{"id":308,"date":"2013-02-11T22:15:34","date_gmt":"2013-02-11T22:15:34","guid":{"rendered":"http:\/\/pages.charlotte.edu\/gregory-starrett\/?p=308"},"modified":"2020-01-30T11:03:35","modified_gmt":"2020-01-30T11:03:35","slug":"college-costs-moodys-and-the-washington-post","status":"publish","type":"post","link":"https:\/\/pages.charlotte.edu\/gregory-starrett\/2013\/02\/11\/college-costs-moodys-and-the-washington-post\/","title":{"rendered":"College Costs and Conflicts of Interest"},"content":{"rendered":"

Recently\u00a0a number of newspapers around the country, including\u00a0the Charlotte Observer<\/i>, \"College<\/a>excerpted parts of a commentary on higher education\u00a0by the editorial board of the Washington Post<\/i>. It focused on a report by Moody\u2019s Investor Services, which warned of a \u201cnegative outlook\u201d for the American education sector, based on predictions of \u201csluggish revenue growth.\u201d The cause? Consumer sensitivity to rising student debt and to rising tuitions. And the cause of these rising costs? None other than the \u201csacred cows\u201d of \u201cheavy faculty involvement in governance, inefficient classroom instruction, [and] tenure,\u201d according to the Post<\/i>.[1]<\/a> In other words, the usual suspects: university faculty.<\/p>\n

There are certainly many causes for rising college tuition and student debt. But to identify important sources of increased cost in higher education, Moody\u2019s and the Post<\/i> need look no further than their own executive suites. Moody\u2019s, 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]<\/a> 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]<\/a><\/p>\n

In addition to its broader role in disfiguring the national and global economy, though, the case of Moody\u2019s 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\u2019s CEO, Raymond W. McDaniel, Jr., earned $136,700 in cash and stock as a board member of publishing conglomerate John Wiley & Sons.[4]<\/a> 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\u2014American Anthropologist<\/i> and American Ethnologist<\/i>\u2014had their subscription price to libraries more than doubled immediately.)[5]<\/a><\/p>\n

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 \u201cpage charges\u201d 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\u2014owned by Macmillan, which is owned in turn by the privately held Verlagsgruppe Georg von Holtzbrinck GmbH of Stuttgart\u2014notified 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]<\/a> 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.<\/p>\n

The Washington Post<\/i>, in discussing the Moody\u2019s report, [7]<\/a> might be seen as providing an important service to its readers, as the 23-page report itself is available in full only to Moody\u2019s subscribers (although it can be purchased<\/a> for $550).[8]<\/a> The Post <\/i>editorial contains language from the report\u2014specifically, the line about faculty governance, inefficient classroom instruction, and tenure\u2014which are not included in Moody\u2019s own public announcement. Despite having\u00a0felt the sting of a Moody’s credit downgrade in August of last year,\u00a0the WPC is a prime customer for their informational products\u00a0as well as\u00a0a valuable media outlet which can publicize those products in the form of \u201cnews.”<\/p>\n

But the Washington Post Company is not<\/i> 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\u2019s revenues came from Kaplan. In turn, more than 87% of Kaplan\u2019s revenues come from federal student aid, including student grants, loans, and veteran\u2019s benefits. Between 2006 and 2010, the company\u2019s 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]<\/a><\/p>\n

Like most other for-profit higher education ventures, Kaplan\u2019s 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]<\/a> and Kaplan is particularly bad, ranking first in the percentage of its students (68%) withdrawing from its Bachelors degree programs.[11]<\/a> Students at for-profit educational institutions default on their student loans at more than twice the rate of those who attend public colleges.[12]<\/a> 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]<\/a> So much for the idea that the WPC really believes that \u201cinefficient instruction\u201d is a cause of \u201csluggish revenue growth;\u201d for them,\u00a0the inefficiency of\u00a0their instructional programs does\u00a0precisely the opposite.<\/p>\n

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.<\/p>\n

We can see the same dynamics everywhere we look. Standard & Poor\u2019s, 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]<\/a> 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]<\/a> but which\u00a0has recently decided to focus\u00a0on 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.<\/p>\n

“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.<\/p>\n

\u201cLarry 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]<\/a><\/p><\/blockquote>\n

Note that the primary goal here is \u201cto drive growth,\u201d 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 \u201congoing convergence of education and technology\u201d 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\u00a0increasingly 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 \u201cthe educational sector\u201d and toward its concentration in corporate\u00a0coffers on the other end, because that is precisely what these processes are designed to do.<\/p>\n

So, back to where we started. Instead of identifying the primary cause of rising college costs as \u201cheavy faculty involvement in governance, inefficient classroom instruction, [and] tenure,\u201d 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\u2019s neither students nor taxpayers. It\u2019s the people who want to find more efficient ways to make a quick buck from the process.<\/p>\n

UPDATE 20 February 2013:<\/p>\n

For\u00a0sharp 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<\/a><\/p>\n

NOTES<\/p>\n

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[1]<\/a> \u201cOur Shrinking Law Schools,\u201d Washington Post<\/i> 3 February 2013, http:\/\/www.washingtonpost.com\/opinions\/jumping-off-the-lawyer-track\/2013\/02\/03\/009a612a-6be9-11e2-8740-9b58f43c191a_story.html<\/a>. The editorial was excerpted on p. 6A of the Charlotte Observer<\/i> on Tuesday 5 February (see http:\/\/www.charlotteobserver.com\/2013\/02\/04\/3833844\/the-link-between-tuition-jobs.html#storylink=misearch<\/a>).<\/p>\n

[2]<\/a> Jesse Eisinger, \u201cVows of Change at Moody\u2019s, but Flaws Remain the Same,\u201d New York Times<\/i> 14 April 2011. http:\/\/query.nytimes.com\/gst\/fullpage.html?res=9A0CE0DD153EF937A25757C0A9679D8B63&ref=moodyscorporation<\/a>; Andrew Ross Sorkin, \u201cAnswers on Ratings Are Overdue,\u201d New York Times 1 June 2010, http:\/\/query.nytimes.com\/gst\/fullpage.html?res=9C03E3DB103CF932A35755C0A9669D8B63&ref=moodyscorporation<\/a>.<\/p>\n<\/div>\n

\n

\u00a0[3]<\/a> John Quinterno, The Great Cost Shift: How Higher Education Cuts Undermine the Future Middle Class<\/i>; http:\/\/www.demos.org\/sites\/default\/files\/publications\/TheGreatCostShift_Demos_0.pdf<\/a><\/p>\n<\/div>\n

\n

\u00a0[4]<\/a> http:\/\/www.wiley.com\/legacy\/about\/corpnews\/JWS_Proxy_2012.pdf<\/p>\n<\/div>\n

\n

\u00a0[5]<\/a> Lee C. Van Orsdel and Kathleen Born, \u201cPeriodicals Price Survey 2008: Embracing Openness,\u201d Library Journal<\/i> 15 April 2008; http:\/\/www.libraryjournal.com\/article\/CA6547086.html?rssid=220<\/a><\/p>\n<\/div>\n

\n

\u00a0[6]<\/a> Jennifer Howard, \u201cU. of California Tries Just Saying No to Rising Journal Costs,\u201d Chronicle of Higher Education 8 June 2010, http:\/\/chronicle.com\/article\/U-of-California-Tries-Just\/65823\/<\/a>; see also Kathim Shubber, \u201cCash-strapped libraries threaten to end journal subscription deals over rising costs,\u201d http:\/\/felixonline.co.uk\/?article=808<\/a>; http:\/\/www.lib.berkeley.edu\/scholarlycommunication\/publisher_mergers.html<\/a>; and Eric Pfanner and Amy Chozick, \u201cRandom House and Penguin Merger Creates Global Giant,\u201d New York Times<\/i> 29 October 2012, http:\/\/www.nytimes.com\/2012\/10\/30\/business\/global\/random-house-and-penguin-to-be-combined.html?pagewanted=all&_r=0<\/a>.<\/p>\n<\/div>\n

\n

\u00a0[7]<\/a> Moody\u2019s Investor Service, Global Credit Research, 16 January 2013, \u201cAnnouncement: Moody\u2019s: 2013 outlook for entire US Higher Education sector changed to negative,\u201d http:\/\/www.moodys.com\/research\/Moodys-2013-outlook-for-entire-US-Higher-Education-sector-changed–PR_263866<\/a><\/p>\n<\/div>\n

\n

[8]<\/a> If you can\u2019t afford it, but want to see the kinds of things Moody\u2019s is interested in, you can see one of their PowerPoint presentations on the higher education sector here: http:\/\/media.clemson.edu\/administration\/cfo\/comptroller\/sacubo\/2-normal.pdf<\/a>.<\/p>\n

[9]<\/a> All figures are from pp. 543-568 of the U.S. Senate Committee on Health, Education, Labor, and Pensions 2012 report, \u201cFor Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success,\u201d (Harkin Report) available at http:\/\/www.help.senate.gov\/imo\/media\/for_profit_report\/Contents.pdf<\/a><\/p>\n<\/div>\n

\n

\u00a0[10]<\/a> http:\/\/nces.ed.gov\/programs\/coe\/indicator_pgr.asp<\/a><\/p>\n<\/div>\n

\n

\u00a0[11]<\/a> Harkin Report, \u00a0p. 75.<\/p>\n<\/div>\n

\n

\u00a0[12]<\/a> Harkin Report, \u00a0p. 115.<\/p>\n<\/div>\n

\n

\u00a0[13]<\/a> Tamar Lewin, \u201cScrutiny Takes Toll on For-Profit College Company,\u201d New York Times<\/i> 9 November 2010, http:\/\/www.nytimes.com\/2010\/11\/10\/education\/10kaplan.html?pagewanted=all&_r=1&<\/a>; Harkin Report, p. 85.<\/p>\n<\/div>\n

\n

\u00a0[14]<\/a> Jean Eaglesham, Jeannette Neumann, and Evan Perez, \u201cU.S. to Sue S&P Over Ratings,\u201d Wall Street Journal<\/i>, 5 February 2013, p. 1;<\/p>\n<\/div>\n

\n

[15]<\/a> Gerald W. Bracey, \u201cNo Child Left Behind: Where Does the Money Go?\u201d Education Policy Research Unit, College of Education, Arizona State University, 2005; http:\/\/epsl.asu.edu\/epru\/documents\/EPSL-0506-114-EPRU.pdf<\/a><\/p>\n

[16]<\/a> http:\/\/investor.mcgraw-hill.com\/phoenix.zhtml?c=96562&p=irol-newsArticle&ID=1761582&highlight<\/a>=; see also http:\/\/www.forbes.com\/sites\/jamesmarshallcrotty\/2012\/11\/28\/mcgraw-hill-sells-education-unit-to-apollo-bellwether-for-education-publishing\/<\/a>.<\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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