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Monday, May 9, 2022

College Meltdown 2.2: Who’s Minding the Store?

The latest report by the Government Accountability Office (GAO) about wrongdoing by higher education online program managers (OPMs) felt disappointing to social justice advocates who watch the space and know the bad actors who were unnamed in the GAO document.

US higher education has always been a racket, but its latest pursuits have gone untouched and even unmentioned. GAO’s behavior, though, is no worse than the many other corporate enablers who are supposed to be minding government funds wasted –or worse yet—used to prey upon US working families.

The US Department of Education has done little lately to safeguard consumers from predatory student loan servicers like Maximus and Navient, or subprime universities like Purdue University Global and University of Arizona Global, and hundreds of small players who offer marginal education leading to less than gainful employment.

The Department of Veterans Affairs has done little lately to protect veterans and their families from being ripped off by subprime schools. At one time, VA was a leader in tracking GI Bill complaints and making them public, but transparency and accountability are far from what they were.

The US Department of Defense (DOD) has been asleep at the wheel with its distribution of DOD Tuition Assistance funds to subprime colleges. Its complaint system is close to nonexistent.

The US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) have done little to rein in bad actors in higher education, leaving the work to states attorneys general. Hate crimes on campus have also been ignored. In other cases, elite university endowments have received little notice despite eyebrow raising profits. Student loan asset-backed securities are also below their radar.

During the pandemic, The Department of Treasury has failed to adequately oversee funds issued to the Federal Reserve and the Small Business Administration funneled to subprime schools.

The Federal Trade Commission (FTC), which had done an adequate job investigating predatory lead generators and marketing and advertising false claims has been hamstrung by a recent court decision and can no longer fine higher ed wrongdoers. Predatory companies know this and will act accordingly—as criminals do when cops are not on the beat.

What lack of oversight have you seen with federal agencies tasked to protect higher education consumers?

Sunday, February 20, 2022

College Meltdown 2.0

College Meltdown 2.0 is distinctly different than the College Meltdown that started in 2010.

The first wave of the College Meltdown (2010-2021) resulted in a slow and steady drop in overall US college enrollment, with dramatic losses among for-profit colleges and community colleges. Corinthian Colleges, ITT Educational Services, and Education Management Corporation were three large for-profit chains to close. Small private liberal arts schools and regional universities also experienced losses. More folks were moving into the growing educated underclass.

Elements of College Meltdown 2.0 include publicly held corporations. Click on the image to see the chart (Source: Seeking Alpha)

College Meltdown 2.0 comes as the Coronavirus becomes more manageable. However US fascism continues to advance, student loan debt is slowly approaching $2 trillion, and the 2026 enrollment cliff is just a few years away. This new wave includes remnants of for-profit colleges like National American University, Stratford University, South University, the Art Institutes, University of Phoenix (owned by Apollo Global Management), Career Education Corporation (aka Perdoceo), and DeVry University (owned by Cogswell Education) as well as national accreditor ACICS.

The largest element of College Meltdown 2.0 is federal student loan debt, which appears to be rising to an unsustainable level--as it hamstrings the lives of millions of families. When mandatory student loan payments resume (scheduled for May 1), long-term default rates may range from 30 and 50 percent. It also appears that at least $500 billion of the Federal Student Aid (FSA) student loan portfolio will be unrecoverable.

College Meltdown 2.0 also involves online program managers (OPMs) that service elite schools (2U), regional universities (Academic Partnerships), and subprime robocolleges (Zovio-University of Arizona Global and Graham Holdings-Kaplan-Purdue University Global).

Student loan servicers and private student loan companies (Maximus, Navient, Sallie Mae, Nelnet), publishers and other edtech enterprises (EducationDynamics, Chegg, Barnes & Noble Education, Coursera, and Guild Education) are implicated or at least entangled in the mess. Higher education accreditors and student loan asset-backed securities (SLABS) are also worth monitoring.

Sunday, January 30, 2022

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

The failure of University of Phoenix (UoPX) is more than a dark moment in higher education history. It should act as a lesson learned in the higher ed business. Executives at 2U, Guild Education, Coursera, Liberty University, Purdue University Global, University of Arizona Global, Chegg, Academic Partnerships, Pearson PLC, Navient, Maximus and other for-profit and non-profit entities must take heed of the mistakes and the hubris of Phoenix, the wisdom of its cofounder John D. Murphy, and the silencing of important worker voices.

For several decades of the 20th century, hundreds of University of Phoenix campuses dotted the American landscape, conveniently located in cities and growing suburbs, off major highways. Founded in 1973, America's largest university became a for-profit darling of Wall Street in the 1980s and 1990s, and the provider of career education for mid-level managers in corporate America and public service. A Phoenix degree was the ticket to promotions and salary increases.

During its zenith, the school was backed by dozens of lawyers and DC lobbyists and a number of politicians and celebrities--including Nancy Pelosi, John McCain, Shaquille O'Neil, Al Sharpton, and Suze Orman. UoPX bought the naming rights to the Arizona Cardinals' pro football stadium in 2006. And in 2010, enrollment at the University of Phoenix stood at nearly a half million students. The school even had an enormous presence at US military installations across the globe. University of Phoenix's presence was everywhere.*

Phoenix's stock rose for many reasons. It was a leader in educational innovation. It was convenient and affordable for upwardly social mobile workers. Its profits were large, and its labor costs were relatively low because UoPX hired business leaders and experts in the field, not tenured scholars, to teach part-time.

But something went horribly wrong along the way.

In the 2010s, University faced government and media scrutiny for its questionable business practices, its declining graduation rates, and its part in creating billions in student loan debt. And when workers voiced their concerns, they were silenced in a variety of ways, from threats and intimidation to firings.

This enrollment collapse has now lasted a dozen years and counting.

Today, as a miniscule portion of Apollo Global Management's portfolio, UoPX's enrollment numbers are less than 100,000--and few of its physical campuses remain open during the Covid pandemic. It's not known how many campuses, if any, are financially viable.

University of Phoenix enrollment, 2009-2016 (Source: US Department of Education)

There are a several reasons why University of Phoenix is just a shadow of what it was. Businesspeople and lobbyists blame government regulation and oversight; others blame the relentless pursuit of quarterly profits and corrupt Apollo Group CEOs, including Todd Nelson.

Having talked to co-founder John D. Murphy and read his book Mission Forsaken, what I found out was that University of Phoenix began failing three decades earlier, during the Ronald Reagan era, when US companies chose to invest less in their workforces. When this post-Fordist shift happened, US companies reduced benefits for workers, and divested in the education and training of mid-level executives.

In order to keep the company growing in the face of this retrenchment, UoPX shifted its mission, from educating America's upwardly mobile workers to enrolling anyone--at any cost. The company could only decline as it preyed upon consumers and silenced its workers. After 2010, enrollment counselors were signing up people who were woefully unprepared academically and financially for college work.

By 2014, about 1 million University of Phoenix's alumni were saddled with an estimated $35 billion in student loan debt.

US Student Loan Debt by Institution (Source: Brookings, Looney and Yannelis, 2015)

In 2017, Apollo Group sold the company to Apollo Global Management, an investment behemoth, along with Vistria Group and the Najafi Companies. As part of its holdings, the school was a tiny portion of its portfolio. Barak Obama's close friend, Anthony Miller, was paid to be Board president.

Among national universities, UoPX is now ranked near the bottom in social mobility according to the Washington Monthly.

In January 2022, as a sign of its continued unraveling, Apollo Education appointed George Burnett, a former executive of three failed or predatory companies, including Alta College and Academic Partnerships, to be Phoenix's newest President.

UoPX's problems are a symptom of an economic system that despite the hype cares little about workers: a system that today looks at labor costs as something to be reduced--rather than an investment. With few exceptions, America's most powerful corporations: Amazon, Walmart, Target, Yum Brands, McDonalds--rely on low-wage labor and automation to make a huge profit. Companies in medicine, finance, and tech have smaller labor numbers--and while work may be lucrative at the moment, it's becoming more precarious.

*In the early 2010s, Apollo Group, Phoenix's former parent company, spent between $376 million and $655 million a year on ads and marketing.

Related link: Robocolleges and Robostudents

Sunday, January 23, 2022

Maximus, Student Loan Debt, and the Poverty Industrial Complex

The Higher Education Inquirer is taking a close look at who's invested in Maximus, the enormous social welfare profiteer. Maximus has been servicing student loan defaulters for years and has now taken over Navient's federal student loan business, branding it Aidvantage.

Since 1995, Maximus (MMS) has grown from $50 million in annual revenues to more than $4 billion in 2021.

Maximus (MMS) Share Price 1995-2022

(Source: Seeking Alpha)

With an army of more than 35,000 workers, Maximus' clients include 28 US agencies: the Internal Revenue Service, Department of Commerce, National Oceanic and Atmospheric Administration, Bureau of the Census, Patent and Trademark Office, Federal Student Aid, Department of Defense and US Army, Department of Veterans Affairs, Homeland Security, Health and Human Services, Medicare and Medicaid, Department of Labor, Office of Personnel Management, Securities and Exchange Commission and many more.

As a contractor to Federal Student Aid (FSA), Maximus has more than 13 million student loans to service. Its four contracts with the US Department of Education total almost $1 Billion.

While CEO Bruce Caswell made more than $6 million in total compensation last year, Maximus' customer service representatives, the people who have to make the calls to the growing number of student loan defaulters, make less money than workers at Walmart.

Maximus has recently posted federally contracted jobs on Indeed for $13.15 an hour in Texas and South Carolina, even though the federal minimum wage has been raised to $15 an hour. Wages for Maximus workers in other states are reportedly even lower, as little as $10 an hour in Kentucky and other states with regressive economies.

Maximus' largest institutional investors include BlackRock, Vanguard Group, and State Street Corp--three financial behemoths. BlackRock has $10 trillion in Assets Under Management (AUM), Vanguard Group has about $7 Trillion in Assets Under Management, and State Street has almost $4 Trillion in AUM.

Bank of New York Mellon, Wells Fargo, and Bank of America each own 900,000 shares or more.

Public retirement funds, including public school teachers retirement funds (see table below), are directly and indirectly invested in the Poverty Industrial Complex and the student loan mess through Maximus and other large corporations.

Maximus and its executives have spent more than $10 million on federal lobbying and political contributions since 1998. By 2020, Maximus had 14 lobbyists in DC and had contributed to the campaigns of Joe Biden, Bernie Sanders, and Donald Trump.

Maximus' strategic partners include AWS, Microsoft, Oracle, and Cisco.

Social justice advocates have to wonder, how can the student loan system be fixed if the US establishment has a vested interested in the mess?

Maximus (MMS) Top Institutional Investors

List of Public Funds Directly Invested in Maximus

Alaska Department of Revenue
California PERS
California State Teachers Retirement System
Colorado PERS
Florida Retirement System
Pennsylvania Public School Retirement System
Teachers Retirement System of Kentucky
Louisiana State Employees Retirement System
Ohio PERS
New Mexico Educational Retirement Board
New York State Retirement System
New York State Teachers Retirement System
Ontario Teachers Retirement System
Oregon PERS
State of Tennessee Treasury
Teachers Retirement System of Texas
State of Wisconsin Investment Board

Related link: Maximus Institutional Investors

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."

Tuesday, November 17, 2020

Navient and the Zombie SLABS Meltdown (Bill Harrington*)

I look forward to reviewing the quarterly and annual Student Loan Portfolio reports, courtesy of Dahn Shaulis and the College Meltdown. The biggest student loan company Navient (NAVI) is melting down too. In the year-to-date, NAVI has underperformed the S&P 500 by 33%! Since spinning out from Sallie Mae in April 2014, NAVI has underperformed the S&P 500 by 137%! (The S&P 500 is up 92% and NAVI is down 45%.)

NAVI's standing is even worse than the trading suggests, in large part because the company still finances itself with the type of asset-backed security ("ABS") deals that birthed and prolonged the 2008 financial crisis. Big Picture: Navient valuations of its student loan ABS deal are exceptionally generous (and that assessment is itself exceptionally generous). The most fantastical valuations are those of the many Navient ABS deals with long-dated maturities as far in the future as 2080, as well as the deals with embedded flip-clause-swap-contracts. Navient’s complete reliance on crisis-causing finance is a governance failure with real dollars-and-cents credit costs — costs that Navient vendors such as auditors, counsel, and credit rating companies ignore.

I pointed out the credit costs of Navient’s failed governance to the credit rating company Moody’s Investors Service in my critique of Moody’s proposed global credit rating methodology for ESG. Moody’s issued a comment request on the proposal and I replied. The non-profit research Croatan Institute, where I am a senior fellow, posts my submission. See pages 10-16 for some of the most egregious Navient governance failures that should spell credit rating downgrades for the ABS and for Navient the company.

Responsible Investor published my op-ed “Moody's ESG overhaul won't have any actual effect on credit ratings...” on October 19. The op-ed highlights the governance failure of Moody’s in proposing a worthless ESG overhaul and links to my methodology critique.

I’ve forwarded the critique of Moody’s ESG proposal to regulatory entities such as the SEC Office of Credit Ratings and the Office of Credit Rating Agency Supervision at the European Securities and Markets Association that should be holding Moody’s (and DBRS, Fitch Ratings, and S&P Global Ratings) feet to the fire.

Likewise, I’ve forwarded my critique of Moody’s methodology to law enforcement, including the attorneys general of New Jersey and New York. Both have acknowledged receipt and review of my critique. Finally, I’ve let Moody’s know that I’ve alerted the regulators, law enforcement, and many others. Moody’s knows that a lot of eyes are watching how it finalizes the ESG proposal. If Moody’s improves the ESG methodology even a little, that could be a BIG problem for Navient. Here’s hoping.

*Bill Harrington is a Senior Fellow at Croatan Institute, “an independent, nonprofit research institute whose mission is to harness the power of investment for social good and ecological resilience by working at the critical nexus where sustainability, finance, and economic development intersect.”

Sunday, March 15, 2020

Coronavirus and the College Meltdown

The College Meltdown continues in 2020. This phenomenon is deeper than the coronavirus, the temporary closing of campuses across the US, and the cancellation of NCAA basketball's March Madness. What we are seeing in the news should be a smaller entry in the History of American Higher Education compared to larger trends and social problems that preceded the pandemic.

College and university enrollment has been declining slowly but constantly since 2011, with for-profit colleges and community colleges taking the largest hits. And it follows larger demographic trends which include a half century of increasing inequality, including "savage inequalities" in the K-12 pipeline, crushing student loan debt, decreasing social mobility and the underemployment of college graduates, smaller families, and the hollowing out of America.

Spending on college is also an increasingly risky decision for working families.

[College enrollment continues to decline every year. This chart is already outdated. In Alaska, for example, enrollment dropped 37 percent from 2011 to 2019, New Mexico and Michigan dropped 33 and 24 percent. ]

A larger enrollment decline is projected for 2026, a ripple effect of the Great Recession of 2008. With fewer younger people to attend college, this "enrollment cliff" could amount to a 15 percent drop in a single year.

There are many parts to the current Coronavirus crisis and its effects on US higher education. But they all boil down to the Trump mantra (defund, deregulate, and privatize) and the opportunity for the elites to capitalize from the crisis, as they did during and after the Great Recession.

[Image below from Wikipedia. Higher education in the US has increasingly relied on for-profit mechanisms for growth and revenues. This includes privatized housing and services and for-profit Online Program Managers (OPMs).]

Higher education is a small but significant part of the US economy, which includes much larger sectors like Health Care and Finance. While the working class will not get bailed out, these sectors likely will, with the sudden crisis used as a rationalization. The crisis of crushing student loan debt and the much larger problems related to 50 years of growing inequality may be more disruptive in the long run, but these matters continue to be ignored.

Whether the next President is Donald Trump or Joe Biden, things could get worse for working families, unless there is mass resistance--right now I don't see that happening. For the moment, many young people are responding by living with family, not going to college, and delaying child bearing. Those who do get an education are also making economic sacrifices. Some, for example are selling their bodies as Sugar Babies to get through school.

Many state economies also look bleak in the near future. Not enough in revenues and increasing Medicaid costs make investments in education difficult to do without increasing taxes or state-level debt. And it's not likely that the wealthy will be willing to pay their fair share, unless they feel economically threatened. If that happens, rich companies and rich people can just move out of state or out of the country.

Higher Education and the Student Loan Mess

In October 2019, Trump Department of Education official Wayne Johnson resigned, recognizing that student loan debt mess was worse than anyone had imagined. US higher education enrollment is supposed to be countercyclical (improving when the economy drops) , but don't bet on it without government help.

Haven't heard any rumors in months, but it should also be interesting to see if President Trump tries to unload the $1.5T in federal loans to his banking friends using an executive order. McKinsey & Company have been tasked to determine the possibilities of such a maneuver, but there is radio silence on that front.

In the education sector, I'm watching student loan servicers and private lenders Sallie Mae (SLM), Navient (NAVI), and Nelnet (NNI) closely. Student Loan Asset-Backed Securities (also known as SLABS) are also worthy of scrutiny given the low rates of student loan repayment.

Newest Links

Tuesday, February 26, 2019

The Layoff.com: Observations of College Meltdown in Real Time (Updated September 29, 2024)

The Layoff.com is a "simple discussion board" for workers who would like to learn more about the rumors or possibility of job cuts in their organization. It's also been helpful for us to understand what has been happening behind the scenes in the US Higher Education business.

We have been observing and participating on this website for more than a dozen years, watching the fall of Corinthian Colleges (Everest College, Wyotech, and Heald), ITT Tech, Education Management Corporation (the Art Institutes and South University), the partial collapse of Apollo Group (University of Phoenix), Perdoceo (formerly Career Education Corporation), and Laureate International, and the transformation of Kaplan University to Purdue University Global and Bridgepoint Education (Ashford University) to University of Arizona Global.

As the College Meltdown has advanced, we have also observed a number of private schools collapse and public colleges and universities struggle. As enrollments continue to drop, we can expect more layoffs to occur and for education related businesses to struggle more.

The contents of this article are updated periodically, to illustrate trends in the College Meltdown. The most recent update was published September 29, 2024. 2U, the online program manager for elite university certificates has been the poster child in 2024, but there are many other companies and institutions in peril.

2U and edX

Adtalem Global Education

Albright College

Barnes and Noble College Booksellers

Cengage

Chegg

Concordia University, Ann Arbor

Coursera

Delta State University

DeVry University

Emerson College

Gwynedd-Mercy University