition dependent non-profit that loses student enrollments to for-profit schools should consider taking?

First, an applicable institution (schools that are not highly selective and cater to non-traditional students) must come to the realization that even though they may not compare themselves to a for-profit school, they may be losing students and relevance at the hands of for-profits. Stakeholders must decide to change and act with time of the essence so that they may effectively compete. Part of this decision involves taking risks and thinking outside of the box. There are many resources out there to help schools do just this. Further, institutions do not need to sacrifice their values or educational quality but they should realize that whether they like it or not for-profits will and (in the long-term) probably continue to be a growing competitive force that will draw students.

Next, schools must reevaluate their offerings. If non-traditional students are being served, fully online options should be available. Online programs should be of the highest quality, interactive, accelerated, and applicable to today’s most relevant career opportunities. In some cases, this may mean that institutions may need to look to offer new programs. In other cases, existing programs may need to be modified or reinvented. By way of example, an MBA with a concentration in Accounting that was popular 5 years ago may need to be retooled into a Masters of Accounting program that has much greater career relevancy today.

Finally, non-profits should not only focus on their strengths such as history, having traditional campuses, reputation, full-time faculty, and distinct missions but also on areas that have been traditional benefits offered by the for-profits – acceleration, career-focused programs, flexibility, and in many cases technology. Providing special support services including the type of proactive retention and career counseling mentioned earlier is also key – as it is a competitive advantage compared to most for-profits and non-profits alike.

Do you have other ideas? We would like to hear them!

Public Opinion More Damaging Than Regulation

By now, you have heard about last week’s Senate hearings and the outrageous tactics caught on tape by Government Accountability Office secret-shoppers. The recordings were so egregious that they were universally condemned by the Career College Association (CCA), the for-profits who were involved, and officials that represent not-for-profit institutions. We can all agree that you seldom see such consensus on any issue in higher education.

The airing of these recordings certainly caused a significant amount of bloviating by several United States senators as well as other elected officials. Despite the uniform outrage and tough talk, however, did the disbelief create a real movement to pass emergency legislation or extraordinary regulatory action? The answer to both questions is NO!  In fact, a week later, nothing has changed at least from a legislative or regulatory standpoint – which is obviously not a surprise. These things take time.

Other phenomena have taken place over the past week that have prompted significant response from key actors in the for-profit space – actions that would have never been imagined in the recent past without the enactment of aggressive regulatory or legislative actions. What has caused Kaplan College to suspend recruitment at two of its campuses, Westwood College to abandon its incentivized recruitment plans, the University of Phoenix to talk tough about deceptive practices, and CCA President Harris Miller to sharply demand “real change” from the organizations his group represents?

The answer is simple – the court of public opinion has accomplished more in the past week to effect change than any governmental action would. We have seen a “shock and awe” amount of negative press coverage on the for-profits. All for-profits have been lumped together and painted as the “big-oil” of education – organizations that are bilking their students and the taxpayer all in the name of making a profit. For the most part, the coverage has squarely focused on the for-profits and has not examined overall accountability in higher education.

The media coverage has begun to shape a general consensus across party lines that for-profit education needs to be reformed. Those from the left feel this way because of their general distrust of the private sector, while conservatives (who have generally been more supportive of the for-profits) are growing concerned because of their predisposition to financial austerity and the feeling that federal Title IV funds are being misused. Then there are the students themselves. At least two (2) for-profit institutions that I consult for have shared that their recruiters and student affairs staff have been spending a lot of time over the past week overcoming student concerns due to all the coverage. It should be noted these two (2) particular schools are shining examples of how all for-profits should operate both in practice and the real outcomes these specific organizations have delivered for decades.

We now find ourselves in a place where the general public is demanding action. This is compounded by the fact that the hundreds of thousands of students who attend for-profit institutions are a part of the general public. If current and prospective students alike are raising concerns about the integrity and/or fitness of for-profit institutions, that can have a real adverse impact on the bottom line of the for-profits. As successful business organizations, the for-profits understand this and realize a tarnished image with the general public is more threatening than most anything the Department of Education or Congress can or will do going forward.

As a result, the for-profits are doing everything they can to overcome the tsunami of negative public opinion that if left unchecked could radically impact their marketplace opportunities in the future. Leaders of the sector are also beginning to take transformative action to demonstrate they take public sentiment seriously and want to make things right. This will be an important step for the sector’s public rehabilitation as well as the reinvention of certain for-profit schools into more accountable entities with increased integrity.

No matter what the final Department of Education regulations look like or whether Congress attempts to deal with for-profit sector via legislative action, I would not be surprised if the events of the last week are viewed in the future as the true impetus for change. Time will tell.

How can individual for-profits turn the negative coverage into a positive?

What are three (3) key steps each tuition-dependant non-profit should take immediately to take advantage of this climate?

These are questions we will answer in future posts.