Kaplan

Recently a number of newspapers around the country, including the Charlotte Observer, excerpted parts of a commentary on higher education by the editorial board of the Washington Post. It focused on a report by Moody’s Investor Services, which warned of a “negative outlook” for the American education sector, based on predictions of “sluggish revenue growth.” The cause? Consumer sensitivity to rising student debt and to rising tuitions. And the cause of these rising costs? None other than the “sacred cows” of “heavy faculty involvement in governance, inefficient classroom instruction, [and] tenure,” according to the Post.[1] In other words, the usual suspects: university faculty.

There are certainly many causes for rising college tuition and student debt. But to identify important sources of increased cost in higher education, Moody’s and the Post need look no further than their own executive suites. Moody’s, we all remember, participated in the global financial catastrophe of 2008 either by overestimating the value of mortgage-based securities, or by colluding with large banks and lying about them.[2] The ensuing economic collapse not only harmed tens of millions of families directly, but reduced tax revenues legislatures rely on to invest in higher education. The response was further tuition increases to make up part of the difference, since the number of students we teach has only increased.[3]

In addition to its broader role in disfiguring the national and global economy, though, the case of Moody’s illustrates the systemic conflicts of interest that exist when the leaders of multibillion dollar corporations criticize schools and colleges for high costs. To take one small example, in 2012 Moody’s CEO, Raymond W. McDaniel, Jr., earned $136,700 in cash and stock as a board member of publishing conglomerate John Wiley & Sons.[4] Wiley, along with other publishers such as the Dutch-based Elsevier, participated in increasing the cost of academic journals by 40% between 2004 and 2008 alone. (In 2008, when Wiley took over the publication of journals in my own field, two of the most important titles—American Anthropologist and American Ethnologist—had their subscription price to libraries more than doubled immediately.)[5]

Now, the authors of the articles which fill scholarly journals, their peer reviewers, and occasionally even the editors who put them together, perform this work without being paid by the publisher, as part of their required research activity and as service to the profession. Their universities pay them for performing this work as part of their normal duties. In some disciplines authors are even required to pay “page charges” to have their work published, further subsidizing the profit of publishers with money from tax-supported research grants. Mr. McDaniel and others like him benefit financially from this faculty labor, whose fruits universities have subsidized but then have to buy back from the publishers at ever-increasing expense. (In 2010 the Nature Publishing Group—owned by Macmillan, which is owned in turn by the privately held Verlagsgruppe Georg von Holtzbrinck GmbH of Stuttgart—notified the University of California that it would raise the cost of access to its journals by 400 percent. These price increases are, in part, the result of major waves of consolidation since the 1980s as publishers buy each other up to create larger and larger international conglomerates, which demand ever-higher returns from their individual units.)[6] Meanwhile, the quality of education and research suffers as libraries are forced, year after year, to cut costly journal subscriptions and book acquisition, or raise funds from other sources to pay for staying current.

The Washington Post, in discussing the Moody’s report, [7] might be seen as providing an important service to its readers, as the 23-page report itself is available in full only to Moody’s subscribers (although it can be purchased for $550).[8] The Post editorial contains language from the report—specifically, the line about faculty governance, inefficient classroom instruction, and tenure—which are not included in Moody’s own public announcement. Despite having felt the sting of a Moody’s credit downgrade in August of last year, the WPC is a prime customer for their informational products as well as a valuable media outlet which can publicize those products in the form of “news.”

But the Washington Post Company is not a disinterested observer. It is an interested participant in the world of mounting student debt. The WPC understands the business model of profiting from public resources just as well as academic journal publishers do, because it makes most of its money not from newspaper sales, but from its largest subsidiary, Kaplan, Inc., a company that runs dozens of for-profit educational institutions. In 2010 nearly 62% of the WPC’s revenues came from Kaplan. In turn, more than 87% of Kaplan’s revenues come from federal student aid, including student grants, loans, and veteran’s benefits. Between 2006 and 2010, the company’s student enrollment increased by sixty percent. In the same period its profits tripled, from $74 million to $212 million. A quarter of its revenue is spent on marketing and recruitment in order to keep enrollment increases steady and student aid dollars rolling in.[9]

Like most other for-profit higher education ventures, Kaplan’s degree completion rate is far lower, and its student loan default rate far higher than traditional colleges and universities. The National Center for Education Statistics reports that private for-profit colleges have degree completion rates roughly half that of public institutions,[10] and Kaplan is particularly bad, ranking first in the percentage of its students (68%) withdrawing from its Bachelors degree programs.[11] Students at for-profit educational institutions default on their student loans at more than twice the rate of those who attend public colleges.[12] But the Washington Post Company and its CEO, Donald Graham, lobbies heavily with Congress on behalf of these ventures, ensuring that its cash cow can continue compensating its executive officers based on increasing enrollments and revenue streams, rather than on results as measured by student success.[13] So much for the idea that the WPC really believes that “inefficient instruction” is a cause of “sluggish revenue growth;” for them, the inefficiency of their instructional programs does precisely the opposite.

The money that keeps Kaplan and its parent corporation running flows quickly past the untenured teachers who have no say in institutional governance, to benefit the officers and directors of the Washington Post Company (including such luminaries as Columbia University President Lee C. Bollinger, at $80,000 per year) and to deepen the pot of dividends diverted from federal student aid to its stockholders.

We can see the same dynamics everywhere we look. Standard & Poor’s, for example, another credit rating agency whose performance prior to the debt crisis was so outrageous that it is being sued by the Justice Department,[14] is owned by McGraw-Hill, once best known as an educational and academic publisher (McGraw-Hill is one of the primary financial beneficiaries of the No Child Left Behind legislation of 2001), [15] but which has recently decided to focus on its financial services businesses. In November 2012 McGraw-Hill announced the sale of its education division to Apollo Global Management, a private equity firm with primary interest in real estate and entertainment ventures.

“We are excited about this announcement and what it means for McGraw-Hill Education,” added Lloyd G. “Buzz” Waterhouse, President and CEO of McGraw-Hill Education. “Apollo is a leading global alternative investment manager and its affiliated funds have made significant investments in learning companies for more than a decade. McGraw-Hill Education’s expertise and premier brands coupled with Apollo’s resources represent a powerful combination.

“Larry Berg, Senior Partner of Apollo said, “With a longstanding track record of investing behind leaders in education, Apollo is pleased to be acquiring a marquee business that has been a pioneer in educational innovation and excellence for over a century. McGraw-Hill Education has a deep and impassioned management team, and we share their enthusiasm and strategic vision for the business. We look forward to leveraging the company’s leading portfolio of trusted brands and innovative digital learning solutions to drive growth through the ongoing convergence of education and technology on a global basis.”[16]

Note that the primary goal here is “to drive growth,” that is, to increase the value of owning or being able to draw on the profits of a product or service, rather than actually to provide education. The “ongoing convergence of education and technology” emphasizes the process of convergence itself, which is mediated by large capital investments. And these investments, in turn, must generate substantial and increasing financial returns to shareholders, managers, and directors. In the end, these returns are going to be provided by students who will increasingly be paying for temporary access to e-books rather than ownership of paper books; by universities who must constantly update their technology platforms to keep up; and by the continued move toward classrooms and online courses staffed by low-paid adjunct and part-time faculty on the Kaplan model, all of which increase the flow of money through “the educational sector” and toward its concentration in corporate coffers on the other end, because that is precisely what these processes are designed to do.

So, back to where we started. Instead of identifying the primary cause of rising college costs as “heavy faculty involvement in governance, inefficient classroom instruction, [and] tenure,” it might be more productive to ask about who benefits when powerful corporate interests accuse traditional universities of inefficiency and urge their reform. You can bet it’s neither students nor taxpayers. It’s the people who want to find more efficient ways to make a quick buck from the process.

UPDATE 20 February 2013:

For sharp observations on the shallowness of public discourse on the cost and future of colleges, see Sara Goldrick-Rab’s “The Higher Education Lobby Comes to Madison,” in the Chronicle of Higher Education: http://chronicle.com/blogs/conversation/2013/02/20/the-higher-education-lobby-comes-to-madison/?cid=pm&utm_source=pm&utm_medium=en

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