Wednesday, July 21, 2021

SLABS: The Soylent Green of US Higher Education

Michael Bright of the Structured Finance Association defends the role of NRSRO's at the House Financial Services subcommittee on NRSROs, July 21, 2021


Bill Harrington of the Croatan Institute has been sounding the alarm bells. Mr. Harrington is telling everyone that he can, that the market for privately securitized student loans is corrupt, and that oversight of the securities and their related derivatives has been almost nonexistent.

SLABS, Student Loan Asset-Backed Securities, are private and federally insured student loans that are bundled, rated, and sold in tranches to institutional investors as bonds. In other words, the private debt of student debtors and their families is turned into investments that are considered low risk, but in some cases high yield. The most lucrative investments are the most toxic loans. 

This cache, a mix of old FFELP government backed loans (the program ended in 2010) and private sector loans may be valued at about $245 billion but is referenced in untold billions more of complex financing instruments such as structured investment vehicles, stocks and unsecured corporate debt and repurchase facilities.  About 11 million people still owe money from the FFEL program. 

SLABS are rated from AAA to B (junk) but all are marketed as safe and the demand is greater than the supply.  No one outside of the industry knows who actually owns the financial instruments, but it's assumed they are almost always large institutional investors such as banks, state and municipal funds, and retirement funds. 

Since at least 2015, SLAB sellers have extended the maturity dates of some SLABS by decades to avoid lowering their ratings.  Issuers are known to game the system by shopping around for better credit ratings.  

In May 2020, Morningstar accepted a $3.5 million fine for failing to separate its credit ratings and analysis operations from its sales and marketing efforts.  But they denied any wrongdoing.

Who oversees the SLAB industry?  Three raters:  Moody's, Standard & Poor's, and Fitch Ratings.  These companies are paid to rate the SLABS, and are also tasked for government oversight as Nationally Recognized Statistical Ratings Organizations (NRSRO's).  The credit rating agencies not only rate SLABS, they are paid to rate them by the loan issuers, like Navient and Nelnet, causing a potential conflict of interest.  

How much of a problem are SLABS as an investment?  What's the real risk?  Chances are that they are a much greater risk than they appear, and that's how it's framed in the SMU Law Journal article by Samantha Bailey and Chris Ryan titled "The Next "Big Short": COVID-19, Student Loan Discharge in Bankruptcy, and the SLABS Market." 

Metaphorically, SLABS are like Soylent Green, the subject of the dystopian movie that came out in 1973 and portrayed a chaotic New York City in 2022.  It's not until the end of the film that audience is told that the food that people were fighting for, Soylent Green, was actually people, processed for consumption.  


In 2021, SLABS are human lives, in the form of crippling debt, packaged for consumption: consumed by a range of big investors including big banks and pension funds.  

"It is up to each and every one of us, to decide where we wish to direct our focus. Is it fear, or forgiveness? Suffering or thriving? When we accept the principles of quantum physics, we understand that we are all entangled as one singular organism," said Allison Pyburn, student loan expert and author of the upcoming book, "The Great Unwind."



Friday, July 9, 2021

Academic Capitalism and the next phase of the College Meltdown

It appears we have entered a new phase of Academic Capitalism and the College Meltdown. The previous phase involved College Mania! and the growth of the "educated underclass" (including gig workers, adjuncts and postdocs), Wall Street over-speculation, the divestment of corporations from employee benefits, and the rise and fall of for-profit colleges: Corinthian Colleges, ITT Tech, Education Management Corporation, Apollo Group, Education Corporation of America, and Laureate Education.  

Enrollment at proprietary schools is down about 40 percent from its peak in 2010 and higher education enrollment has declined every year for the last decade.  In absolute numbers, community colleges have taken the largest hit.  At other schools, student aid has shifted from "needs based" to "merit based" making college choice for low- and moderate income families an even riskier choice

Student loan debt has crippled millions of working families, but neoliberal experts like Goldman Sachs do not see a significant problem. The student loan debt clock is here. 

According to the Federal Reserve, the problem is ameliorated by the decline in births to people of lower socio-economic status.  The FED has also consistently reported that the debt is not a huge drag on the economy (less than 0.05 percent per year). Those developments, along with an anemic but growing student debt movement, have meant that the chance for progressive and meaningful change is limited under the Biden administration, but possible in the long run.  

This new phase of the College Meltdown has strong roots in the 1980s and involves the continued growth of the educated underclass and more bulls*t jobs, the privatization of public higher education, the proliferation and consolidation of online program managers (OPMs) working for name brand and lesser known schools, non-profit subprime colleges, robocolleges, and the fall of the US federal student loan program. In 2020 and 2021, higher education also received three massive federal bailouts.  

Larger developments include the resurgence of authoritarianism, the hollowing out of America, and the global climate change crisis.  Despite these glaring existential problems, a looming college enrollment cliff in 2026, and growing dismay by working families, irrational exuberance and false optimism continues among most college business officers and middle-class consumers.  

Will austerity and excesses in the system lead to even more dramatic failures? Will the states and federal government ask for more transparency and accountability of the government funds that keep the system afloat?

What should we be observing in this new phase:  

1. The growth (and power) of the "educated underclass"

2. The effects of student loan debt on working families and social institutions (including religion and the economy) 

3. The state of the student loan forgiveness movement and popular opinion about student loan forgiveness

4. The health of the US Department of Education's Student Loan Portfolio

5. The growth of Online Program Managers

6. The degree that public universities are serving their citizens

7. The amount of money spent on marketing and advertising in higher education

8. Analyses of the FED, big banks, and rating agencies about the K-12 pipeline, higher education, student loan debt, and the growth of the educated underclass 

9. Local, state, and federal responses to "savage inequalities" in the K-12 pipeline, student loan debt, and the growth of the "educated underclass"

10. The rise of authoritarianism/neofascism in US education and the US as a whole  (e.g. mass surveillance, anti-intellectualism, hate crimes)

11. In deference to Bryan Alexander and his upcoming book "Universities on Fire" I must include global climate change as a phenomenon that must be observed and dealt with.  Failure to address this existential problem makes the other issues irrelevant.  


Thursday, July 1, 2021

The Growth of "RoboColleges" and "Robostudents"


In a previous Higher Education Inquirer article, I presented frightening full-time faculty numbers at some large online universities which I call "robocolleges."  Full-time faculty at these robocolleges, in fact, are nearly nonexistent. Bear in mind that all of them are regionally accredited, the highest level of institutional accreditation, and the list includes well-known public university systems as well as for-profit ones.  

Robocolleges have de-skilled instruction by paying teams of workers, some qualified and some not, to write content, while computer programs perform instructional and management tasks. Learning management systems with automated instruction programs are known by different names and their mechanisms are proprietary.  As professor jobs are deskilled, tasks can be farmed out at reduced costs.  

Besides the human content creators who may be given instructional titles, other staff members at robocolleges are paid to communicate with students regarding their progress. The assumption is that managing work this way significantly reduces costs, and it does, at least in the short and medium terms.  However, instructional costs are frequently replaced by marketing and advertising expenses to pitch the schools to prospective students and their families.  Companies like EducationDynamics and Guild Education have filled the niche of promoting robocolleges to workers at a reduced cost but their overall impact is minimal.  

Meanwhile,  companies like Chegg profit from this form of learning, helping students game the system in greater numbers, in essence creating robostudents.  

The business model in higher education for reducing labor power and faculty costs is not reserved to for-profit colleges.  Community colleges also rely on a small number of full-time faculty and armies of low-wage contingent labor.  

In some cases, colleges and universities, including many brand name schools, utilize outside companies, online program managers (OPMs), to run their online programs, with OPMs like 2U taking up as much as 60 percent of the revenues.  OPMs can perform a variety of jobs, but are best known for their work in enrollment and retention.  Prospective students may believe they are talking to representatives of a particular university when in fact they are talking to someone from an outside source.  Noodle has disrupted the OPM model by selling their services ala carte, but only time will tell whether it has an impact, or whether schools will merely find less costly outsourced servicers.  

Outsourcing higher education has been a reality in US higher education for decades. And automation is also part of education, as it should, when it performs menial tasks, such as taking roll and doing preliminary work to determine student cheating.  It's likely that more schools will become more robotic in nature to reduce organizational expenses.  But what are the long-term consequences with long-term student outcomes, when automation is used to perform higher level tasks, and when outsourced individuals act in the name of brand name colleges?  

To get a small glimpse of this robocollege phenomenon, these schools cumulatively have about 3000 full-time instructors for a half-million students.  

American Intercontinental University: 51 F/T for about 8,700 students.
Capella University: 216 F/T for about 38,000 students.
Colorado State University Global: 34 F/T instructors for 12,000 students.
Colorado Technical University: 59 F/T instructors for 26,000 students.
Devry University online: 53 F/T instructors for about 17,000 students.
Liberty University: 1072 F/T for more than 85,000 students.
Purdue University Global: 346 F/T instructors for 38,000 students.
South University: 0 F/T instructors for more than 6000 students.
Southern New Hampshire University: 164 F/T for 104,000 students.
University of Arizona Global Campus: 194 F/T instructors for about 35,000 students.
University of Maryland Global: 193 F/T instructors for 60,000 students.
University of Phoenix: 127 F/T instructors for 96,000 students.
Walden University: 206 F/T for more than 50,000 students.