Transcript posted: The Two Biggest Scams in Higher Education

Kevin Carey explains to host Daniel Barwick why some graduate programs from prestigious universities are among the biggest scams in higher education.

Kevin Carey

Dan: My guest today is Kevin Carey, Vice President for Education Policy and Knowledge Management at New America. He writes regularly for The Upshot at The New York Times and has written feature articles for Wired, The New Republic, Pacific Standard, Washington Monthly and other publications. He’s a contributing writer for the Chronicle of Higher Education and edits the annual Washington Monthly College Guide. His book, The End of College: Creating the Future of Learning and the University of Everywhere was published by Riverhead in 2015. Prior to joining New America, Kevin worked as the policy director of Education Sector and as an analyst at the Education Trust and the Center on Budget and Policy Priorities. He has also worked for the Indiana Senate Finance Committee and as Indiana’s assistant state budget director. Carey has a bachelor’s degree from Binghamton University and a master’s degree from Ohio State University. He was recently interviewed in Slate magazine in an article entitled “Master’s Degrees are the Second Biggest Scam in Higher Education.” Kevin, welcome to the podcast.

Kevin: It’s great to be here.

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Dan: Your recent interview in Slate was amazing, and I really don’t use that word lightly. It was a fairly scathing indictment of two types of programs in higher education. You call these “the two biggest scams in higher ed,” the second-biggest scam being what you called “predatory master’s degrees” and the biggest one being a credential that partly overlaps with some master’s degrees, which is one-year certificate programs from some private colleges. Let’s begin with the second-worst and build from there, because you’re not referring to master’s degrees that everyone would look at and say, “oh, that’s a rip-off.” You’re talking about degrees being offered by some of the most prestigious institutions in the country. Can you tell us about that and give us some examples?

Kevin: I think that in both cases, these are degree programs that are in some ways marketed to people who are at vulnerable points in their life. They don’t know what’s next. They have a strong feeling that a credential will help them advance in their career or start their career, and a trusted institution comes along and says, “I have all the answers to your problems. I have a program that’s not going to take that long, it’s only going to take a year, maybe only 10 months, it’s going to be flexible, it’ll be designed for you. We’ll help you fill out all the financial aid forms, and it will lead directly to a great job.” And this is just a promise that isn’t kept often. The higher education industry is not really regulated in any strong way around these things, by the same government organizations that provide a lot of the financing. And so I think in particular brand name colleges and universities, your famous institutions, sometimes Ivy league institutions, but also well-known public universities, what they figured out is that they can maintain very selective admissions on the undergraduate side and reap the benefits of exclusivity that come along with that, and then kind of transfer that prestige over to these master’s programs that are distinguished from the undergraduate programs, in the sense that they are much less selective in a way that is completely non-transparent to the public. Colleges have to report their admission statistics on the undergraduate side, but they don’t have to report them for graduate programs. Also these are programs that can be entirely debt-financed. On the undergraduate side, there are pretty narrow limits on how much money people can borrow from the federal government to attend college, whereas there are no limits at all on the graduate side beyond whatever it costs, and of course, colleges can charge whatever they like. So these two things together have created, I think, an opportunity for colleges to engage in behavior that I think meets the standard of being exploitative. It’s taking advantage of the naivete of students, the permissiveness of the federal student loan program, and providing programs that don’t always live up to these promises. We saw a lot of attention around an article that was in the Wall Street Journal a few weeks ago that took advantage of some new federal data. So for the first time – we never knew this before – but for the first time we know both at the program level how much students are borrowing, but also how much they’re making after they finish. The authors of that very good piece really zeroed in on programs where there was a lot of debt and very little earnings. They used MFA in film studies from Columbia as an example, but there are, I think, lots of other examples.

Dan: I saw that same article. There is a lot of evidence that these sorts of degrees are of dubious value. Can you talk about why you and others have come to the conclusions that you have?

Kevin: You just look at the numbers to start with. Again, we didn’t have these numbers for a long time, so it was all kind of guesswork. It doesn’t take much of a conversation with anyone inside academia to have a phrase like “cash cow” in proximity to these masters programs. People are very frank about it. They’ll say, “Yeah, we do this to make money. We don’t provide any financial aid. We make money here in order to support the PhD programs or the undergraduate mission or whatever it is that we want to support.” They don’t really make any bones about the fact that these are often not very selective programs from an admission standpoint. Pretty much if you are willing to fill out an application and meet some basic standards, they’ll let you in. There’s no down consequences for it. Reputational aura for our highest profile institutions is incredibly strong and incredibly durable, and people just assume if a well-known university is offering a program, it must be good.

Dan: As bad as you make these common masters programs sound, you’ve written that the top scam is a more limited variant. Can you tell us about that?

Kevin: I’m referring to for-profit colleges specifically. I think there is a long and sordid, history of terrible abuses by for-profit colleges that has really been bad over the last 20 years, was supercharged by the advent of online education and the ability of people to essentially bring their scamming to scale. I often point to the whole industry around providing degrees in medical assisting, right? Get on the subway sometime, and if you have a subway where you are, look up, there’ll be an ad showing somebody wearing a lab coat. They look like a nurse usually, or a doctor, but usually a nurse. I don’t think anyone thinks you can get an MD in a year, but there’s this sense that you can come in and get a job in the medical profession, which people rightly think is very stable and fast-growing. It turns out like medical assisting is not actually a job that requires a credential in the healthcare field. It’s sort of being conflated with something like an LPN or RN, of which there are programs for and are licensing around, and there is a demand for. You look at the numbers on that, and we’ve had these numbers for longer because these are mostly programs offered by for-profit colleges, which means they were subject to the Department of Education’s gainful employment regulations going back close to 10 years now, under the Obama administration. Once those regulations were in place, the Department of Education started generating data and you saw really just horrific numbers where people would come in and borrow $20,000 or $25,000 for a nine-month program, whatever the minimum amount of time is necessary to qualify for federal financial aid. Then their average earnings would be like $10,000 a year, less than minimum wage, clearly not even working in the field, they couldn’t be, because if they were they’d be making more than that. It shows that among other things, the market for higher education is very complicated. It doesn’t work very well. You can’t just apply simplistic econ thinking to how the market for higher education works in the sense that there will be a balance of supply and demand, and that information and consumer choice will provide a quality and discipline to the market. It does not work that way. These are complicated, one-time decisions that people make, where they have very limited visibility into what they’re buying. And if it doesn’t work out, it’s not like they go back. It’s not like, “Oh, I don’t like that coffee shop. I’m going to go to the one up the street.” You’re in, you’re done. It worked out for you or it didn’t. And a lot of times these are people who are naive, very vulnerable to marketing, which is why for-profit colleges spend so much money in marketing. Increasingly, so do nonprofit colleges, offering what are essentially, in my mind, for-profit master’s programs owned by nonprofit colleges.

Dan: Well, you know, it’s funny, I would say, not a day goes by that I don’t receive multiple solicitations in my email from colleges, some for-profit, some not, that want me to go get additional credentials there, even though I have a terminal degree, but they want me to get more. And then on occasion, I’ll look in my spam folder. And I discovered that actually what makes it to my eyeballs in my regular inbox is actually just the tip of the iceberg.

Kevin: Not even the bad stuff.

Dan: And when I look at these, they have two things in common. The first is that they’re somewhat vague. The second is that they’re all online. And I wondered if you could talk a little bit about how the growth of online is affecting either of the two degree types that you’ve talked about so far.

Kevin: It’s had a major effect. I want to pause for a minute and just make a point that I didn’t make in that Slate article, but it’s worth making: just to be clear, not all masters degrees are scams. Most of them aren’t, just in case there’s any confusion in that. I have a master’s degree. I have a master’s degree in public administration. It was a good two-year program from a public university – Ohio State University, that I think was worth the money, and absolutely gave me both the theoretical and practical experience I needed to start a career in public service. So it’s a big wide universe of credentials. We’re only talking about some of them. Absolutely, the internet has had a big effect on the market. I’m not a reflexive critic of online education at all. I wrote a whole book about online education a few years ago that’s very enthusiastic about it, particularly for graduate students who often have jobs, particularly master’s students, often people who are working full-time, they have families, they have children, and online provides a lot of flexibility and can be very good programs at the same time. Online education provided more of an opportunity for scale, which can mean more of an opportunity for for-profits, which can just add to the incentives for institutions to make choices that I think are arguably unethical in the way in the way that they choose to market and set prices. Really, a lot of cases have blurred the distinction between for-profit and nonprofit almost to the point of being meaningless. I’ve written a lot about the industry of Online Program Managers, which I imagine many of the listeners here are familiar with. These are for-profit corporations that enter into agreements with often very prestigious nonprofit colleges and universities, where they do most of the work on the back end in terms of creating online, mostly graduate programs, all of the marketing, all of the recruitment, a lot of the “counseling” around loans, all of the online infrastructure. In some cases they get 70% of the tuition revenue in return. If you look at how these companies spend their money – and there are a couple that are publicly traded, so you can find this information – the spending profile is very similar to for-profit colleges, in the sense they spend way more money on marketing than on instruction. You’ll have a program that’s costing maybe $40-45,000 a year, and $15,000 of that $45,000 was the cost of recruiting, advertising, bringing that student in. Maybe there’s an adjunct professor somewhere who got paid $5,000 or something like that. It’s not even close. Yet there’s still money left over for profits on both sides. Oftentimes because the OPM spends more, that 70% of the revenue translates into about half of the net revenue. So there are still healthy profits for the OPM and for the university. Often it’s the department that is sponsoring the program. Who’s non-profit and who’s for-profit in that situation? I think everybody’s for-profit, and I think that, you know, I’m not saying that any for-profit organization should be looked down on or anything, but I do think that they have different motives and needed to be regulated in different ways. I think that’ll be a topic of discussion as the Biden administration takes a harder look at some of these things over the next couple of years.

Dan: When you mentioned who is for-profit and who is not for-profit, one of the things that occurs to me is it feels as if somehow the normal pattern is changing. When I was younger – I hate saying things like that, because I feel pretty old when I say that – when I was younger, the general formula was that universities, large universities, were basically offering undergraduate instruction in ways that funded graduate instruction. For example, a lot of the larger undergraduate classes were taught by teaching assistants rather than professors, and this was all just sort of part of the equation. General education was fueling everything else. It sounds like what you’re describing is a real change from that.

Kevin: Yeah. In some ways, universities are just always looking for cheap labor, and before the internet, the cheapest labor you could find was a graduate TA standing in front of 500 students somewhere, right?

Dan: I was one of those. [Laughs]

Kevin: Yeah, and so that was the model and you make your financial assumptions and you make your decisions that way. The cheapest labor might be somebody who’s actually credentialed; there’s certainly no under-supply of people with academic credentials in the academic labor market. And instead of standing in a room with 400 students, they might be online with a thousand students, effectively in terms of what the ratios we were talking about. Because you know, a lot of the teaching and the education, the learning, isn’t a synchronous dialogue between people; it’s different approaches to education that are much more kind of instantiated in technology. And again, I want to emphasize that’s not necessarily bad. We’re now several decades into developing and improving online learning. There are thousands and thousands of full-time professionals at our colleges and universities that work very hard at making these courses good and we’re still learning a lot. But at scale, the financial numbers really started to change and become pretty dramatic.

Dan: You remind me that when I referred to the way it used to be done, graduate school was not as expensive as it is now. In other words, they didn’t necessarily talk about graduate programs as “cash cows.” Everybody’s familiar with the way the cost of tuition at the undergraduate level has reliably exceeded inflation for years and years and years. But I believe you actually pointed out in the Slate article that if you want to see where there’s a real explosion in costs, my recollection is that you pointed out it’s at the graduate level. You pointed out that somebody who has hundreds of thousands of dollars in debt did not acquire that as an undergrad.

Kevin: Yeah, in federal debt, it’s essentially impossible to do that. I think I made this point, but there are many more people, individual people who borrow money to get undergraduate degrees, although if you look at the volume of debt, close to half of all federal dollars that are dispersed from loans are for graduate degrees. That’s because they’re so much more expensive and again, there’s no limit on how much you can borrow. A lot of those that debt is now being funneled into income-driven loan repayment programs, with hopefully the possibility of debt forgiveness in 20 years or 10 years, if you take a public service job. But when you hear these kinds of aggregate statistics that have just become part of the vernacular of how we discuss higher education, I think once aggregate debt crossed a trillion dollars, that number was just going to be in the conversation forever. We’re up to 1.7 trillion or whatever it is now, but a lot of that is graduate debt, and it’s important to understand that because I think when the general public hears this conversation and they hear “student loans,” they think “undergraduate,” and they might be concerned that people are borrowing 200 grand to get a bachelor’s degree. Very few people are doing that. You have to go into the private loan market to take out those kinds of loans. There’s really kind of a bifurcation inside the student loan crisis, where you have kind of distinct populations. Some of them are people like those described in that Wall Street Journal article, where somebody just borrowed way too much money to get a master’s degree that is not going to lead to a job that will allow them to pay it back. Then you have this other big population of students who actually didn’t borrow that much money, maybe $10,000, $15,000, $20,000, but they borrowed it for the first scammy-est degree, right? The for-profit degree. Or they dropped out – there’s a huge population of people who enroll and then just don’t finish, so they have nothing to show for it. They’re worse off than when they started, because of course they still have the loan.

Dan: To continue along that line of thought, you pointed out that part of what has fueled the growth of programs like these, and of course the attendant costs, are federal borrowing laws. Can you take us through that?

Kevin: Well, there was a change to a federal borrowing law back in 2005. It was not noticed much at the time. It was part of a bigger package of changes to student loan laws, which removed the cap on how much money you could borrow from the federal government to go to graduate school. It created this program called the Grad Plus Program. Back in 2005, we still had mostly a bank-based federal student loan program. And so that was when everyone in DC was still wrangling with how to get Sallie Mae out of the system. I’m old enough to remember when Sally Mae was like the great villain of student loans. That’s not really the world we live in anymore. That hasn’t been true since 2010. So now it’s 11 years later and the federal government just lends all the money directly, but you had essentially unlimited borrowing for graduate programs appear at exactly the same time. The internet allowed graduate programs to get bigger. At the tail end of the great enrollment expansion, the peak of the millennial generations move into higher education at the undergraduate level. That happened, I think, in 2008, 2009, a few years later, and now we’re down like a million and a half students from the peak. So this kind of long secular decline in enrollment really put the financial squeeze on a lot of institutions, which maybe had built up infrastructure or cost basis or whatever. And then the great recession happened a couple of years later too, which meant if you were a public institution, your state funding definitely got squeezed. Sometimes it came back, sometimes it didn’t. What all that did was send more and more university administrators back to the drawing board, looking for revenue. Then all of a sudden there was this solution, you know, and so that I think has created the incentive structure that has led us to where we are today.

Dan: Let’s talk about solutions. In your view, what should be done to fix these problems?

Kevin: I would say a couple of things. I think there have to be some limits on federal lending for graduate school. I know that’s a tough pill to swallow, and maybe there are different ways to think about how to do that. Maybe we start making distinctions by program. MDs borrow enormous amounts of money, but generally, they’re able to pay it back. On the other hand, people who go to vet school also borrow MD amounts of money, and then they have a horrible time paying it back because there’s a lot more money in treating people than treating dogs and cats. But I think some kind of limit on both how much money you can borrow to go to graduate school and also how much of your loans can be forgiven. But right now, we have essentially a non-functioning loan forgiveness apparatus at the federal level. I don’t think that’s going to last forever – I think eventually people are going to kind of figure out these overly complicated systems, and we’re going to see kind of, kind of eye-popping loan forgiveness amounts, people who are having $200,000 or $300,000 in loans forgiven. And I think as soon as that happens, people are going to raise their hand and say, wait a minute, we had to fight tooth and nail to increase the maximum Pell grant from like $5,500 to $5,800. Over the course of an undergraduate career, that’s maybe $25,000 for the lowest income students, and we’re giving $200,000 to people who went to graduate school and in some cases might have good jobs. They might be lawyers or doctors and something like that. That doesn’t make a lot of sense. So I think…

Dan: Kevin, just to clarify, who is it that you think is going to raise their hand and say that?

Kevin: Who is going to raise their hand and say what?

Dan: That, “wait a second, you want to forgive all these loans, but we had to struggle so hard to increase Pell grants.”

Kevin: I think that there is essentially like a criticism-in-waiting for the loan forgiveness apparatus once it actually starts to work. It’s not working now, and so this is a little bit hypothetical. But I certainly think people, probably Republicans more than Democrats, are going to be pretty skeptical of the idea of windfall-levels of loan forgiveness, once those things start to actually work their way through the system.

Dan: What motivated my question was actually that I was wondering if you thought that that line of argument was a sort of an excuse by people who would not normally be particularly interested in increasing Pell grant amounts.

Kevin: Oh, sure. They might not actually want to increase Pell grant amounts. It might be a comparison of convenience. Maybe they just really don’t want to spend money on graduate school. That’s the thing too, you know, I mean we’re in a strong, longstanding bipartisan consensus, and it really has been a bipartisan consensus around public support for higher education. I think it’s fracturing right now, and it has a lot to do with politics. You know, it wasn’t that long ago, and by that I mean ten, fifteen years ago, when there wasn’t a strong correlation between your education level and whether you were a Democrat or Republican, and that is no longer true. In fact, particularly if you look at the margins where a lot of the movement has been over the last five, ten years in the Trump presidency, kind of being gasoline on the fire, but particularly among white voters, white college-educated Republicans are becoming Democrats and white non-college-educated Democrats are becoming Republicans. Which means all of a sudden you now only have one party whose voters have a financial and kind of cultural interest in the higher education system. I think that is a real risk. And I think that’s something that is going to be a challenge to contend with going forward.

Dan: Just as an aside, that’s a totally fascinating point – the idea that public support for education is waning, or maybe about to wane in some way. I think if you look at the total volume of news around the subject, you might come away with just the opposite impression. Look at the amount of conversation about free college, whether it’s the result of government action or private action. I noticed just today that Walmart issued a press release saying that they would provide tuition for their employees that want to go to college, or the discussion about, for example, at the other end of the educational age spectrum, if you look at the debate over pre-K. All of these conversations, I’m not sure that they were occurring, at least in the intensity they’re occurring now, I’m not sure they were occurring this way five, ten years ago.

Kevin: I think that’s right. But it has been driven only by one political party, right? I mean, so on the one hand it was amazing to see how free college and debt forgiveness went from being pretty marginal ideas, maybe just one kind of goofy Senator from Vermont who was really out in front of them, to becoming table stakes for running for president – the democratic party’s nomination for president – in the last election. But at the same time, it hasn’t happened yet. I feel pretty confident saying the Biden administration is not where Bernie Sanders and Elizabeth Warren are when it comes to debt forgiveness. They have proposed what would be an historic new federal investment in bringing tuition down, but only for community colleges, not for the entire system, not for the whole apparatus of public four-year institutions. I suppose the overture window has really shifted over in terms of what qualifies as moderate when it comes to investing. Again, that’s one party, whereas if you look at something like the Pell grant program, even in times when Republicans have taken power and been interested in cutting federal programs, they’ve never cut the Pell grant program. Probably this is because there’s a college or university in almost every congressional district in the country. And those are always, regardless of ideology, institutions that are pretty well looked on and relied upon.

Dan: I apologize – I’ve taken us on an interesting sidetrack, but I did interrupt your answer about the kinds of solutions that we need to provide.

Kevin: I would say two big things: one, as I said, some limits on borrowing. I think unlimited borrowing creates a kind of a moral hazard when it comes to pricing and marketing these programs. I don’t think we can rely on merely the market and the sound judgment of borrowers when it comes to preventing over-borrowing and predatory pricing. The other thing is we need to hold these programs accountable. I’m talking just about master’s programs now. I actually would be a lot less comfortable taking this approach for bachelor’s programs, because I do think bachelor’s programs are more universal. We expect that people get bachelor’s degrees. They’re not just there to prepare for a job, they’re there to prepare for life and to be exposed to different kinds of learning. I don’t think we want to narrowly prescribe how we think about what success is like for a bachelor’s degree education. Master’s programs are job programs. If they don’t lead to some kind of job, they shouldn’t be putting students in enormous amounts of debt. I’m pretty comfortable saying that. They are pretty much for-profit programs, whether they happen to be run at a nonprofit university or not. So I would use the same measures that we use for for-profit programs, for master’s programs, the same measure implicitly that was in that Wall Street Journal article. We talked about the same measure that the Obama administration used for its gainful employment regulation, which is how much are students borrowing and how much are they earning? And if that ratio is wildly out of whack, if people are just borrowing way more money than the jobs they subsequently get allow them to pay it back, I don’t think that the public should be in the business of propping up those programs with student loans that are very easy to get. You know, you don’t need to – other than just kind of a basic lack of bad credit – you don’t need to show that you have any assets or ability to repay these loans, which again, creates more risk and more danger for students. So I think we need to regulate master’s programs around debt and earnings numbers just to create some limits on what seemed like programs that are currently kind of out of control.

Dan: Kevin Carey is the Vice President for Education Policy and Knowledge Management at New America. Kevin, thanks very much for being with us today.

Kevin: Thanks for inviting me. It’s been great.

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