TeluGlobe » Education

Freudian Slips by Financiers

Admin — Wed, 19 Oct 2011 01:47:47 +0000

You may recall -- I have been particularly critical about for-profit educational institutions for preying on lower quality students and soak them with debt to enrich the executives at these universities. Here is a great revelation by a pimp for these Fraudversities (another Freudian slip).

Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them.

From Zero Hedge:

A key reason why a preponderance of the population is fascinated with the student loan market is that as USA Today reported in a landmark piece last year, it is now bigger than ever the credit card market. And as the monthly consumer debt update from the Fed reminds us, the primary source of funding is none other than the US government. To many, this market has become the biggest credit bubble in America. Why do we make a big deal out of this? Because as Bloomberg reported last night, we now have prima facie evidence that the student loan market is not only an epic bubble, but it is also the next subprime! To wit: “Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them.” Re-read the last sentence as many times as necessary for it to sink in. Yes: just like before lenders were “pushing loans to people who can’t afford them” which became the reason for the subprime bubble which has since spread to prime, but was missing the actual confirmation from authorities of just this action, this time around we have actual confirmation that student loans are being actually peddled to people who can not afford them. And with the government a primary source of lending, we will be lucky if tears is all this ends in.

More bullets from Bloomberg:

Vince Sampson, president, Education Finance Council, said during a panel at the IMN ABS East Conference in Miami Monday that lenders are no longer pushing loans to people who can’t afford them.

The bubble in the sector is over

Noted political dynamic of education funding

U.S. is currently 16th in the world in degree attainment

He notes the U.S. education secretary and U.S. president have probably looked at that number

Nevertheless state universities are struggling because state governments are poorer: Sampson

Says a sustained effort is underway at some schools to bring in out-of-state tuition, which typically pay 100% of the cost

Barbara Lambotte, a senior credit officer at Moody’s said during the panel that student loan lenders are chasing the same potential borrowers

Everybody is going after borrowers with co-signers and high FICOs, also students who may be going to the better schools: Lambotte

Gary Santo, a MD at First Marblehead said during the panel that borrowers too are being more conservative in theirchoice of education funding

Lambotte said Moody’s outlook on private student loan ABSmarket is negative, but newer loans should perform better

To be sure, when the implications of the $850+ billion student loan bubble blowing up spread through the financial markets, it will make subprime seem like a tame walk in the park.

Of course, nobody will care about it until it is too late. Just like every other time because this time is never different.

Tomorrow (Wed) morning Apollo Group (parent company of University of Phoenix) is reporting. It could get very interesting. [I am expecting them to report in-line and warn big time. The stock [APOL] closed above $43 today, could see low 30s tomorrow.]

‘This is a time to rig for Survival‘

“I don’t think it’s a time to make money - this is a time to rig for survival,” said Charles Stevenson, president of hedge fund Navigator Group Inc. and head of the co-op board at 740 Park Ave. The building, home to Blackstone Group LP chairman Stephen Schwarzman and CIT Group Inc. chief executive John Thain, was among those picketed by protesters Tuesday. “The future is not going to be like a past we knew,” he said. “There’s no exit from this morass.”

Watch the first half…

Education vs Degree and the Virtuous Cycle of Good Institutions

Admin — Sat, 24 Sep 2011 11:59:55 +0000

What is education? Does getting a degree means one got education? How do we acquire knowledge? Through curriculum? Professors? Learning environment? Our own motivation? What makes some institutions great? Why do students from certain institutions come out as the best? What is the virtual cycle of education (per my definition)? Take a listen.

విద్య అంటే ఏమిటి? పట్టా పొందటం విద్య సంపాదించడమేనా? విద్య ఎలా అబ్బుతుంది మనకు? పాట్యాంశాల ద్వారానా? ప్రొఫెస్సొర్స్ ద్వారానా? సహ విద్యార్ధుల ద్వారానా? స్వయంకృషి తోనా? కొన్ని విద్యా సంస్థల నుండి వచ్చిన విద్యార్ధులకు ఎక్కువగా అవకాశాలు ఎందుకొస్తాయి? అసలు విద్యాసంస్థల గొప్పదనానికి మూల కారకులు ఎవరు?
ఇవి ప్రశ్నలు. సమాధానాలకు, ఈ సంభాషణలు వినండి.

Broadcast dates on TORi; Sept 8, Sept 9; 2011

Audio language: Telugu

Conversation with Satish Vemana on UNVA Student Plight

Admin — Mon, 08 Aug 2011 00:36:37 +0000

On Sunday, Aug 7 TANA Treasurer Mr. Satish Vemana joined Prof Mohan Venigalla for a special live show on TORi. Satish has taken the lead on behalf of TANA to represent the interests of UNVA students with US Government. The conversation was focused on TANA’s efforts to help UNVA students from India. Several affected students called the show and sought clarification.

Audio Language: Telugu

Broadcast date on TORI: Aug 7, 2011

Special Live Show on TORi: Mohana Murali with Satish Vemana About the Status of Indian Students at UNVA

Admin — Sat, 06 Aug 2011 20:01:26 +0000

Tune in to Prof Mohana Murali’s special live show on TORi on Sunday, Aug 7 at 2 PM US Eastern.

Mr. Satish Vemana, Treasurer of TANA will join Prof Mohan to give an update on TANA’s efforts to resolve the situation of Indian students affected by the ICE action against University of Norther Virginia.

Call in number: (703) 879-6611

Let’s Talk Turkey as Another US University is in the Feds Cross-hairs (Part 1 of 2)

Admin — Sat, 30 Jul 2011 20:03:57 +0000

Most of the followers of this blog and my internet radio show know that I have been very critical about many for-profit universities in general and what I consider as universities of fraud in particular. In past I did call out a few universities by name and mention that the degrees they are awarding are essentially worthless. However, I have been leery about labeling particular universities as complete fraud. Early this year, the Tri-Valley University saga opened a new chapter in this fight against universities of fraud.

In the wake of Feds shutting down Tri-Valley University, some callers on my show have asked me to name a few universities which I think are fraud. I don’t recall if I named any in response to those calls. Most probably I did not name University of Northern Virginia (UNVA). For, I did not have any hard evidence to support my assertions. However, if anyone has asked me privately, I would not have hesitated to name UVNA as a questionable entity. In fact, in my recent trip to India, a relative of mine asked me about UNVA in particular. I did not hold any punches and told him that not only UNVA is not a reputable university, it is also not accredited, and most possibly it is a big fraud.

View more videos at: http://www.nbcwashington.com.

View more videos at: http://nbcwashington.com.

As in the case of Tri-Valley University, about 90% of the students who are affected by this action by the Feds are Indians, and a vast majority of them are from Andhra Pradesh. I beg to differ from the standard line of excuse: ignorance or innocence. We all know the maxim: ignorantia legis neminem excusat (ignorance of the law excuses no one.) I contend that it is willful participation by many.

Now that Feds got into the picture, local and national Indian organizations are entering the scene to minimize the damage to students. This is commendable. However, shouldn’t these organizations be doing something preventive rather than being reactive? Come on; please don’t tell me that we could not possibly know. Many people knew. For example, many of us living in the Washington, DC area have our suspicions about UNVA. Yet we said or did nothing to convince those students to seek alternatives.

For get the involvement of organizations. I ask myself, “As an educator and a concerned citizen, what role do I have here?” That is, to say or do something so as to PREVENT the damage that could be caused to its student body. For that matter, don’t you think that this news is a cause of concern for the entire Indian community? It is a concern not just because Indian students are affected, but also because reputation of Indian community as a whole is at stake! Doesn’t frequent news like this breed prejudice that Indians are suckers for fraud, or worse, enablers of fraud?

I have no convincing answers to the issue of community role. However, I understand the awkward nature of telling a student on his face that the university he chose is possibly a fraud. Most likely, the student is also aware of it and he/she is ‘registered’ with university anyway. For, they are providing a ‘legal’ cover for working while still being a student. There may very well be some delusion at play here: “It won’t happen to this school,” or, “It won’t happen to me.”

Four weeks ago, Ms. Lisa M. Krieger of San Jose Mercury News interviewed me for her investigative piece, “Universities or Visa Mills” (SJMN, 7/17/2011). While my quotes did not make into the final article, as an off-the-record comment I told Lisa that University of Northern Virginia could very well be the next Tri-Valley University. It appears that Lisa’s article was delayed by one week due to the vetting process. Perhaps my bold statements about some of the universities were either not relevant to the article or my comments did not clear the vetting process by the SJMN lawyers. My hunch is that other than from my off-the record comment, Lisa may have heard a thing or two about UNVA from other sources. As the news about UNVA broke out, the first thing that came to my mind is that Lisa’s article did not mention anything about UNVA. I said to myself, “If a major news paper with its vast resources has to scrutinize a thoroughly investigated piece by a veteran journalist, it is quite understandable that normal people are careful in making public comments.”

(to be continued)

On July 22 MMGL: Career Planning and Professionalism

Admin — Mon, 18 Jul 2011 21:17:37 +0000

My good friend and a former student of mine, a veteran of the US Air Force, and currently an Assistant Professor in the Norther Virginia Community College (NVCC) System, Colonel Michael Krimmer, Ph.D. will join me on July 22, 2011 MMGL. We will will chit-chat about professionalism and career planning. [Fair warning: Neither of us claim to be experts in these subjects. However, the professional careers of both us spanned more than 60 years. We have been there and done that - so, we should know something about professionalism and career planning. ]

If there are any takers, we would like to conduct mock interviews for a couple of fake jobs. Revisit TeluGlobe for fake job postings. If you would like to be interviewed and be assessed on air, you may want to apply to these jobs before Thu evening. I promise: it will be a learning experience as well as entertaining.:)

BTW, this is not particularly relevant information. For those of you who do not know much about NVCC, it is one of the top-notch community college systems in US. FYI, Vice President Joe Biden’s wife, Jill Biden is currently a professor at NVCC.

‘Back to School’ Promo to Start Tomorrow – $100 App Store Gift Card [Europe Too]

Kanaka — Thu, 16 Jun 2011 03:01:15 +0000

Follow the link for more details on Mac Rumors

Worthelss Degrees from Universities of Fraud Cost You More than Traditional Colleges

Admin — Thu, 26 May 2011 09:34:39 +0000

Via Bloomberg:

The average cost of attending a four- year for-profit college surpassed expenses at both U.S. state and private nonprofit universities, a government report found.

Full-time students paid an average of $30,900 annually at the for-profit schools in the 2007-2008 academic year, almost double the $15,600 average paid at public universities, according to U.S. Education Department data released today. The average cost of attending a private nonprofit college was $26,600, the study said.

….

The study’s cost estimates, which used constant 2009-2010 dollars, included living expenses such as housing and food, for students at all colleges. It looked only at students who were still considered dependent on their parents, to get a picture of the costs paid by “traditional” undergraduates, said Tom Snyder, an Education Department statistician.

The report looked at a small sample of the students at for- profit colleges, where only about one-quarter are dependents, said Harris Miller, president of the Washington-based Association of Private Sector Colleges & Universities, an industry group. Other data show that for-profit colleges cost less than private nonprofit institutions because many students study at home through online courses, keeping living expenses lower, Miller said.

Thirty-seven percent rise in cost of something that is worthless.

Average costs after grants at four-year, for-profit colleges rose 37 percent from $22,500 in the 2003-2004 academic year, the study said. During the same period, costs at public universities rose 8.3 percent from an average of $14,400, and by 8.6 percent from an average of $24,500 at private nonprofit institutions.

Class of 2011, Shall I Congratulate You or Apologize?

Admin — Thu, 19 May 2011 21:44:35 +0000

George Mason University Class of 2011: Hope the Smiles Sustain

Graduation time at Mason has been one of the best times on my job. This is a time of the year we all look forward to. Students with smiley faces and beaming optimism, and joy-filled parents -- the euphoria is contagious. It is also a moment of pride for all the faculty. The pride is doubled when a student wants to take a picture with the faculty.

I just came back from the convocation of Volgenau School of Engineering at George Mason. I noticed a big difference between the class of 2011 the the classes prior to 2009. Record number of graduates and fewer than usual show-ups at graduations. Even among those who showed up, very few of the graduates and their parents looked happy. You can clearly feel the anxiety in their faces.

Clearly, decades of lousy economic and fiscal policies by my and preceding generations have not only widened the gap between the haves and have-nots, but also robbed the dreams of the young. Graduating classes of 2008, 2009, 2010 and 2011are finding it extremely hard to find a job, much less land a career they like. Via CNN

Fresh out of college, slim hope for a job

By Carl E. Van Horn and Cliff Zukin, Special to CNN

May 19, 2011 7:44 a.m. ED(CNN) — This year’s college graduates had reason to believe that job prospects for the class of 2011 might be brighter than those of recent classes tossed into the dark abyss of the Great Recession. News throughout their senior year seemed different — flush with stories of rising stocks, record corporate profits and new signs of consumer confidence.

Sadly, rumors of a recovering labor market might have been greatly exaggerated. Large numbers of recent graduates are still out searching for their first full-time job, years after their own commencement celebrations held years ago.

….

Members of the class of 2011 may be forced to make uncomfortable adjustments from their original expectations of post-college life to the reality described by the just slightly older graduates from the previous five years.

Young college graduates entering the labor market in 2011 are competing with millions of unemployed college graduates who have already made significant accommodations in order to get their first job: taking a position that paid a lot less than expected; working below what they regarded as their level of education; or accepting a job outside their area of interest.

And while these new graduates struggle to find their first job, most are entering the working world with a median debt of $20,000 and 83% still owe most of what they borrowed. Not surprisingly, nearly one in four graduates report that they still live with their parents as a way to manage their budgets.

….

Perhaps most troubling, a solid majority of recent college graduates we surveyed now believe that their generation will not do better than the one that came before them; not even half expect to have more financial success than their parents.

The corrosive effect of the Great Recession may rob the United States of much of the optimism that young graduates traditionally brought to our work force and society — replacing it with growing doubts about the long-standing American dream that each new generation will enjoy more prosperity than the last.

The foundation for much of our future is made with optimism and hope. What’s generation to do when these two are compromised?

Graduation Day: A day for pictures, smiles, joy and then for a question, "What's next?"

Comment? [This will be the PRIMARY topic on MMGL, May 20. Hope you can join the show and share your thoughts.]

How Student Loans are Ruining American Dream

Admin — Mon, 25 Apr 2011 13:08:39 +0000

Here is a summary of scathing report published in Barron’s on for-profit colleges. (Via Wall Street Cheat Sheet)

On Sunday April 24, 2011, 10:31 pm EDT

The barren, post-apocalyptic wasteland that was once the American economy (NYSE:SPY) has proved to bear little fruit for recent college graduates. It seems that the avaricious, aggressively credit-dispensing financial institutions at the root of the problem have saddled another critical portion of the demographic with financial woes.

According to a study commissioned by the Institute of Higher Education Policy, one in four recipients of college student loans has fallen behind on their repayments. The report is turning heads of prospective college students and parents alike as the debate continues to rage over the financial and practical logic of doling out the dough for higher education.

Adding fuel to the fire, The LA Times reports that not only is delinquency on the rise, “The number of college graduates with debt increased from less than half in 1993 to two-thirds in 2008, according to the Education Department. And the average debt is going up sharply — to $23,200 in 2008 from $18,650 four years earlier.”

So what’s a kid these days to do? Get educated? “Educating borrowers works,” says Debora Chromy, who thinks that most of the problem is due to lack of knowledge, “Many borrowers end up becoming delinquent or defaulting because they don’t know all of the options available to them.” But is there incentive to teach borrowers the ills of debt?

Last week SLM Corporation (NYSE:SLM) announced earnings showing the student loan market is alive and well. Does Sallie Mae really want to reduce the number of customers in their market? Or will educating students about debt be more like alcohol ads simply asking a binge-drinking society to “Drink Responsibly”?

In addition to the lender, for-profit schools love debt because it allows them to charge higher prices that would normally be unaffordable (hence, less profitable). Publicly traded for-profit schools – Strayer Education (NASDAQ:STRA), Apollo Group, Inc. (NASDAQ:APOL), Career Education Corp. (NASDAQ:CECO), Capella Education Company (NASDAQ:CPLA), Corinthian Colleges, Inc. (NASDAQ:COCO), Bridgepoint Education, Inc. (NYSE:BPI) and DeVry Inc. (NYSE:DV) – have a mandate to maximize profits to shareholders. Is that a major conflict with what the US needs most right now (e.g., less debt-saddled citizens)? Do we even care?

This is a hard-hitting issue the US must solve in the very near future if we refuse to let debt drive more generations further from the American Dream.

Talking Education, KG through Ph.D., with Professor Rao Mulpuri

Admin — Thu, 21 Apr 2011 20:43:56 +0000

On Good Friday’s Mohana Muralee GaanaLahari, April 22, 2010, Professor Rao Mulpuri will be my guest. We will be taking about education. Unlike his previous visits on the show, there will be no specific focus on the level -- Kinder Garten through Doctoral education. Be it a question about your kids’, or your own education, school choice, career choice, whatever- just give us a call: (703) 879 6611 or (703) 879 8267.[11 Am - 2 PM, US Eastern]

Also, keep in mind, Dr. Mulpuri is a movie buff and lighthearted. There can be moment of levity.

Subprimve Goes to College

Admin — Thu, 21 Apr 2011 20:21:45 +0000

This is a bit dated news (from June 2010), which I keep forgetting to post here. Hedge fund manager, Steve Eisman gave a scathing testimony to congress on the pervasive fraud by major for-profit profit outfits (I refuse to call them universities). It is true that as a person who is short the stocks of many of these colleges and therefore his statements can be self-serving. However, everything he said in that testimony is correct. Lobbyists representing these outfits manage to keep oversight at bay and fleece millions of unsuspecting masses. In the absence of strict enforcement and regulation, free markets will catchup to shut down these institutions only after the market runs out of suckers and leaving millions debt-ridden.

Here is Eisman’s testimony in full.

———————————-

Testimony Before the U.S. Senate Committee on Health, Education, Labor and Pensions ‘

Testimony of Steven Eisman

SUBPRIME GOES TO COLLEGE

June 24, 2010

Good morning. Chairman Harkin and members of the Committee, thank you for inviting me to testify this morning. My name is Steven Eisman and I am the portfolio manager of the FrontPoint Financial Services Fund. My firm has spent a great deal of time studying the For Profit education industry and understanding how it operates and derives its revenue. It has been an eye opening experience. Until recently, I thought that there would never again be an opportunity to be involved with an industry as socially destructive as the subprime mortgage industry. I was wrong. The For-Profit Education Industry has proven equal to the task.

My testimony today comes largely from a recent presentation I gave at an investor conference entitled “Subprime goes to College”. The for-profit industry has grown at an extreme and unusual rate, driven by easy access to government sponsored debt in the form of Title IV student loans, where the credit is guaranteed by the government. Thus, the government, the students and the taxpayer bear all the risk and the for-profit industry reaps all the rewards. This is similar to the subprime mortgage sector in that the subprime originators bore far less risk than the investors in their mortgage paper.

The for-profit education industry accounts for 9% of the students, 25% of all Title IV disbursements but 44% of all defaults. And the President of the largest for-profit institution is paid nearly 25x the compensation level of the President of Harvard. There is something wrong with this statistical progression. In the past 10 years, the for-profit education industry has grown 5-10 times the historical rate of traditional post secondary education. From 1987 through 2000, the amount of total Title IV dollars received by students of for-profit schools fluctuated between $2 and $4 billion per annum. But when the Bush administration took over the reigns of government, the DOE gutted many of the rules that governed the conduct of this industry. Once the floodgates were opened, the industry embarked on 10 years of unrestricted massive growth.

Federal dollars flowing to the industry exploded to over $21 billion, a 450% increase. At many major-for profit institutions, federal Title IV loan and grant dollars now comprise close to 90% of total revenues, up significantly vs. 2001. And this growth has driven even more spectacular company profitability and wealth creation for industry executives. For example, ITT Educational Services (ESI), one of the larger companies in the industry, has a roughly 40% operating margin vs. the 7%-12% margins of other companies that receive major government contracts. ESI is more profitable on a margin basis than even Apple.

This growth is purely a function of government largesse, as Title IV has accounted for more than 100% of revenue growth. Here is one of the more upsetting statistics. In fiscal 2009, Apollo, the largest company in the industry, grew total revenues by $833 million. Of that amount, $1.1 billion came from Title IV federally-funded student loans and grants. More than 100% of the revenue growth came from the federal government. But of this incremental $1.1 billion in federal loan and grant dollars, the company spent only an incremental $99 million on faculty compensation and instructional costs – that’s 9 cents on every dollar received from the government going towards actual education. The rest went to marketing and paying the executives.

One major reason why the industry has taken an ever increasing share of government dollars is that it has turned the typical education model on its head. And here is where the subprime analogy becomes very clear. There is a traditional relationship between matching means and cost in education. Typically, families of lesser financial means seek lower cost institutions in order to maximize the available Title IV loans and grants – thereby getting the most out of every dollar and minimizing debt burdens. Families with greater financial resources often seek higher cost institutions because they can afford it more easily.

The for-profit model seeks to recruit those with the greatest financial need and put them in high cost institutions. This formula maximizes the amount of Title IV loans and grants that these students receive. With billboards lining the poorest neighborhoods in America and recruiters trolling casinos and homeless shelters (and I mean that literally), the for-profits have become increasingly adept at pitching the dream of a better life and higher earnings to the most vulnerable of society.

But if the industry in fact educated its students and got them good jobs that enabled them to receive higher incomes and to pay off their student loans, everything I’ve just said would be irrelevant. So the key question to ask is – what do these students get for their education? In many cases, NOT much, not much at all.

Here is an example of an education promised and never delivered. In the power point presentation before you, there is an article detailing a Corinthian Colleges-owned Everest College campus in California whose students paid $16,000 for an 8-month course in medical assisting. Upon nearing completion, the students learned that not only would their credits not transfer to any community or four-year college, but also that their degree is not recognized by the American Association for Medical Assistants. Hospitals refuse to even interview graduates. But let’s leave aside the anecdotal evidence of this poor quality of education. After all the industry constantly argues that there will always be a few bad apples. So let’s put aside the anecdotes and just look at the statistics. If the industry provided the right services, drop out rates and default rates should be low. Let’s first look at drop out rates. Companies don’t fully disclose graduation rates, but using both DOE data, company-provided information and admittedly some of our own assumptions regarding the level of transfer students, we calculate drop out rates at most for-profit schools are 50%+ per year.

How good could the product be if drop out rates are so stratospheric? These statistics are quite alarming, especially given the enormous amount of debt most for-profit students must borrow to attend school. We have every expectation that the industry’s default rates are about to explode. Because of the growth in the industry and the increasing search for more students, we are now back to late 1980s levels of lending to for-profit students on a per student basis. Back then defaults were off the charts and fraud was commonplace. Default rates are already starting to skyrocket. It’s just like subprime – which grew at any cost and kept weakening its underwriting standards to grow.

By the way, the default rates the industry reports are artificially low. There are ways the industry can and does manipulate the data to make their default rates look better. But don’t take my word for it. The industry is quite clear what it thinks the default rates truly are. ESI and COCO supplement Title IV loans with their own private loans. And they provision 50%-60% up front for those loans. Believe me, when a student defaults on his or her private loans, they are defaulting on their Title IV loans too.

There is no such thing as a profitable loan where the loan loss provision is 50%-60%. So why do these companies make unprofitable non-FFELP loans? The private loan is much smaller than the FFELP loan and the companies don’t bear any losses on FFELP loans, only on private loans. As a result, the losses on the private loans are just loss leaders to get more students in the door.

Let me just pause here for a second to discuss manipulation of statistics. There are two key statistics. No school can get more than 90% of its revenue from the government and 2 year cohort default rates cannot exceed 25% for 3 consecutive years. Failure to comply with either of these rules and you lose Title IV eligibility. Lose Title IV eligibility and you’re company’s a zero.

With respect to the default statistics, it is my belief that they are manipulated. Since the rule currently revolves around the 2 year default rate, the companies have every incentive to keep that statistic below 25%. Isn’t it amazing that Apollo’s percentage of revenue from Title IV is 89% and not over 90%. How lucky can they be? We believe (and many recent lawsuits support) that schools actively manipulate the receipt, disbursement and especially the return of Title IV dollars to their students to remain under the 90/10 threshold. And again, unprofitable private student loans is also a way to keep below the 90/10 threshold.

The bottom line is that as long as the government continues to flood the for profit education industry with loan dollars AND the risk for these loans is borne solely by the students and the government, THEN the industry has every incentive to grow at all costs, compensate employees based on enrollment, influence key regulatory bodies and manipulate reported statistics – ALL TO MAINTAIN ACCESS TO THE GOVERNMENT’S MONEY.

In a sense, these companies are marketing machines masquerading as universities. And when the Bush administration eliminated almost all the restrictions on how the industry is allowed to market, the machine went into overdrive. How do such schools stay in business? The answer is to control the accreditation process. The scandal here is exactly akin to the rating agency role in subprime securitizations.

There are two kinds of accreditation — national and regional. Accreditation bodies are non-governmental, non-profit peer-reviewing groups. Schools must earn and maintain proper accreditation to remain eligible for Title IV programs. The relationship of the forprofit education industry and the national accrediting boards is, in my view, similar to the relationship between the rating agencies and investment banks. There, Wall Street paid the rating agencies handsomely for ratings on subprime securitizations that turned out to be overly optimistic. Here, the industry, we believe, controls the national accrediting bodies by actually sitting on the boards of those very same institutions. The lunatics are running the asylum.

Historically, most for profit schools are nationally accredited but national accreditation holds less value than regional accreditation. The latest trend of for-profit institutions is to acquire the dearly coveted Regional Accreditation through the outright purchase of small, financially distressed non-profit institutions and then put that school on-line. In March 2005, BPI acquired the regionally accredited Franciscan University of the Prairies and renamed it Ashford University. On the date of purchase, Franciscan (now Ashford) had 312 students. BPI took that school online and at the end of 2009 it had 54,000 students. When I was researching the subprime mortgage industry in 2005 and 2006, I found that not every lender was bad — just most of them. A few subprime lenders actually used considerable discretion and really tried to make good loans to lower-income borrowers that made sense for them. In the for-profit industry, the same is probably true. There are probably a few good institutions that truly try to educate their students.

The core of the problem in both the subprime and the for-profit education industries is a problem of incentives. In subprime, brokers were incentivized to make as many loans as possible because they were paid on volume. They faced no risk of loss due to bad decision-making because the loans were sold off to investors. In for-profit education, every segment of the institution is incentivized to enroll as many students as possible – recruiters are paid on volume, instructors are compensated based on completions, and executives and shareholders are paid based on growth. None bear the risk of loss should the students not get their money’s worth or even worse, default on their loans. The incentives to grow far outweigh the incentives to educate. And thus, like in subprime lending, rather than having a fundamentally sound industry with a few bad actors, you have a fundamentally unsound industry with few good ones.

Therefore, the best way to change this industry’s conduct is to change the law and force it to bear some of the losses that it creates. In my power-point presentation, I show what would happen to several companies if they bore various loss percentages. The industry still stays very profitable. Just less profitable.

Let me end by driving the subprime analogy to its ultimate conclusion. By late 2004, it was clear to me and my partners that the mortgage industry had lost its mind and a society-wide calamity was going to occur. It was like watching a train wreck with no ability to stop it. Who could you complain to? — The rating agencies? – they were part of the machine. Alan Greenspan? – he was busy making speeches that every American should take out an ARM mortgage loan. The OCC? — its chairman, John Dugan, was busy suing state attorney generals, preventing them from even investigating the subprime mortgage industry.

Are we going to do this all over again? We just loaded up one generation of Americans with mortgage debt they can’t afford to pay back. Are we going to load up a new generation with student loan debt they can never afford to pay back. The industry is now 25% of Title IV money on its way to 40%. If its growth is stopped now and it is policed, the problem can be stopped. It is my hope that this Administration sees the nature of the problem and begins to act now. But if nothing is done, then we are on the cusp of a new social disaster. If present trends continue, over the next ten years almost $500 billion of Title IV loans will have been funneled to this industry. We estimate total defaults of $275 billion, and because of fees associated with defaults, for-profit students will owe $330 billion on defaulted loans over the next 10 years.

Mr. Chairman and members of the committee, I will be happy to answer any questions that you have.

Professor Mulpuri on Middle School Education – Part 2 of 2

Admin — Thu, 21 Apr 2011 19:59:59 +0000

***** This is an old interview. On the eve of Pro Mulpuri’s reappearence on MMGL, I am bringing this to the top ****

Hope you caught Part 1 of this interview with Prof Rao. In this second part on Middle School education, the following issues/topics were addressed:

What about summer camps?
How to manage our tendency to force over indulgence?
What about magnet schools?
Pidakala Veta a comment on Rao’s old student -- Ram Gopal Varma
Kids’ internet policy eMail and blog etiquette
Impact of frequent moving, and how it affects kids’ education
Leaving the college choice to kids

Rao garu answered calls from: Lakshmi, Gowri, Madhavi, Haritha, Surya, Sunil, and Durga

Originally broadcast on TeluguOne Radio on: 2010-02-06

Audio Language: Telugu

Professor Mulpuri on Middle School Education – Part 1 of 2

Admin — Thu, 21 Apr 2011 19:58:54 +0000

***** This is an old interview. On the eve of Pro Mulpuri’s reappearence on MMGL, I am bringing this to the top ****

“Am I doing the right thing for my kid? What if I am wrong?” Have you ever second guessed yourself like this as a parent? Don’t worry, we are not alone. We all have done this. Second guessing ourselves about the kids is our second nature. All we can do is make informed decisions and hope that lead to prudent choices which will in turn make our kids’ lives better.

Professor Rao Mulpuri and I sat together to talk about the following issues related to middle school education.

Is education better in India, or USA?
Fostering creativity
Extra curricular activities
Middle school foundation. Basic math and science profession
To Kumon or not to Kumon
Vocabulary development
Importance of physical education
What about sex education in schools?
After school activities?
Boy Scouts, Girl Scouts and other non-school activities

No right or wrong answer. Rao garu and I have some opinions for you to CONSIDER. Hope you like our little chat (in Part 2 of this interview, Rao garu answered caller’s questions)

Audio language: Telugu

Guess Who Comes to the Rescue of Universities of Fraud?

Admin — Sun, 10 Apr 2011 02:55:57 +0000

Here is how the lobbying works in Washington DC (Via Huffington Post):

Last week, a bipartisan group of House members pushed for a rider in the spending bill that would block the Department of Education from implementing rules that would punish certain for-profit college and community college programs for saddling students with debts they cannot repay.

Designed as a consumer protection measure, the Department of Education’s proposed “gainful employment” rules would limit federal student aid for programs with a track record of leaving students with high debt burdens. The for-profit college industry, which relies on such funds for the vast majority of its revenues, has viciously fought the regulations over the past year.

“It is imperative that the final (budget bill) retain this important funding limitation,” lawmakers backing the rider, including House Education and Workforce Committee Chairman John Kline (R-Minn.), wrote in a letter to House leaders earlier this week. “These regulations are a clear example of federal overreach into the affairs of American institutions of higher education,”

On the other side of the debate, more than 40 civil rights and consumer advocacy groups urged Reid to block the rider from any budget compromise.

Their letter to the Senate Majority Leader said the provision would prevent the Department of Education from doing what was needed “to protect students and taxpayers from the most toxic choices.”

No good deed goes unpunished by ideology driven politicians.

“The Department of Education’s proposed gainful employment regulation recognizes that some current career education programs are so toxic that they doom students to a lifetime of debt burden and waste millions of precious taxpayer dollars,” the letter read.

The House voted on a similar amendment to block the Obama administration from implementing gainful employment rules in its February budget bill, a measure that received overwhelming support from Republicans and more than 50 Democrats.

What happens now?

Gainful employment rules would apply to career-focused programs at both for-profit and non-profit colleges, but the for-profit college industry has mounted an unprecedented lobbying campaign against the regulations. As drafted, the rules would track students after they leave college and evaluate them in two ways: whether they are paying down the principal on their student loans and whether they have attained an income that allows them to manage debts.

Far from sweeping, a draft version of the regulations would allow degree programs for-profit colleges and other vocational schools to remain fully eligible for federal aid money even if less than half of their students are repaying the principal on their loans. Some could remain eligible even if only a third of students are in repayment. Programs that fail to meet certain requirements could lose access to federal student loan and grant money — crucial revenues for the for-profit sector.

Data released by the Department of Education earlier this year showed that a quarter of all students enrolled at for-profit schools defaulted on federal student loans within three years — more than double the rate of those who attend non-profit institutions. For-profit college students make up less than 15 percent of enrollment nationwide but comprise nearly half of all student loan default rates.

The Department of Education has not yet released a final version of the gainful employment rules, but is expected to do so within months.