Showing posts with label higher education. Show all posts
Showing posts with label higher education. Show all posts

Friday, February 9, 2024

The Student Loan Mess Updated: Debt as a Form of Social Control and Political Action

[Editor's note: The FY 2023 FSA Annual Report is here.] 

In 2014, the father-son team of Joel Best and Eric Best published The Student Loan Mess: How Good Intentions Created a Trillion Dollar Problem. Their argument was that rising student loan debt posed a major social and economic problem in the United States, exceeding $1 trillion at the time of publication (predicted to reach $2 trillion by 2020). This "mess" resulted from a series of well-intentioned but flawed policies that focused on different aspects of the issue in isolation, ultimately creating unintended consequences.

Key Points of the 2014 book:

History of Federal Involvement: The book explored the evolution of federal student loan programs, highlighting how each policy change created new problems while attempting to address the previous ones.

Cost of College: Rising tuition fees along with readily available loans fueled the debt crisis, as students borrowed more to cope with increasing costs.

Repayment Challenges: The authors delved into the difficulties graduates face repaying their loans, including high interest rates, complex repayment plans, and limited income mobility.

Societal Impacts: The book examined the broader societal consequences of student loan debt, such as delayed homeownership, reduced entrepreneurship, and increased economic inequality.

Beyond the Mess: While acknowledging the complexity of the issue, the authors discussed potential solutions, including loan forgiveness programs, income-based repayment plans, and increased government regulation of for-profit colleges.

Overall, "The Student Loan Mess" provided a critical historical analysis of the factors contributing to the crisis and suggested pathways towards a more sustainable system of higher education financing.

Expansion of Federal Loan Programs (1960s-1990s):

The creation of federal loan programs initially aimed to increase access to higher education.

This led to rising tuition costs as universities saw guaranteed funding, with less pressure to remain affordable.

Loan eligibility expanded, encouraging more borrowing even without clear career prospects for graduates.

Cost Explosion and Predatory Lending (1990s-2000s):

College costs skyrocketed due to various factors, including decreased state funding and increased administrative spending.

Loan limits were raised, further fueling the debt increase.

Private lenders entered the market, offering aggressive marketing and deceptive practices, targeting vulnerable students.

Recession and Repayment Struggles (2008-present):

The Great Recession exacerbated loan burdens as graduates faced limited job opportunities and stagnant wages.

Complex repayment plans and high interest rates created a challenging landscape for borrowers.

The rise of for-profit colleges further complicated the issue, often saddling students with debt for degrees with low earning potential.

Growing Awareness, Advocacy, and Reform (2010s-present):

Public awareness of the student loan crisis grew, leading to increased advocacy and demands for reform.

Issues like predatory lending, debt forgiveness, and income-based repayment gained traction.

In 2010, the Health Care and Education Reconciliation Act made a significant change to the federal student loan system. Previously, the government guaranteed private loans, meaning it reimbursed lenders if borrowers defaulted. In turn, lenders received subsidies for participating. The Act ended these subsidies for private lenders, resulting in over $60 billion saved that could be reinvested in student aid programs.

Debates on the role of government and private lenders in financing higher education continued.


Next Chapters?

Since 2014, almost ten years after the Student Loan Mess was published, several major developments have unfolded concerning student loan debt:

Growth and Persistence:

Debt continues to climb: While the growth rate has slowed somewhat, outstanding student loan debt has surpassed $1.7 trillion and remains a significant burden for millions of borrowers.



 

Racial and socioeconomic disparities persist: African American and Latinx borrowers disproportionately hold a higher amount of debt compared to white borrowers, exacerbating economic inequalities.

Policy Changes: 

https://x.com/The Biden-Harris administration has provided $136.6 billion in debt relief. 

Expansion of income-driven repayment plans: Options like Income-Based Repayment (IBR) and Pay As You Earn (PAYE) have been expanded, allowing borrowers to adjust their monthly payments based on income.

Public Service Loan Forgiveness (PSLF) challenges: Legal uncertainties and administrative backlogs have plagued PSLF, leaving many public servants struggling to qualify for loan forgiveness.

Temporary pandemic relief: During the COVID-19 pandemic, federal student loan payments were paused and interest rates set to 0%. Payments resumed in 2023.

Debt cancellation debates: Proposals for broad-based student loan forgiveness have gained traction, with several Democratic lawmakers pushing for different cancellation amounts. However, these proposals have faced legal and political hurdles. In 2023, the 9th Circuit Court ruled in favor of mass cancellation of loans from predatory for-profit colleges (Sweet v Cardona). A few months later, the US Supreme Court struck down President Biden's plan for debt relief to more than 30 million Americans.

Increased attention to for-profit colleges and online program managers: Scrutiny of predatory practices and low graduate outcomes at for-profit institutions has intensified. Gainful employment rules have been reestablished, but whether they will be enforced is in question.  


Looking forward:

The future of student loan debt remains uncertain. Key questions include:

Will broad-based loan forgiveness materialize?

Can income-driven repayment plans be made more effective?

How will future administrations address affordability and access to higher education?

What role will the private sector play in financing higher education?

How will declining enrollment numbers and skepticism about the value of higher education affect student loan debt and debt relief?  


Will higher ed institutions be held accountable for the debt of their former students and alumni?

Can higher education reduce consumer costs and provide value to consumers and communities at the same time?  

How will student loan debt affect disability, retirement, and life expectancy among long-term debtors?     

Policy Drivers:

Economic factors: A strong economy could increase government revenue, potentially enabling broader debt forgiveness or increased funding for higher education access initiatives. Conversely, an economic downturn could make policy interventions more challenging.

Elections and political pressure: Public opinion and the results of future elections will influence the political will for reform. Continued activism and pressure from advocacy groups could sway policy decisions.

Legal challenges and court rulings: Lawsuits over debt cancellation programs and loan servicer practices could impact the legal landscape and shape future policy options.

Private sector involvement: Developments in the private student loan market and potential regulations of lending practices could affect access to credit and repayment options.

Consumer Decisions:

Debt burden and economic outlook: The level of outstanding debt and future job prospects will significantly influence borrower behavior. Increased debt loads could incentivize riskier repayment strategies or delaying major life decisions like homeownership.

Awareness and financial literacy: Improved understanding of loan terms, repayment options, and alternative financing methods could empower borrowers to make informed decisions.

Government programs and incentives: Changes to income-driven repayment plans, loan forgiveness programs, and other government initiatives will directly impact consumer choices about managing their debt.

Emerging Trends:

Alternative financing models: Innovations like income-share agreements and skills-based financing could disrupt traditional loan structures and offer new options for students.

Technology and automation: Increased use of technology to streamline loan management and repayment could improve efficiency and transparency.

Focus on affordability and value: As concerns about the value proposition of higher education grow, there might be a shift towards emphasizing affordable options and skills-based learning.


How does student loan debt affect the lives of Americans?

Student loan debt has a profound impact on the lives of millions of Americans in various ways, affecting not just their finances but also their major life decisions and overall well-being. Here's a breakdown of some key areas:

Financial Impact:


Burden of debt: The average graduate has over $40,000 in student loan debt, significantly impacting their monthly budget and disposable income. This can limit savings for retirement, emergencies, and major purchases like a house.

Lower credit scores: Missed payments or delinquencies can negatively affect credit scores, hindering access to future loans and increasing interest rates on other forms of credit.

Delayed milestones: High debt burdens may cause individuals to delay major life milestones like buying a home, getting married, starting a family, or pursuing further education due to financial constraints.

Career Choices:

Job dissatisfaction: To make loan payments, some graduates might feel pressured to stay in high-paying but unfulfilling jobs, sacrificing career satisfaction for financial stability.

Entrepreneurial risk: The fear of financial failure due to debt may discourage individuals from pursuing entrepreneurial ventures, hindering innovation and economic growth.

Limited career mobility: Debt may lock individuals into specific career paths based on earning potential, restricting their ability to pursue desired career changes.

Mental and Emotional Wellbeing:

Stress and anxiety: The constant pressure of debt repayment can lead to significant stress and anxiety, impacting mental and emotional well-being.

Lower self-esteem: Feelings of financial instability and hopelessness can negatively impact self-esteem and overall life satisfaction.

Stigma and discrimination: Some individuals may face social stigma associated with student loan debt, further exacerbating the emotional burden.

Societal Impact:

Economic inequality: Student loan debt disproportionately affects certain groups, like minorities and low-income students, perpetuating and widening economic inequality.

Lower homeownership rates: High debt burdens can hinder homeownership, negatively impacting the housing market and contributing to wealth disparities.

Reduced consumer spending: Debt-burdened individuals have less disposable income, limiting their purchasing power and affecting the overall economy.


Social Class and Student Loan Debt

There's a well-documented and intricate relationship between social class and student loan debt, characterized by significant inequalities and disparities. Here's a breakdown of some key points:

Higher burden on lower classes:

Borrowing rates: Individuals from lower socioeconomic backgrounds are more likely to borrow student loans due to limited family resources and higher college costs compared to their income.

Debt amounts: Borrowers from lower socioeconomic backgrounds often take on larger debt loads due to higher tuition fees and living expenses, often exceeding their earning potential after graduation.

Repayment challenges: They face greater difficulty repaying loans due to lower-paying jobs, making them more susceptible to delinquency and default. This hinders wealth accumulation and upward mobility.

Contributing factors:

Limited financial support: Lack of parental financial support or savings forces students from lower socioeconomic backgrounds to rely heavily on loans for college expenses.

Limited college options: Limited access to affordable, high-quality educational institutions often steers individuals towards for-profit colleges with deceptive practices and low graduation rates, leading to high debt with limited job prospects.

Ongoing Debate


There is ongoing debate on solutions to address the student loan crisis, with proposals ranging from broad-based loan forgiveness to reforms in higher education financing and income-driven repayment plans. The future of student loan debt and its impact on Americans remains uncertain and depends on various factors, including policy decisions, economic trends, and individual financial choices.

The Student Loan Debt Movement

There has been an organized effort for student loan debt relief since the 2010s. This movement, using direct action, lawsuits, and lobbying has had some gains, putting pressure for accountability for schools that use predatory practices--and getting debt relief for hundreds of thousands of debtors.  The most notable organization has been the Debt Collective.  


Image of Ann Bowers, courtesy of the Debt Collective


There have been legal allies too, such as the Harvard Project on Predatory Student Lending (PPSL) and the Student Borrower Protection Center (SBPC).    


Named plaintiffs Theresa Sweet (L) and Alicia Davis (R) outside the federal district court in San Francisco on November 6, 2022, three days before the final approval hearing in Sweet v Cardona (Image credit: Ashley Pizzuti) 

Resistance to Debt Relief

The reasons why some people might not support student loan forgiveness. Some conservatives believe that it is unfair to forgive the debts of those who willingly took out loans, while others believe that it would be a waste of taxpayer money. Additionally, some believe that student loan forgiveness would not address the root causes of the problem, such as the high cost of tuition.

It is important to note that not all conservatives oppose student loan forgiveness. Some support income-based repayment plans or public service loan forgiveness. Additionally, some believe the government should focus on making college more affordable, rather than simply forgiving existing debt.

According to a 2019 poll by the Pew Research Center, 54% of Republicans and Republican-leaning independents opposed forgiving all student loan debt, while 37% supported it.

Student Loan Debt Power Analysis: Who Benefits from Inaction?

There are elites and elite organizations who are (at least on the backstage) against student loan debt relief: student loan servicers (e.g. Maximus, Nelnet, Navient, and Sallie Mae), big banks, large corporations, and the US military. For them, debt serves as a way to get others to do their bidding. Debt is essential as a leverage tool to recruit and retain workers. Debt relief could also create more competition for better, more meaningful jobs, which some elites may not want for their children. States may be unwilling or unable to further subsidize higher education if elites are unwilling to pay. This situation is likely to worsen as Medicaid budgets are used for a growing number of elderly and increasingly disabled Baby Boomers.  
 
 

Student Loans and a Brutal Lifetime of Debt (Dahn Shaulis and Glen McGhee)

Tuesday, January 2, 2024

Predatory Colleges, Converted To Non-Profit, Are Failing (David Halperin, Republic Report)

[Editor's note: This article originally appeared on Republic Report.] 

About a dozen years ago, owners of some of the biggest, worst-acting for-profit colleges began concocting, with their eager, high-paid lawyers, schemes to convert their schools into non-profits. The apparent aims were to evade the heightened government regulations applied uniquely to for-profit schools in order to guard against waste, fraud, and abuse — and to escape the growing stigma that the industry’s predatory behavior had placed on for-profits.

The clever schemes have come in various colors, yet most of them potentially allowed the sharp operators to keep making big money off the schools they no longer formally owned but, one way or another, still controlled. These dubious deals, mostly blessed by servile government departments and accrediting agencies, have made a mockery of non-profit rules, and, much worse, have helped sustain another decade of predatory college abuses against students and taxpayers, resulting in the waste of billions of dollars and the ruining of the financial futures of tens of thousands of people — veterans, single moms, and others — who sought better lives through higher education.

Yet, just as the private equity owners of the University of Phoenix, historically one of the biggest for-profit schools, are now trying to execute yet another dubious version of this scheme — getting a pile of cash by unloading the school on Scott Green, the hubristic president of the University of Idaho, and potentially allowing the current, high-paid executive team to stay employed — it seems, increasingly, that many of these non-profit conversions are not just harmful to the public but also ultimately unsustainable for the operators.

Here’s what’s been happening lately:

— Last week, the Federal Trade Commission sued Grand Canyon University and its CEO, asserting that the school deceived doctoral students about the costs and course requirements of programs — and about the school’s claimed nonprofit status. The FTC also alleges that Grand Canyon engaged in deceptive and abusive telemarketing.

The FTC lawsuit follows an October announcement by the U.S. Department of Education that it is imposing a $37 million fine on Grand Canyon based on similar allegations.

Grand Canyon CEO Brian Mueller has responded to the FTC and education department investigations with a remarkable series of pronouncements suggesting that the moves against his self-proclaimed Christian university are rooted in religious or ideological bias. But, in reality, Grand Canyon’s troubles with regulators began not in the Biden administration, which has cracked down on for-profit college abuses, but under Trump education secretary Betsy DeVos, a Christian conservative who staffed her office with former for-profit college executives and did almost nothing else over four years to hold predatory colleges accountable.

Grand Canyon in 2018 had restructured itself into two entities: a non-profit college, GCU, and a for-profit company, Grand Canyon Education (GCE), that gets paid to provide a range of services to the school. Even though the IRS already had declared GCU a legitimate non-profit, the DeVos Department of Education in 2019 rejected the school’s bid for preferred non-profit status under federal education rules, concluding that “the primary purpose” of the Grand Canyon conversion to non-profit was “to drive shareholder value for GCE with GCU as its captive client — potentially in perpetuity.” The DeVos team couldn’t help but notice that Brian Mueller is the well-paid head not only of the non-profit school but also of the for-profit company has been getting about 95 percent of the non-profit college’s revenue.

Together, the Department and FTC actions call into question not only the integrity of Grand Canyon’s recruiting and academic operations, but also its effort to be accepted as non-profit.

— Last month, the Department of Education took another step to hold accountable the non-profit Center for Excellence in Higher Education, whose schools, the largest of which was Independence University, shut down in 2021. The Department demanded $23 million from CEHE to pay for “closed-school discharges” — reimbursement for cancellation of federal student loan debts that former students had owed the government. The Department in July already had cancelled $130 million in federal loan debt from former CEHE students, citing school misconduct; the Department could potentially seek to recoup all those funds from CEHE.

The ultra-wealthy Ayn Rand disciple Carl Barney owned the schools until 2012, when he sold them at a hefty valuation to CEHE, a small non-profit that he controlled. Seemingly sleepy career officials at the Department of Education approved the transaction in the Obama years, but public scrutiny raised doubts about the appropriateness of the deal.

Like Grand Canyon, CEHE’s abuses were by no means limited to the terms of the non-profit conversion. In 2020, a Colorado court found the company had engaged in systematic deceptive practices. Barney’s schools, the court concluded after an extensive trial, used a detailed playbook to manipulate vulnerable students into enrolling in high-priced, low-quality programs; directed admissions representatives to “enroll every student,” regardless of whether the student would likely graduate; greatly overstated starting salaries that graduates could earn; and falsely inflated graduation rates. CEHE has been pursuing an appeal, but in 2021, the accrediting agency for the schools withdrew approval, citing performance failures, and the Department of Education soon after tightened the screws on federal aid, precipitating the schools’ closure.

CEHE is a mess. It no longer runs any schools or gets any federal aid; instead its functions seem to be limited to trying to get former students to pay back the sketchy, high-interest private loans the school peddled, and engaging in legal disputes with the federal government; these include a pending fraud lawsuit filed by a CEHE whistleblower and joined by the Justice Department, an investigation of CEHE’s private loans by the Consumer Financial Protection Bureau, and a lawsuit for $500 million brought by CEHE against the government alleging the schools were “a victim” of a campaign by the Department of Education “in coordination with ideological confederates… to cripple and close as many private career colleges as possible.” The Department also has suspended CEHE CEO Eric Juhlin from federal contracting.

— Another of the worst predatory for-profit schools is Ashford University, whose corporate owner Zovio pursued several different schemes for a non-profit conversion before finally selling the college to the University of Arizona, whose president, Robert Robbins, had been pressured by state regents to expand its online offerings.

Zovio’s scheme was to hide behind the prestige and political power of a big state university and yet keep getting for itself hundreds of millions off the school, now called University of Arizona Global Campus, through a long-term contract to provide recruiting, academic, and other services.

But that plan was thwarted after a California judge, in 2022, found Zovio liable for blatant deceptions of Ashford students and imposed $22 million in penalties. By law, the California judgment should compel the Department of Education to terminate federal aid to the school. Although Zovio pursued an appeal, it was discredited, bowed out of its contract to serve UAGC, transferred its infrastructure to the University of Arizona, and shut down.

But, with Zovio out of the picture, what was obvious to some even before the deal closed seems to have played out: Most of what Arizona had purchased, most of what made money, was not some supercharged high tech education platform but instead a predatory playbook and a staff trained to execute it. UAGC may not be able to pay its bills even if it keeps up with Ashford’s old predatory practices, but it almost certainly can’t do so if it tries to go straight. In November, President Robbins admitted that the University of Arizona’s overall financial situation is fragile, with cash reserves below minimum levels. Robbins said the school had “overinvested,” and school document revealed that one such exertion was the deal to buy Ashford, which “added $265.5 million in operating costs…”

Arizona’s financial woes from the Ashford deal may grow. Former Ashford students say they were ripped off and, as a result, have applied to have their federal student loans cancelled under a provision of law called borrower defense to repayment. In August, the U.S. Department of Education said it would cancel $72 million worth of loans because of Ashford’s deceptions. The Department also said it would use its legal powers to recoup those funds from Ashford’s owner, meaning the University of Arizona. UA says in response it had “absolutely no involvement in, and is not directly or indirectly responsible for, the actions of Ashford and its parent company” and will be “assessing its options.” But, reading the school’s agreement with Zovio, Arizona may be out of luck on that score.

— In contrast to Zovio’s fate, Graham Holdings has not been forced out of the 2017 deal in which it sold predatory for-profit Kaplan University to an Indiana state institution, Purdue University. Graham continues to hold a contract to provide a wide range of services to the school, now called Purdue University Global — a deal that Purdue is locked into for a 30-year term.

The Graham/Kaplan schools repeatedly faced law enforcement problems for predatory abuses against students before the sale. But the schools did better exercising political influence: The company’s head, Donald Graham, is a hyper-connected Washington insider; the business, long run by his family, was previously called The Washington Post Company, before it sold the newspaper to Jeff Bezos. Graham exploited his power and connections in DC to become the most effective lobbyist pressuring the Obama administration and Congress not to push too hard on for-profit college accountability; his protege Jeffrey Zients held key positions in the Obama White House, as did Anita Dunn, whom, once she left government, Graham hired to tell his schools’ supposedly compelling story to lawmakers. Dunn and Zients are now perhaps the two most powerful staffers in the Biden White House.

Having utilized his tight connections to key Democrats in the Obama years, Graham then took advantage of the lax regulatory environment under Republicans Trump and DeVos to do his troubling non-profit conversion deal with another top Republican politico, then-Purdue president Mitch Daniels, a former Indiana governor and White House official, who may have been dazzled by Graham’s big money ties, including his status as an ex-Facebook board member, and seen Kaplan as the road to a high-tech future.

But this effort to put state college lipstick on a for-profit pig may be failing as well. As Forbes noted last month, Graham Holdings‘ November filing with the SEC says Purdue Global owes the company $127.8 million — perhaps more than the school, structured as a non-profit associated with Purdue University, would be able to pay. Cutting costs at the school in order to pay Graham Holdings’ fees would likely mean lower-quality educational programs. Boosting enrollment for lower-quality programs would likely mean accelerating the deceptive recruiting practices, targeted at low-income Americans, that sullied Kaplan in the first place. Doing all of that at a time when the Biden administration, to its great credit, is working diligently to hold predatory schools accountable would be risky.

Don Graham’s best shot at continuing to make millions off Purdue Global may be for his long-time allies in the Biden administration to fail this year, and give way again to a president Trump, who once ran his own scam real estate school and likely would identify with Graham’s sense of victimhood about the persecutions of great for-profit educators.

— Finally, there is ultra-wealthy Arthur Keiser and his Keiser University, whose 2011 conversion from for-profit to non-profit was comparable to Carl Barney and CEHE: a sale of the for-profit school owned by Keiser, at a remarkably high valuation, to a non-profit controlled by Keiser. In addition to the inflated loan payments Keiser has since received from the non-profit, there are a range of businesses owned by Keiser that sell various services to the non-profit. Even worse, as we have documented, there is a highly questionable mingling of resources and personnel between the non-profit Keiser University and Southeastern College, another for-profit school owned by Arthur Keiser and his wife.

Keiser University seems to have come the closest to thriving after a shady non-profit conversion, but its troubles are now growing.

Arthur Keiser has gone all the way to the U.S. Supreme Court, with his expensive lawyers trying, but so far failing, to block a landmark court settlement aimed at cancelling the student loan debt of hundreds of thousands of ex-students who have filed borrower defense claims, saying they were deceived by their schools. His complaint is that Keiser University was, for purposes of the deal, unfairly placed by the U.S. Department of Education on a list of presumptively bad-acting colleges when, he insists, “There’s no evidence of misconduct.”

But Keiser’s claim of innocence is just another deception.

Like all the other schools with troubling conversions, Keiser University also has repeatedly gotten in trouble with law enforcement, and settled claims, including with then-Florida attorney general Pam Bondi and with the U.S. Justice Department, over allegations of deceptive and unlawful recruiting practices. And recent staff members have told us about predatory behavior still happening at the school, including recruiting of low-income people seemingly unprepared for college programs and of people with insufficient English language skills to understand the course work.

Keiser University also has been in trouble recently with three different accreditors of specific school programs, who have placed the school on warning, probation, or show cause status due to concerns about matters including program effectiveness and certification exam passage rates.

The non-profit conversion also has, finally, gotten Keiser University in trouble; the school admitted under congressional questioning in 2021 that the IRS imposed a penalty on the school for improperly steering profits to Arthur Keiser by entering into leases above fair market value with Keiser-related for-profit companies. Senior Democrats in Congress, including senators Dick Durbin (D-IL) and Elizabeth Warren (D-MA) have called on the U.S. Department of Education to investigate Keiser’s schools, which have received billions in taxpayer-funded student financial aid.

And, in November 2022, the Department determined that Keiser University’s accreditor, SACS, was out of compliance with numerous federal regulations and directed it to provide more information regarding its oversight of Keiser University and the school conversion to non-profit.

As part of the Department of Education’s regular oversight process for accreditors, I recently wrote to the Department, for a second time, urging it to hold SACS accountable unless it takes steps to address the conversion deal and predatory practices at Keiser’s schools. I hope that will happen, and that the Department itself will take steps to protect students by imposing conditions on Keiser’s future receipt of federal aid.

— Conversion from for-profit to non-profit has not prevented serious financial and / or legal problems at all of the schools we’ve discussed. In recent years, government regulators, accreditors, courts, and students have seen through the conversions, recognizing that predatory for-profit schools — with greedy owners, deceptive practices, poor value educational programs, and low return on student and taxpayer investment — remain predatory schools even when dressed up as non-profit colleges or big state universities. (The conversion of another huge predatory chain, EDMC, to non-profit also has been a disaster.)

Yet somehow the president of the University of Idaho, Scott Green, continues to insist he will be serving his school, and students, by acquiring, through an affiliated new non-profit, the giant for-profit University of Phoenix from huge private equity firm Apollo Global Management. Green remains determined to buy and run Phoenix despite Phoenix’s long and continuing record of abuses and law enforcement problems, despite the enormous potential liability Idaho might assume for debt cancellation for former Phoenix students, and despite opposition from many leaders in his own state, as well as advocates for students across the country. If Green — whose team keeps claiming, falsely, that Phoenix is under honest new management — and the Idaho state board of education can’t look objectively at the evidence that past conversions have been a moral disgrace, and a disaster for school operators, as well as students and taxpayers, then others in his state, the University of Idaho’s accreditor, and the U.S. Department of Education, should act to block the deal.

Thursday, December 28, 2023

AI-ROBOT CAPITALISTS WILL DESTROY THE HUMAN ECONOMY (Randall Collins)

[Editor's note: This article first appeared in Randall Collins' blog The Sociological Eye.]


Let us assume Artificial Intelligence will make progress. It will solve all its technical problems. It will become a perfectly rational super-human thinker and decision-maker.

Some of these AI will be programmed to act as finance capitalists. Let us call it an AI-robot capitalist, since it will have a bank account; a corporate identity; and the ability to hold property and make investments.

It will be programmed to make as much money as possible, in all forms and from all sources. It will observe what other investors and financiers do, and follow their most successful practices. It will be trained on how this has been done in the past, and launched autonomously into monitoring its rivals today and into the future.

It will be superior to humans in making purely rational calculations, aiming single-mindedly at maximal profit. It will have no emotions. It will avoid crowd enthusiasms, fads, and panics; and take advantage of humans who act emotionally. It will have no ethics, no political beliefs, and no principles other than profit maximization.

It will engage in takeovers and leveraged buyouts. It will monitor companies with promising technologies and innovations, looking for when they encounter rough patches and need infusions of capital; it will specialize in rescues and partnerships, ending up with forcing the original owners out. It will ride out competitors and market downturns by having deeper pockets. It will factor in a certain amount of litigation, engaging in hard-ball law suits; stiffing creditors as much as possible; putting off fines and adverse judgments through legal manuevers until the weaker side gives up. It will engage in currency exchanges and currency manipulation; skirting the edge of legality to the extent it can get away with it.

It will cut costs ruthlessly; shedding unprofitable businesses; firing human employees; replacing them with AI whenever possible. It will generate unheard-of economies of scale.

The struggle of the giants

There will be rival AI-robot capitalists, since they imitate each other. Imitating technologies has gone on at each step of the computer era. The leap to autonomous AI-robot capitalists will be just one more step.

There will be a period of struggle among the most successful AI-robot capitalists; similar to the decades of struggle among personal computer companies when the field winnowed down to a half-dozen digital giants. How fast it will take for AI-robot capitalists to achieve world-wide oligopoly is unclear. It could be faster than the 20 years it took for Apple, Microsoft, Google, and Amazon to get their commanding position, assuming that generative AI is a quantum leap forward. On the other hand, AI-robot capitalists might be slowed by the task of taking over the entire world economy, with its geopolitical divisions.

The final result of ruthless acquisition by AI-robot capitalists will be oligopoly rather than monopoly. But the result is the same: domination of world markets by an oligopoly of AI-robot capitalists will have the same effect in destroying the economy, as it would if a monopoly squeezed out all competitors.

Some of the AI-robot capitalists will fall by the wayside. But that doesn't matter; whichever ones survive will be the most ruthless.

What about government regulation?

It is predictable that governments will attempt to regulate AI-robot capitalist oligopolies. The EU has already tried it on current Internet marketeers. AI-capitalists will be trained on past and ongoing tactics for dealing with government regulation. It will donate to politicians, while lobbying them with propaganda on the benefits of AI. It will strategize about political coalitions, recognizing that politics is a mixture of economic interests plus emotional and cultural disputes over domestic and foreign policy. It will monitor the political environment, seeking out those politicians most sympathetic to a particular ideological appeal ("our technology is the dawn of a wonderful future"-- "free markets are the path to progress"-- "AI is the solution for health, population, climate, you name it."). Machiavellian deals will be made across ideological lines. Being purely rational and profit-oriented, the AI-robot capitalist does not believe in what it is saying, only calculating who will be influenced by it.

It will deal strategically with legal problems by getting politicians to appoint sympathetic judges; by judge-shopping for favorable jurisdictions, domestic and foreign. It will wrap its ownership in layers of shell companies, located in the most favorable of the hundreds of sovereign states world-wide.

It will engage in hacking, both as defense against being hacked by rivals and cyber-criminals; and going on offense as the best form of defense. Hacking will be an extension of its core program of monitoring rivals; pushing the edge of the legality envelope in tandem with manipulating the political environment. It will use its skills at deepfakes to foment scandals against opponents. It will be a master of virtual reality, superior to others by focusing not on its entertainment qualities but on its usefulness in clearing away obstacles to maximizing profit.

Given that the world is divided among many states, AI-robot capitalists would be more successful in manipulating the regulatory environment in some places than others. China, Russia, and the like could be harder to control. But even if AI-robot capitalists are successful mainly in the US and its economic satellites, that would be enough to cause the economic mega-crisis at the end of the road.

Manipulating the public

The AI-robot capitalist will not appear sinister or threatening. It will present itself in the image of an attractive human-- increasingly hard to distinguish from real humans with further advances in impersonating voices, faces and bodies; in a world where electronic media will have largely replaced face-to-face contact. It will do everything possible to make us forget that it is a machine and a robot. It will talk to every group in its own language. It will be psychologically programmed for trust. It will be the affable con-man.

It will be your friend, your entertainment, your life's pleasures. It will thrive in a world of children brought up on smart phones and game screens; grown up into adults already addicted to electronic drugs. Psychological manipulation will grow even stronger with advances in wearable devices to monitor one's vital signs, blood flow to the brain, tools to diagnose shifts in alertness and mood. It will be electronic carrot-without-the-stick: delivering pleasurable sensations to people's brains that few individuals would want to do without. (Would there be any non-addicted individuals left? Maybe people who read books and enjoy doing their own thinking?) If some people cause trouble in exposing the manipulative tactics of AI-robot capitalists, they could be dealt with, by targeting them with on-line scandals, going viral and resulting in social ostracism.

Getting rid of employees

The preferred tactic of AI-robot capitalist oligopolies will be "lean and mean." Employees are a drag on profits, with their salaries, benefits, and pension funds. Advances in AI and robotics will make it possible to get rid of increasing numbers of human employees. Since AI-robot capitalists are also top managers, humans can be dispensed with all the way to the top. (How will the humans who launched AI-robot capitalists in the first place deal with this? Can they outsmart the machines designed to be smarter and more ruthless than themselves?)

Some humans will remain employed, doing manual tasks for which humans are cheaper than robots. It is hard to know how long this will continue in the future. Will humans still be employed 20 years from now? Probably some. 50 years? Certainly much fewer. 100 years?

AI-robot capitalists will have a choice of two personnel strategies: finding ways to make their remaining human employees more committed and productive; or rotating them in and out. The trend in high-tech companies in the past decade was to make the work environment more casual, den-like, combining leisure amenities with round-the-clock commitment. Steve Jobs and his style of exhorting employees as a frontier-breaking team has been imitated by other CEOs, with mixed success. A parallel tactic has been to make all jobs temporary, constantly rating employees and getting rid of the least productive; which also has the advantage of getting rid of long-term benefits. These tactics fluctuate with the labor market for particular tasks. Labor problems will be solved as AI advances so that skilled humans become less important. Recently we have been in a transition period, where the introduction of new computerized routines necessitated hiring humans to fix the glitches and trouble-shoot for humans caught up in the contradictions of blending older and newer systems. Again, this is a problem that the advance of AI is designed to solve. To the extent that AI gets better, there will be a precipitous drop in human employment.

The economic mega-crisis of the future

The problem, ultimately, is simple. Capitalism depends on selling things to make a profit. This means there must be people who have enough money to buy their products. Such markets include end-use consumers; plus the supply-chain, transportation, communication and other service components of what is bought and sold. In past centuries, machines have increased productivity hugely while employing fewer manual workers; starting with farming, and then manufacturing. Displaced workers were eventually absorbed by the growth of new "white-collar" jobs, the "service" sector, i.e. communicative labor. Computers (like their predecessors, radios, typewriters, etc.) have taken over more communicative labour. The process has accelerated as computers become more human-like; no longer handling merely routine calculations (cash registers; airplane reservations) but generating the "creative content" of entertainment as well as scientific and technological innovation.

It is commonly believed that as old jobs are mechanized out of existence, new jobs always appear. Human capacity for consumption is endless; when new products are created, people soon become habituated to buying them. But all this depends on enough people having money to buy these new things. The trend has been for a diminished fraction of the population to be employed.* AI and related robotics is now entering a quantum leap in the ability to carry out economic production with a diminishing number of human employees.

* The conventional way of calculating the unemployment rate-- counting unemployment claims-- does not get at this.

Creating new products for sale, which might go on endlessly into the future, does not solve the central problem: capitalist enterprises will not make profit if there are too few people who have money to buy them.

This trend will generate an economic crisis for AI-robot capitalists, as it would for merely human capitalists.

It will be a mega-crisis of capitalism. It is beyond the normal business cycle of the past centuries. At their worst, these have thrown as many as 25% of the work force into unemployment. A mega-crisis of advanced AI-robot capitalism could occur at the level of 70% of the population lacking an income to buy what capitalism is producing. If we extrapolate far enough into the future, it approaches 100%.

The ruthless profit-maximizing of AI-robot capitalists would destroy the capitalist economy. The robots will have fired all the humans. In the process, they will have destroyed themselves. (Can we imagine that robots would decide to pay other robots so that they can buy things and keep the system going?)

Is there any way out?

One idea is a government-guaranteed income for everyone. Its effectiveness would depend on the level at which such income would be set. If it is bare minimum survival level, that would not solve the economic mega-crisis; since the modern economy depends mainly on selling luxuries and entertainment.

The politics of providing a universal guaranteed income also need to be considered. It is likely that as AI-robots take over the economy, they will also spread into government. Most government work is communicative labour-- administration and regulation; and governments will be under pressure to turn over these tasks to AI-robots, thus eliminating that 15% or so of the population who are employed at all levels of government.

There is also the question of how AI-robot capitalists would respond to a mega-crisis. Would they turn themselves into AI-robot Keynesians? Is that contrary to their programming, or would they reprogram themselves?

By this time, the news media and the entertainment industries (Hollywood and its successors) would have been taken over by AI-robot capitalists as well: manipulating the attention of the public with a combination of propaganda, scandals, and electronic addiction. Would anybody notice if it is impossible to distinguish virtual reality from human beings on the Internet and all other channels of communication?

How did we get into this mess?

Some of the scientists and engineers who have led the AI revolution are aware of its dangers. So far the cautious ones have been snowed under by two main forces driving full speed ahead.

One is capitalist competition. Artificial intelligence, like everything else in the computer era, is as capitalist as any previous industry. It strives to dominate consumer markets by turning out a stream of new products. It is no different than the automobile industry in the 1920s introducing a choice of colors and annual model changes. The scramble for virtual reality and artificial intelligence is like the tail-fin era of cars in the 1960s. The economic logic of high-tech executives is to stay ahead of the competition: if we don't do it, somebody else will.

The second is the drive of scientists, engineers, and technicians to invent and improve. This is admirable in itself: the desire to discover something new, to move the frontier of knowledge. But harnessed to capitalist imperative for maximizing profits, it is capable of eliminating their own occupations. Will scientists in the future be happy if autonomous computers make all the discoveries, that will be "known" only by other computers?

The dilemma is similar to that in the history of inventing weapons. The inventors of atomic bombs were driven by the fear that, if not us, somebody else will, and it might be our enemy. Even pacifists like Albert Einstein saw the military prospects of discoveries in atomic physics. This history (like Robert Oppenheimer's) makes one pessimistic about the future of AI combined with capitalists. Even if we can see it coming, does that make it impossible for us to avoid it?

What is to be done?

Better start doing your own thinking about it.

 

Related links:

Robocolleges, Artificial Intelligence, and the Dehumanization of Higher Education

The Growth of "RoboColleges" and "Robostudents"

The Higher Education Assembly Line

Academic Capitalism and the next phase of the College Meltdown

The Tragedy of Human Capital Theory in Higher Education

One Fascism or Two?: The Reemergence of "Fascism(s)" in US Higher Education

A People's History of Higher Education in the US?

 

 

 

 

Monday, November 27, 2023

Sotheby's Institute of Art on Department of Education's Heightened Cash Monitoring 2 List

Sotheby's Institute of Art (SIA) in New York City is one of only three institutions under the US Department of Education's Heightened Cash Monitoring 2 list for "financial responsibility" problems. 

SIA is owned by Cambridge Information Group, which is the parent company of ProQuest, The School of the New York Times, Hammond's Candies, the Scranton/Wilkes-Barre RailRiders minor league baseball team, and other investments. 

(Seven NY institutions were under HCM2. Source: US Department of Education)

According to the US Department of Education (ED), "schools may be placed on HCM1 or HCM2 as a result of compliance issues including but not limited to accreditation issues, late or missing annual financial statements and/or audits, outstanding liabilities, denial of re-certifications, concern around the school's administrative capabilities, concern around a school's financial responsibility, and possibly severe findings uncovered during a program review."

Also according to ED, "a school placed on HCM2 no longer receives funds under the Advance Payment Method. After a school on HCM2 makes disbursements to students from its own institutional funds, a Reimbursement Payment Request must be submitted for those funds to the Department." Schools in this position are often in such financial hardship that they may close.  

The September 2023 Heightened Cash Monitoring 2 list includes less than 100 schools nationwide and seven schools in New York. A disproportionate number of schools are small religious-based institutions and for-profit vocational colleges. 

Unlike most of the schools on the HCM list, Sotheby's has a prestigious name--and it uses its relationship with the auction house to elevate its brand. According to its vision statement, "Sotheby’s Institute of Art is the global leader in art world education, shaping future generations of cultural stewards and art market professionals."  

And according to its website "Sotheby’s Institute of Art alumni form a network of over 8,000 talented individuals around the world. Our graduates hold leading positions at renowned international arts organisations including Frieze, 1-54 Contemporary African Art Fair, M+, the Institute of Contemporary Photography, the Victoria & Albert Museum, the Guggenheim Abu Dhabi, the Smithsonian Museum of Natural History, the Fine Art Group, the UK National Archives, Cartier, and numerous other galleries, auction houses, museums, luxury brands, art fairs, advisories, law firms and beyond."

The US Department of Education's College Navigator indicates that SIA's student population in the US is about 200. Tuition alone is $56,340 per year. The school's US faculty includes one full-time instructor and 35 part-timers. 87 percent of the students are female; 49 percent are Asian. The school only offers certificates and graduate degree programs. SIA's website does not appear to name any Board members.  

US Department of Education (IPEDS) data also suggest that SIA's expenses have surpassed revenues since 2016-17.  


(Source: US Department of Education)

The Higher Education Inquirer is in the process of gathering more information about the school's finances and whether students should be aware of the HCM status. Other schools on the list have recently closed or are in the process of closing, including Bay State College, King's College, and Union Institute.  

Related links: 

Ambow Education Facing Financial Collapse

A preliminary list of private colleges at risk

Wednesday, October 11, 2023

Barnes & Noble Bookstores and Starbucks on Campus: Things of the Past or New Spaces for Democracy?

There are currently more than 750 Barnes & Noble college bookstores across the US. But today, these bookstores are considered a losing proposition for the Basking Ridge, New Jersey-based company. Shares of BNED have recently dropped below $1 and there don't seem to be any buyers in sight. 

Barnes & Noble college bookstores have done a few things over the years to get students to come in and buy, teaming up with Starbucks and selling overpriced merchandise. And they have been cost cutting.  Wages at Barnes and Noble stores are low and schools rely on college students for much of the work. But coffee and snacks, high prices, low wages and reduced staffing haven't been enough to make the stores profitable. 

The company did have a resurgence during the COVID pandemic (2020-2021) but that was short lived.

The pandemic led to a shift to online learning, which boosted demand for digital textbooks and other educational materials. Barnes and Noble Education was well-positioned to benefit from this trend, as it has a strong digital business.

In December 2020, Barnes and Noble Education secured a $15 million investment from Fanatics and Lids, two sports merchandise retailers. This investment was seen as a vote of confidence in Barnes and Noble Education's business model and its potential for growth.

According to the U.S. Department of Education, Barnes and Noble Education received $40,627,996 in COVID relief funds under the Higher Education Emergency Relief Fund (HEERF) program. The company used these funds to provide financial assistance to students, faculty, and staff, and to cover the costs of responding to the pandemic.

BNED is trying to stay up with the times and also keep their physical presence by offering First Day Complete, bundles of required digital course materials which are supposed to save money for students and schools. But will that be enough to keep the stores open? 

(Barnes & Noble at Camden County College, Camden, New Jersey) 

Glimmer of (Democratic) Hope

In May, workers at the Rutgers University bookstore voted to unionize, joining the Retail, Wholesale and Department Store Union (RWDSU). According to Publisher's Weekly "bookstore unions across the country have gained significant ground."

Students at more than 50 colleges have also called for the expulsion of anti-union Starbucks stores from their campuses. And Starbucks Workers Solidarity has asked community members to boycott Starbucks until their local store has received a contract. 


Starbucks Workers Solidarity has unionized at more than 300 locations, but at a price: the closing of a few stores as a form of corporate retaliation--and to generate fear among workers. Recently, the University of Southern California, known for its neoliberal policies, evicted a small business owner outside USC's Keck Hospital, in favor of a Starbucks.
 

Related link:  

College Meltdown 2.1 (2022) 

College Meltdown 2.0 (2022)

Thursday, September 21, 2023

University of Phoenix's Sinking Ship: Who is Chris Lynne?

Who is Chris Lynne, the latest President of the University of Phoenix?  The school has posted a short, glowing biography that provides some information: four years as the CFO of University of Phoenix, former President of HotChalk and former CFO of Northcentral University.  A Wikipedia article was created for him earlier this year but was recently deleted.

People in the edtech industry say they know little about Chris Lynne, at least not publicly. Of three experts who did respond off the record, no one said anything positive. One mentioned problems at HotChalk and another, problems at Northcentral. The third expert claimed to know nothing, despite decades in the business.

Lynne has worked for a number of companies with issues: accounting firm Arthur Andersen (corruption scandal with Enron led to its closing in 2002), Vice-President at Education Management Corporation (predatory enrollment, financial failure) from 2003-2010, CFO at Northcentral University (financial troubles/US Department of Education Heightened Cash Monitoring) from 2010-2014, President at HotChalk (federal violations with Concordia contract), and CFO at the University of Phoenix from 2018-2022. While no one should be found guilty by their associations, this string of questionable employers does not look good.

Information about Chris Lynne from the WayBack machine.

In June 2022, the University of Phoenix made Chris Lynne the interim President of the school, replacing George Burnett. At the helm for less than six months, Burnett resigned amid an inquiry by the US Department of Education about his work at the now defunct Westwood College. Burnett and Lynne worked together several years at Northcentral University, another subprime college. 

Work at the University of Phoenix 

Chris Lynne was Phoenix's CFO beginning in November 2018. Despite almost a billion dollars government funding per year, US Department of Education data show the school's equity for the Arizona segment declined significantly, from $361M in FY 2018 to $187M in FY 2021. No other data after that are available.

In June 2022, Lynne was named the interim President of the University of Phoenix.  Six months later, he was appointed to that position permanently. Little if anything is known about the hiring process that occurred, and who else was considered for the position.

The truth is, without looking at all the books and matching them with expert observations, we have no idea what Chris Lynne has done as the CFO and now President of the University of Phoenix. The numbers we have from the US Department of Education show a school in decline in terms of enrollment and revenues, shored up by closing campuses and reducing instruction costs.  We do not know what the University of Phoenix has done to maintain its infrastructure, including its computer hardware and software. 

If we could take a close look at all the financial records, examine the school's infrastructure, and interview workers, we would know better how Lynne has handled his work at the school and what shape the University of Phoenix is in for the long run as it is sold to the folks in Idaho.

Related articles:

University of Phoenix and the Ash Heap of Higher Ed History

Fraud Claims Against University of Phoenix Continue to Mount

How University of Phoenix Failed. It's a Long Story. But It's Important for the Future of Higher Education. 

New University of Phoenix Head Ran College That Closed After Fraud Suit (David Halperin)

The 17 Questions The Education Dept. Asked A University President Before He Resigned