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Conclusion: Innovation Revisited
In an eerie replay of the early 1970s, when correspondence courses suddenly mushroomed with access to guaranteed student loans and GI Bill educational benefits, the abrupt expansion of Title IV aid-eligible online programs recreated many of the same abuses that had plagued correspondence courses 30 years earlier. Across many institutions—particularly for-profit ones—enrollment skyrocketed, predatory recruiting practices spread, student supports and career placement services suffered, and fraudulent and deceptive marketing proliferated. Without requirements for good, much less minimal, standards for student outcomes, many institutions—especially proprietary colleges—saw the opening of distance education as little more than a cash-grab, a chance to sacrifice educational quality for profits.
Today, advocates of online programs claim that the potential of modern-day online learning to revolutionize higher education vastly outstrips that of the correspondence schools of the past. They are right—interactive online learning and high-speed internet open up learning opportunities that the founders of the Famous Writers School never envisioned. In light of that potential, many, including Education Secretary Betsy DeVos, have suggested lifting restrictions on higher education to allow innovation to bloom.
Yet recognizing the need to reduce regulatory barriers to innovation does not mean that legislative and regulatory guardrails on postsecondary online learning should be eliminated or drastically scaled back. To date, the biggest and most rigorous longitudinal studies of online learning have found that these courses generally have a poor return on investment, failing to significantly boost subsequent earnings for students1 and depressing student grades and retention rates.2 With the benefit of experience and advances in online instruction, those disappointing early results could well—and hopefully will—change in the years ahead. But only the most naïve or most ideological advocates of online programs3 fail to recognize that exclusively online colleges have yet to fulfill their potential.
The unwelcome truth is that there is still abundant reason to create and maintain consumer protections, both for taxpayers and for students. Even staunch advocates of the theory of disruptive innovation like Clayton Christensen and Michael Horn acknowledge that online learning has yet to achieve its promised benefits in remaking higher education, in part because “federal financial aid seems to have gummed up the disruption [process]: the easy [federal] revenue has encouraged some [for-profit] schools to indiscriminately enroll [students], often at the expense of quality, and has discouraged cost reduction.”4
Box 4
The Evolution of EDMC
The evolution of the Education Management Corporation (EDMC) provides a mini case study of the potential hazards of rapid and largely unregulated expansion into online learning. EDMC was founded in 1962 and acquired the Art Institute of Pittsburgh in 1970. For the next quarter century EDMC enjoyed steady growth, establishing Art Institute programs in other cities and a reputation for providing quality instruction and preparation for jobs in the visual arts, television, and film industries.5 In 1996, EDMC went public and started to expand rapidly from its modest roots, acquiring dozens of colleges in a host of career fields. A decade later, by 2006, EDMC owned more than 70 college campuses, had over 70,000 students enrolled, and reported annual revenues of more than $1 billion. Yet EDMC’s online programs remained relatively small—just 4,600 students were enrolled in fully-online programs at EDMC in 2006.
In March 2006, a month after President Bush signed into law the elimination of the 50 percent rule, EDMC went private: Three private equity firms purchased the corporation for $3.4 billion. Goldman Sachs, the Wall Street giant, ultimately acquired more than 40 percent of EDMC, and under the control of the private equity firms and a former CEO from the Apollo Group, EDMC began aggressively recruiting more marginally qualified students and more students for online-only programs. “2006 was the significant year, because that was the year that the smartest people [from Goldman Sachs] figured out how easy it was going to be to grow geometrically,” Barmak Nassirian, with the American Association of Collegiate Registrars and Admissions Officers, told the Huffington Post. “You’d have to be from Mars not to know that they were smelling an easy path to big bucks.”6 Indeed, by 2010, EDMC’s enrollment had nearly doubled, to more than 150,000 students, while its online-only enrollment had increased almost 10-fold during the same time-period, to 42,000 students.7
As had happened so many times in the past, EDMC’s astonishing growth stemmed in part from the use of predatory recruiting tactics by its salespeople, who were instructed to identify themselves as the “Assistant Director of Admissions” on calls with potential customers. Like the correspondence school salespeople of the 1970s, EDMC recruiters were encouraged to “find the pain” in potential students to use past failures in careers and education to trigger their interest in enrolling. One EDMC sales call handout obtained by the Huffington Post instructed recruiters to follow three steps when talking to a new prospective student: “1. Build em Up!… 2. Break em Down! Find the PAIN!… 3. Build em Up!”8 Recruiters told those with felony records that earning a criminal justice degree would allow them to achieve their dream of joining the FBI, though the FBI is barred from hiring individuals with felony records. Students without a computer or access to the internet were encouraged to enroll in online-only courses.
Despite EDMC’s nominal bow to other “quality” factors in paying recruiters, whistleblowers alleged in 2007 that EDMC had been illegally compensating recruiters based on how many students they enrolled, leading the company to unlawfully claim federal student aid of roughly $11 billion in previous years. In 2011, the U.S. Justice Department joined the whistleblowers’ False Claims Act lawsuit, along with dozens of states.
EDMC adamantly denied the allegations, but in 2015, without admitting guilt, it reached a $95.5 million settlement with the federal government, easily the largest False Claims Act settlement with a for-profit chain in history. U.S. Attorney General Loretta Lynch denounced EDMC as a “high-pressure recruitment mill.” Secretary of Education Arne Duncan went further, saying that EDMC had “outright lied” when it certified that it complied with the incentive compensation ban that prevents schools from paying recruiters based on the number of students they sign up. Separately, EDMC also agreed to forgive $103 million in student loans that the company had made directly to 80,000 former students, a payout of roughly $1,300 per student.9
At every turn, the opening of federal dollars to new, cheaper-to-operate business models has led to the same outcome: abuses of students and taxpayer dollars. After World War II, tens of millions of dollars in veterans’ benefits were wasted on for-profit and correspondence education that far too often proved worthless for landing jobs. In the 1970s, the opening of federal loan dollars to for-profit higher education led poorly performing correspondence schools to expand dramatically and exploit government largesse at the expense of students and taxpayers. As one salesman at the time explained about the new pot of seemingly “free money” from the government: “I could go down in the ghetto and stand on the corner and enroll all kinds of people if it is free. He doesn’t care if the course is airlines, insurance adjusting, hotel-motel management, or what, if it is free, going to be paid for by the government and you can get him a job….This is a salesman’s dream.”10
The regulatory changes that the Department of Education seeks today, which would diminish the role of costly personalized instruction and interaction in distance learning and boost incentives for for-profit companies to shortchange educational investments to increase profit margins, may well be a salesperson’s dream. But eliminating consumer safeguards will almost certainly have the same effect as previous deregulatory efforts.
Only the most naïve or most ideological advocates of online programs fail to recognize that exclusively online colleges have yet to fulfill their potential.
The innovations of tomorrow will look wholly distinct from the college-by-mail programs of the past and will use more sophisticated technologies. Yet for all those apparent differences, the distance education landscape has been marred by the continuation of past abuses in the last several years, with the rise and fall of several predominantly-online for-profit behemoths that assured vulnerable students they would find well-paid careers in high-tech fields but which failed to deliver on their promises. The cautionary tale of correspondence schools suggests that unfettered access to federal dollars will lead to more scandals in which colleges place their bottom lines over their commitment to education—sullying, instead of burnishing, the worthy cause of innovation.
Citations
- Caroline M. Hoxby, “Online Postsecondary Education and Labor Productivity,” chapter 11 in forthcoming Education, Skills, and Technical Change, and Future U.S. GDP Growth, Charles R. Hulten and Valerie A. Ramey, eds. (Chicago: Univ. of Chicago Press, NBER Book Series Studies in Income and Wealth, 2019). Also see the December 12, 2017 version of Hoxby’s original paper for the National Bureau of Economic Research on her findings, “The Returns to Online Postsecondary Education,” NBER Working Paper W23193, February 2019.
- Eric P. Bettinger, Lindsay Fox, Susanna Loeb, and Eric S. Taylor, “Virtual Classrooms: How Online College Courses Affect Student Success,” American Economic Review 107, no. 9 (2017), see especially 2855–56, 2867–68.
- Greg Beato, a contributing editor at the libertarian magazine Reason, voiced the unblinkered optimism about online learning shared among some libertarians when he wrote in 2014, “for those who believe that higher education should be personalized, inexpensive, as accessible to working mothers as it is to third-generation Yalies, and geared toward helping students acquire skills that employers actually desire, utopia is on the horizon.” “Higher Education Retools,” Reason, February 24, 2014.
- Clayton M. Christensen and Michael B. Horn, “Innovation Imperative: Change Everything; Online Education as an Agent of Transformation,” Education Life section, New York Times, November 1, 2013.
- David Halperin, “EDMC Professors and Students Speak: How Lobbyists and Goldman Sachs Ruined For-Profit Education,” Huffington Post, September 24, 2012.
- See Chris Kirkham’s investigative report, “With Goldman’s Foray into Higher Education, A Predatory Pursuit of Students and Revenues,” Huffington Post, October 14, 2011.
- Ibid.
- Ibid. For a commentary from a disillusioned EDMC instructor, see Jeremy Dehn, “Degrees of Debt,” New York Times, October 10, 2010.
- David Halperin, “Unrepentant EDMC CEO Will ‘Push Back’ Against Gainful Employment Rule,” Huffington Post, November 16, 2015.
- Quoted in Larry Van Dyne, “The ‘FISL Factories,’” Chronicle of Higher Education, X, no. 19, August 4, 1975, 5.