Ed Policy Watch

Fontana's Follies and the Downfall of the Student Loan Industry

Stephen Burd — Wed, 04 Nov 2009 00:30:00 -0500

The news that Matteo Fontana, a former high-ranking official at the U.S. Department of Education, has pleaded guilty to charges that he lied to the government about his ownership of stock in a student loan company he was in charge of overseeing provides a timely reminder of why the student loan industry is in such hot water now.

During the Bush administration, the loan industry went virtually unregulated. Top officials at the Education Department did not just look the other way while widespread abuses occurred in the Federal Family Education Loan (FFEL) and private student loan programs. They actually helped lenders skirt federal laws and regulations so the companies could maximize their profits -- often at the expense of students and taxpayers.

The government's case against Fontana provides the most glaring example of the type of conflicts of interest that were rife within a Department heavily staffed by former student loan industry officials. As Higher Ed Watch first revealed in April 2007, Fontana, the general manager of the Financial Partners Division of the agency's Federal Student Aid office, held 10,500 cut-rate insider shares of stock, worth over $100,000 in the parent company of Student Loan Xpress for nearly a year after he joined the Education Department in the fall of 2002. At the time, we did not know whether Fontana had fully disclosed his stock holdings to his superiors at the agency.

According to federal prosecutors, Fontana repeatedly lied about his stock holdings on financial disclosure forms -- falsely claiming, for instance, that he had sold his Student Loan Xpress stock in December 2002. In fact, he didn't sell his stock -- including an additional 1,400 shares he purchased while at the Department -- until 2004 and 2005, for a total of around $219,000.

Federal employees are allowed to own stock in a company but are prohibited from working on issues affecting that company if their holdings exceed $15,000. But that didn't stop Fontana, the prosecutors say. In September 2004, Fontana overruled a decision by a lower-level Education Department employee that would have prevented Student Loan Xpress from expanding its business. Company officials had asked Fontana to intervene, saying in an e-mail that the employee's decision not to bless an arrangement they had forged with the Pennsylvania Higher Education Assistance Authority had left them "at a stand still and losing business by the day." By reversing that decision, Fontana, the prosecutors charged, "did participate personally and substantially as a Government officer and employee" in "a particular matter in which [he] knew he had a financial interest."

While the charges against Fontana are serious, at Higher Ed Watch we know that they are just the tip of the iceberg. Over the last two years, we have learned that under Fontana's leadership, officials in the Financial Partners Division:

Turned a blind eye while student loan providers routinely violated a federal law forbidding lenders from providing "illegal inducements" to colleges and financial aid administrators in exchange for getting the schools to steer borrowers their way. Department officials ignored concerns about these "pay for play" practices, even from the agency's own Inspector General and lenders who complained about their competitors' activities.

Looked the other way and, in some cases, actually provided assistance and encouragement to lenders as they systematically overcharged the federal government hundreds of millions of dollars in improper 9.5 percent loan subsidy payments. As we have previously reported, officials within the division wrote a series of program review reports from 2005 to 2006 in which they signed off on some non-profit lenders' 9.5 billion practices and, in at least several cases, showed the loan agencies how they could take greater advantage of these inflated subsidies.

Allowed lenders specializing in offering consolidation loans to mine the National Student Loan Data System (NSLDS) to collect personal information about borrowers for marketing purposes. While civil service employees at the Department had loudly complained about these practices, the agency's leaders didn't do anything about it until Higher Ed Watch broke the story and the national news media picked up on our coverage.

Emphasized partnerships over compliance in overseeing lenders and guaranty agencies. As a result, the division frequently overrode decisions made by program review specialists that were critical of student loan companies and limited their ability to effectively carry out investigations of these companies' practices.

Meanwhile, Student Loan Xpress was not the only loan company that directly benefited from its ties to the general manager of the Financial Partners division. Prior to joining the Education Department, Fontana worked at Sallie Mae for 11 years. In 2004, that connections paid huge dividends to the student loan giant and its shareholders.

At the time, Sallie Mae's long-sought goal of becoming a fully-privatized corporation was effectively being held up the Department's Inspector General, who had determined that a lucrative arrangement between the company and USA Funds, the country's largest guaranty agency, violated the law and needed to be severed in order to protect borrowers. The IG argued that the arrangement effectively put the guarantor under Sallie Mae's control, creating twisted incentives that allowed the lender to reap huge profits by growing its borrowers' debt to unmanageable levels. Fontana ultimately overruled the IG -- offering the nonsensical opinion that because the Sallie Mae subsidiaries that helped manage USA Funds had separate tax identification numbers from other parts of the company, they were officially separate entities. Why the former Sallie Mae official was allowed to make ruling of such critical importance to the company has never been clear to us.

The revolving door that existed between the student loan industry and the Department of Education under the Bush administration provided license to lenders to pursue their own self interest with little regard for students or taxpayers. The level of corruption that has been uncovered has made it abundantly clear that a fundamental overhaul of the federal student loan programs is needed. President Obama and Democratic Congressional leaders clearly recognize that a shift to 100 percent Direct Lending would make the federal loan program much less susceptible to the types of abuses that have plagued it in recent years.

So if loan industry officials are looking for someone to blame for their predicament, they need only to look to themselves and their former cronies at the Department of Education, such as Matteo Fontana, who failed to rein them in and, in fact, enabled them.

Recipient Reported Education Stimulus Data a Challenge to Decipher

Jennifer Cohen — Tue, 03 Nov 2009 21:41:00 -0500

Last Friday, the first round of recipient reported Recovery Act grant and loan data was made available on the Recovery.gov website. Much like the previously released federal contract data, this wave of data lacks the comprehensive information needed to truly determine how the funds are being spent and from what source. The data are both difficult to decipher and include several instances of human error.

While working with the data we discovered several issues that make the data difficult to understand. For example, less than half of all education-related data are tagged with the funding agency name "Department of Education." Other possible funding agencies include "Federal Student Aid," "Impact Aid Programs," "Office of Elementary and Secondary Education," "Office of Higher Education Programs," "Office of Special Education and Rehabilitative Services," "Office of Postsecondary Education," and "Office of Vocational and Adult Education."

Additionally, data that should be education-related are tagged with TAS codes that are not for education programs. As we've discussed before, the Treasury Accounting Symbol (TAS) is used to identify funding sources in each record. Of the 15 TAS codes in the education-related data, only nine of those codes pertain to education programs. The remaining six appear to be the result of erroneously entered codes. These erroneous codes account for 17 education-related records.

While helpful to a certain extent, the TAS code does not always identify specific programs. For example, the TAS code for the State Fiscal Stabilization Fund does not distinguish between Education Stabilization and Government Services Funds. Similarly, the School Improvement TAS code does not distinguish between McKinney Vento Homeless Education and Education Technology grant funds. This further information is included in the qualitative variables in the data which are impossible to categorize systematically, making it difficult to determine exactly what funding sources each record is referring to.

Significant information is missing in the sub recipient data as well (in this case, school districts or institutions of higher education are considered sub recipients). None of the sub recipient data contain information on funding agency or TAS codes, making it impossible to determine the funding sources or programs referenced in any of the sub recipient data. (We hope to receive this data with all the proper information in the near future.)

However, using the prime recipient data, we were able to extrapolate data on jobs created or saved and funds awarded, received, and expended by TAS code and by state. For example, the data we have show that a total of $58.8 billion in education related stimulus funds have been awarded. Of that amount, $14.2 billion has been received and $14.0 billion has been expended. Nearly 398,000 jobs were created or saved by the stimulus.

The amount of received funds that have been expended varies widely by state, as does the number of jobs saved. For example, Alaska has expended only 2.2 percent of its received funds, while Connecticut has expended 188.0 percent of its received funds. It is possible for a state to expend funds before they have received them because some states receive federal funds on a reimbursement basis after the expenditures have been made. It is very likely that Connecticut, and the 16 other states that have expended more than 100 percent of their received funds are on reimbursement plans for the education funds. Wyoming reported that it saved 15 jobs through the education stimulus funds, while California claims to have saved nearly 81,000.

The percent of funds expended also varies widely by program. For example, the data suggests that 108.7 percent of the received School Improvement funds have been expended while only 38.2 percent of the received Impact Aid funds have been expended. More than 100 percent of received Higher Education Program, Special Education, Title I, and School Improvement funds have been expended. The data also suggest that State Fiscal Stabilization Funds were used to save more than 316,000 jobs and special education funds were used to save more than 35,500.

It is clear that stimulus fund recipient reported data, while valuable for understanding how funds effect education and the economy, are being collected in a flawed manner. The data lack comprehensive information on funding sources, and problems with sub recipient data make it impossible to determine what is happening with the funds in school districts and institutions of higher education. Further, human error in data reporting is skewing findings. Hopefully, the Department of Education will work out these kinks as reporting continues. If not, state and local efforts to report this information may be fruitless in the end.

Complete data on recipient reported data by state and by TAS code are available here and here.

Breaking News: Criminal Charges Filed Against Matteo Fontana

Ed Policy — Mon, 02 Nov 2009 19:45:00 -0500

In April 2007, Higher Ed Watch revealed that Matteo Fontana, a former high-ranking official in the U.S. Department of Education's Federal Student Aid office, had held at least $100,000 of stock in a student loan company he was in charge of overseeing. Last week, the Justice Department filed criminal charges against Fontana on two counts: lying to federal officials about his ownership of stock in the company Student Loan Xpress and illegally using his position to help the corporation expand its business.

According to the Washington Examiner, which first reported on the Justice Department's action, the charges against Fontana are misdemeanors that each carry a maximum penalty of imprisonment for up to a year. However, The Chronicle of Higher Education reported this afternoon that Fontana has agreed to plead guilty to the charges and to pay a fine of up to $115,000. If the federal judge hearing the case accepts the plea agreement, Fontana will not have to serve any prison time, the Chronicle states.

We will have more details and commentary on this case tomorrow. Stay tuned...

Below is the text of the original April 5, 2007 Higher Ed Watch post:

EXCLUSIVE: Education Department Official Implicated in Widening Student Loan Scandal

Stephen Burd | April 5, 2007

Higher Ed Watch has learned that a top Education Department official held at least $100,000 worth of stock in a student loan company that may have substantially benefited from its ties to him.

According to a Securities and Exchange Commission (SEC) filing by Education Lending Group (see chart on page 18), the Education Department official, Matteo Fontana, held at least 10,500 shares in Student Loan Xpress as of September 2003. Fontana is currently in charge of overseeing lenders and guarantee agencies that participate in the Federal Family Education Loan Program (FFELP). Mr. Fontana's shares were offered for sale at just under $10 per share in September 2003, according to SEC filings. The extent of his total holdings in September 2003 and today is unknown.

Mr. Fontana, who is a good friend of Student Loan Xpress's president Fabrizio "Breeze" Balestri, joined the Education Department in November 2002 and was put in charge of the National Student Loan Data System (NSLDS), a gigantic computer database that keeps track of the student aid awards of tens of millions of students who have received federal financial aid.

It's unclear whether Mr. Fontana disclosed his stock holdings -- which he held for almost a year while at the Department -- to his superiors at the agency. Mr. Fontana didn't return Higher Ed Watch's calls.

Meanwhile, the Education Department released a statement late on Thursday that didn't address whether Mr. Fontana had made the disclosures. "The Department takes this matter very seriously and our Office of the General Counsel is actively reviewing it," Samara Yudof, a spokesperson for the agency stated.

What is clear is Student Loan Xpress, which started in 2001 primarily as a student loan consolidation company, stood to benefit significantly from having such a close colleague in charge of NSLDS, which includes detailed personal data on individual federal student-loan borrowers.

According to several key sources, civil service employees at the Education Department have long complained that officials in charge of the Federal Student Aid office allowed loan consolidation companies to mine NSLDS records so they could steal away borrowers from the Department's Direct Student Loan Program.

Over the last five years, private lenders have been extremely aggressive in marketing consolidation loans to Direct Loan borrowers, offering them rebates on fees and interest rates that the government does not match, despite the fact Direct Loans are less expensive for taxpayers than the FFELP alternative. According to Education Department data, as reported by The Chronicle of Higher Education, close to 800,000 Direct Loan borrowers, with a total debt of about $17 billion, left the Direct Loan program between 2003 to 2005 to refinance their loans with private loan providers, such as Student Loan Xpress.

The misuse of NSLDS by companies marketing consolidation loans and other entities appears to have been so rampant that the Department's Inspector General sent a memo to Terri Shaw, the Chief Operating Officer of the Federal Student Aid office, in 2005 demanding that the office limit access to the database. As a result of the Inspector General's prodding, Mr. Fontana sent out his own notice to lenders warning them that NSLDS information was not to be used for "the marketing of student loans or other products."

Revelations that Mr. Fontana owned a stake in Student-Loan Xpress come a day after Higher Ed Watch uncovered that financial aid administrators at three major universities had received significant shares of stock from the company. As a result of our investigation, Columbia University placed its aid director, David Charlow, on leave pending a full review by the institution. Columbia also alerted New York Attorney General Andrew Cuomo to our findings. Mr. Cuomo promptly issued a subpoena to Columbia University and sent letters to the other two universities in question -- the University of Southern California and the University of Texas at Austin -- seeking more information about the administrators' stock ownership.

Higher Ed Watch continues to believe that the problem of corruption in America's student loan system stems from excessive taxpayer subsidies going to the student loan banking industry instead of families and needy kids.

This problem has to be addressed at its root.

Michael Dannenberg contributed to this report.

Here are links to other posts we have written about Fontana's management of the Financial Partners Division of the Education Department's Financial Partners Division:

The Revolving Door and the Damage It has Done (April 17, 2007)

Friends in High Places Deliver Big for Sallie Mae Behind the Scenes (May 9, 2007)

Where in the World is Matteo Fontana? (July 8, 2008)

Case Not Closed: Matteo Fontana's Resignation Leaves Unanswered Questions (September 30, 2008)

Exclusive: Some Ed Dept. Officials Encouraged Lenders to Overcharge the Government (May 14, 2009)

What Kindergarten Readiness Means to Kindergarten Teachers

Lisa Guernsey — Mon, 02 Nov 2009 15:48:00 -0500

Data from a survey of kindergarten teachers in California's Santa Clara County adds to the mounting evidence that kindergarten readiness is not as simple to define as you might think.

Contrary to popular conceptions of what it means for a 5-year-old to be ready for kindergarten, most kindergarten teachers are not wishing for rooms full of children who can already identify the letters of the alphabet. What they want instead are children who have learned how to regulate their impulses, follow through on a difficult task and have the self-control to listen to the teacher's directions for a few minutes.

This was one of several messages that emerged in Sacramento last Thursday during a presentation of recent data from the Santa Clara County Partnership for School Readiness, a collaborative of public, private and non-profit organizations in Silicon Valley. The presentation was part of the forum at which the New America Foundation released our report on early education in California. (For more about the report, see last week's post, the executive summary and the full report.)

Researchers for the Santa Clara County Partnership surveyed 36 kindergarten teachers in 2008, asking them multiple questions about what they believed entering kindergarteners should to be able to do in the domains of self-care and motor skills, self-regulation, social expression and kindergarten academics. Loretta Burns, director for the partnership, showed this slide at the California event to explain how these domains build on each other:

(If the slides are hard to read on your monitor, you may want to open the larger versions by clicking on the attachments at the end of the post.)

While kindergarten academics is at the top of the pyramid, most kindergarten teachers did not report that children need to come in with a strong base in academic skills if they want to have a successful kindergarten year. Instead, the teachers gave top billing to self-care and motor skills followed by self-regulation.

Teachers said that it was easiest to help students develop their academic skills and hardest to make an impact in developing their self-regulation skills. In fact, they said they had to spend the most time in the classroom focusing on self-regulation. This slide below tells the story:

This highlights the importance of designing interactions in the preschool years that are developmentally appropriate. Worksheets that force 4-year-olds to trace the outline of the letter A are a far cry from the types of experiences young children really need in the preschool years.

The slide also raises a key question: How can preschool and kindergarten experiences help children learn to self-regulate? Research on the importance of building self-regulation skills in young children has been accumulating over the past few years, and some of it is starting to zoom in on the significance of playtime, particularly pretend play scenarios that are child-led but feature teacher input. For example, the Tools of the Mind approach, which we've written about several times, incorporates pretend play in classroom settings and has been shown in scientific research to improve children's executive function and self-regulation skills.

Burns' presentation about the Santa Clara project was valuable on several other levels too. It provided a view of kindergarten readiness assessment that may help to dispel concerns about inappropriate testing of preschoolers. As Burns explained early in her presentation: "This is not about standardized tests for 4-year-olds."

The assessments in Santa Clara collect information from parents, teachers and observations of children in classroom settings. They are not used to determine where children should be placed or what schools they should attend, nor are they used to evaluate teachers or for other high-stakes purposes. The observations are done by trained teachers who look for signs of children's progress on multiple levels. Some examples of what they look for:

Can the child operate zippers or work with crayons?
Can the child follow one- or two-step directions?
Can the child engage in symbolic play with others (like playing house or fire station)?
Can the child count 10 objects correctly?

The appendix of Santa Clara's September 2009 report provides a sample of the observation sheet used for recording children's development in these and several other areas.

Santa Clara has been conducting these assessments since 2004, and the data is providing new insights to better prepare teachers for the children coming through their doors. Besides demographic and skill-based information, the data tells schools and teachers how many children are arriving with some experience in early learning environments like preschools and high-quality child care centers.

Collecting information like this is critical to ensuring that early education systems provide what children need. We hope that, as states continue to build out more robust and accessible systems of early learning for young children, well-designed and appropriate kindergarten readiness assesssments like this one continue to be part of the picture.

Friday News Roundup: Week of October 26-30

Ed Policy — Fri, 30 Oct 2009 19:31:00 -0400

At Ed Money Watch, we discuss and analyze major issues affecting education funding. In our Friday News Roundup, we try to highlight interesting stories that might otherwise get overlooked. These stories emphasize how federal and state policy changes can affect local schools and districts.

Montana Education Officials Doubtful About Race to the Top Chances

Colorado Governor Unveils Plan to Close Budget Shortfalls

School Districts in Oklahoma Face Steep Cuts as Funding Streams Dry Up

New York Governor Proposes New Cuts as Deficit Climbs

Massachusetts Governor Makes New Cuts, Spares Education

Montana Education Officials Doubtful About Race to the Top Chances
Education officials in Montana are critical of the priorities laid out by the Obama administration for the upcoming Race to the Top (RttT) competitive grants, a new program created by the American Recovery and Reinvestment Act. Montana's Superintendent of Schools, Denise Juneau, called RttT's approach a one-size-fits-all prescription for states. While she agrees with the administration's priorities of hiring quality teachers, turning around struggling schools, and using data to inform decisions, Juneau claims that fulfilling the requirements of RttT would violate the state's constitution. Instead of making changes to state law to better accommodate charter schools and alter teacher and principal evaluations to align with RttT's priorities, Juneau and other state education officials have proposed that U.S. Education Secretary Arne Duncan change the rules of RttT. They claim that the current priorities, especially the charter school elements, don't make sense in rural states where school districts are already small. More here...

Colorado Governor Unveils Plan to Close Budget Shortfalls
Colorado Governor Bill Ritter this week unveiled a plan to close a $286 million budget shortfall, the latest in a series of shortfalls caused by the economic recession. Governor Ritter's plan would cut $145 million in funding for public colleges and universities, $37 million in grants to counties that produce oil, gas, and minerals, and $16 million in delayed Medicaid reimbursements. It also would save $27 million by adding four additional furlough days for state workers. The cuts to higher education will be replaced with funds from the American Recovery and Reinvestment Act. While the one-time federal stimulus funds will save the state from serious cuts now, critics of Governor Ritter's plan say he is putting off necessary decisions about how to reduce the state budget in the future. Colorado State Senate Minority Leader Josh Penry proposed closing Governor Ritter's energy office, and has mentioned other cuts that could lead to long-term budget trimming. Governor Ritter called these proposals "a $100,000 solution to a $100 million problem." More here...

School Districts in Oklahoma Face Steep Cuts as Funding Streams Dry Up
In Oklahoma, school districts are bracing for deep cuts as the state's revenue shortfalls lead funding streams to dry up. The state account that usually contributes more than 25 percent of the state's education funds is likely to be completely empty by the end of October, leaving the state to rely solely on tax collections for payments to districts starting in November. This comes on top of a 5 percent budget cut for the current fiscal year across all state agencies. The state is encouraging districts to try to make cuts without removing teachers from classrooms, but with such great budget reductions, officials recognize this is a tall order. School districts also may be consolidated or closed to save money. More here...

New York Governor Proposes New Cuts as Deficit Climbs
New York's state budget deficit has climbed $1.1 billion since July to $3.2 billion according to a report released this week. The state Budget Division also predicts that next year's budget will total $6.8 billion, a $2.2 billion increase from the July estimate. With this in mind, Governor David Patterson proposed wiping out $5 billion in spending over the next two years. While most state legislators supported many of the cuts, State Senate leaders opposed cuts to education and Medicaid. Governor Patterson has ordered a special session of the state legislature starting on November 10^th to address the increasing shortfall. More here...

Massachusetts Governor Makes New Cuts, Spares Education
Massachusetts Governor Deval Patrick this week cut $277 million from the state's fiscal year 2009 budget to close a growing gap between revenues and spending. This included budget cuts to state agencies, nine-day furloughs for 4,000 state employees, and layoffs for 2,000 state workers. While K-12 school aid was spared in this round of cuts, school districts may still feel the pinch as regional school bus transportation aid and state reimbursements for special education schools were cut. Charter schools will also feel the blow of a $5 million cut in reimbursements. Governor Patrick was able to use federal stimulus dollars to avoid cuts to state colleges and universities. More here...

Briefly Noted

Michigan budget nears completion, but contentious items still could face line-item vetoes.
Districts in Minnesota await outcome of Nov. 3^rd vote on school levies.

Comparing State and Nationally Defined Graduation Rates

Jennifer Cohen — Thu, 29 Oct 2009 21:33:00 -0400

Earlier this month the National Center for Education Statistics (NCES) released a preliminary report on graduation rates in the 50 states and the District of Columbia for the high school class of 2006-07. The report shows that graduation rates vary widely by state - from as high as 88.6 percent to as low as 52.0 percent - and by student race or ethnicity. Interestingly, the NCES figures differ from the graduation rates most states report under the No Child Left Behind (NCLB) Act. In fact, 14 states claim to have graduation rates at least 10 percentage points higher than what the national standard shows. (Data for both nationally and state defined graduation rates can be accessed on the Federal Education Budget Project website at www.edbudgetproject.org.)

NCES calculated graduation rates using a method known as the averaged freshman graduation rate. Under this method, the graduation rate is calculated by dividing the number of diplomas awarded in 2006-07 by the average enrollment of 8^thgraders in 2002-03, 9^th graders in 2003-04, and 10^th graders in 2004-05. Averaging 8^th, 9^th, and 10^th grade enrollment controls for freshman students who may have been held back. This method is not as rigorous as a graduation rate produced using longitudinal student data because it does not track individual students as they go through high school. However, in the absence of longitudinal data in the majority of the states, it was deemed preferable to other alternatives in previous studies.

In contrast to the method used by NCES, states calculated 2007 graduation rates in a variety of ways to meet the accountability requirements for NCLB. States were able to choose how they measured graduation rates for NCLB just as they were able to choose state definitions for proficiency in math and reading. Some may have used the averaged freshman graduation rate while others may have just divided the number of diplomas awarded in 2007 by freshman enrollment four years earlier. Some states may even have divided the number of diplomas awarded in 2007 by the number of seniors entering school at the beginning of that school year.

Most of the time, the graduation rate method selected by a state produces a higher graduation rate than what would be produced by averaged freshman graduation rate. For example, the District of Columbia reports a graduation rate of 75.5 percent for NCLB purposes. The NCES calculation gives DC a graduation rate of 54.9 percent, 20.6 percentage points lower. Similarly, Alabama's NCES graduation rate is 16.0 percentage points lower than its NCLB reported graduation rate of 83.1 percent, and Nevada's NCES graduation rate is 15.4 percentage points lower than its NCLB reported rate of 67.4 percent.

Some states, however, do understate their graduation rates in their NCLB report cards. Minnesota reports a graduation rate of 73.3 percent, 13.2 percentage points lower than its NCES calculated rate. Missouri also reports a graduation rate 9.1 percentage points lower than its NCES rate of 81.9 percent. In total, eight states report a graduation rate lower than the nationally defined rate. Unfortunately, it is impossible to tell what is driving these differences without examining each state's NCLB accountability plan.

The Department of Education is working to eliminate the disconnect between nationally and state defined graduation rates. For example, recent federal investments in state longitudinal data systems suggest that states will soon be able to calculate graduation rates using individual student data rather than student enrollment and diploma data. Using student longitudinal data would allow states and schools to track students individually as they move from school to school, ensuring a more accurate graduation rate. Additionally, the Department of Education released guidance last December that would require states to report a four-year adjusted cohort graduation rate for the high school class of 2012. This method would calculate the graduation rate as follows:

But standardizing the way graduation rates are calculated is only half the battle. No matter how you look at it, at least 25 percent of American high school students fail to graduate in four years. In an economy that requires at least a high school degree to make a living wage, this trend could spell disaster for economic recovery in the near future.

While both pending House and Senate 2010 education funding bills include $50 million for a new high school graduation initiative, this is just a drop in the bucket what is likely needed to improve graduation rates. America is going to have to get much more serious about providing the support students need to graduate from high school.

A spreadsheet containing data on nationally and state defined graduation rates is available here.

New Report: On the Cusp in California

Maggie Severns — Thu, 29 Oct 2009 14:28:00 -0400

As a recent TIME cover story notes, California is a state teeming with problems: Facing a 35 percent budget gap earlier this year, the state teetered on the verge of bankruptcy. It has a notoriously dysfunctional legislature and the nation's fourth-highest unemployment rate.

On top of that, California's schools, once among the nation's best, now rank among the bottom of all states-- 46^th nationally in 4^th grade math, and 47^th in reading. Equally troubling large achievement gaps between white and black or Hispanic fourth-graders. These problems begin even before children enter kindergarten. Only 31 percent of the state's 4-year-olds are enrolled in state-funded preschool or Head Start-and many early care and education settings fall short of high quality standards. These figures are particularly troubling considering that the state is host to one in every eight children under the age of eight in the country.

But, as a new report from the New America Foundation's Early Education Initiative argues, there are reasons for hope. Despite budget shortfalls, California is on the cusp of making real improvements in its early education system.

On the Cusp in California: How PreK-3rd Strategies Could Improve Education in the Golden State, written by long-time California education reporter Linda Jacobson, explains that key state officials, along with early childhood advocates and school reformers, have taken some important first steps to better integrate early childhood programs and move towards the more seamless PreK-3^rd early education system in California. Now policymakers and advocates need to exert leadership to create a sense of urgency around PreK-3rd reform as a strategy for improving California's education system.

PreK-3^rd reforms-- which combine high-quality pre-k and full-day kindergarten with a high-quality, aligned early elementary learning experiences that seamlessly build children's skills and knowledge to bring them to proficiency by the end of third grade-have tremendous potential to help California narrow achievement gaps and raise student learning across the board. The report seeks to help policymakers and advocates in California understand the promise of PreK-3^rd PreK-3rd strategies as well as the hurdles, and the steps the state can take to overcome them.

The report recommends 13 steps to getting this done - many of which are not budget-busters and may even help California compete for federal education grants, such as the Race to the Top program and the proposed Early Learning Challenge fund. For example, the report recommends that the state:

Replicate and scale up effective PreK-3rd models,
Implement a comprehensive early childhood data system,
Integrate pre-k funding into broader conversations about reforming the state's school finance system,
Continue working to develop and fund a voluntary Quality Rating and Improvement System (QRIS), and
Create a PreK-3^rd teacher credential for early childhood educators.

The report also includes recommendations to improve coordination and quality among existing early care and education programs in the state and to address the needs of California's growing population of English language learner and Hispanic students. For the full list of recommendations, check out the report here. Today in Sacramento, New America is presenting details from the report to a gathering of policymakers and stakeholders.

The report was funded through generous grants from the Foundation for Child Development, the W. Clement adn Jessie V. Stone Foundation, and the Strategic Knowledge Fund, co-funded by the Foundation for Child Development and the W.K. Kellogg Foundation.

Putting an End to the Subprime Student Loan Racket

Ed Policy — Thu, 29 Oct 2009 14:00:00 -0400

[Editor's Note: Yesterday we ran an excerpt from an article that Higher Ed Watch Editor Stephen Burd wrote for The Washington Monthly [cover pictured right] on the subprime student loan crisis at some of the nation's largest chains of for-profit colleges. Today, we're running a second excerpt that provides recommendations for putting an end to predatory lending at these institutions. To read the full article, click here.)

For a while it looked like the meltdown on Wall Street, and the ensuing credit crunch, would put an end to predatory lending at for-profit schools. In 2008 Sallie Mae quit offering subprime private loans to students at for-profit colleges because the astronomical default rates had helped throw its stock price into a nosedive. But the proprietary college industry has found a way around this roadblock, namely making private loans directly to students, much the way used-car lots loan money to buyers rather than going through a third party. For example, in a recent earnings call with investors and analysts, Corinthian said that it plans to dole out roughly $130 million in "institutional loans" this year, while Career Education and ITT Educational Services Inc., another for-profit chain, have reported that they expect to lend a combined total of $125 million.

These loans could prove to be even more toxic than the private ones offered by Sallie Mae. This is because some schools are packaging them as ordinary consumer credit, which has even fewer built-in safeguards than private student loans, especially when it comes to disclosure requirements. This makes it easier for schools to mislead borrowers about the terms of the debt they are taking on. In one class-action lawsuit filed earlier this year, former students of Colorado-based Westwood Colleges allege they were duped into borrowing institutional loans at a staggering 18 percent interest. According to the complaint, the college's corporate bosses advise their admissions officers to sign students up for these loans without revealing how costly they are going to be. Thus borrowers don't learn about the steep interest until after they leave school and receive their first loan bill. Worse, the lawsuit alleges that some students have been signed up for loans without their permission.

Jillian L. Estes, a Florida lawyer who represents the plaintiffs in the case, says she has been approached by two dozen former Westwood admissions representatives who admit that they deliberately avoided telling students about the terms of these loans. "They knew they'd never be able to enroll these students if they were up front with them," Estes explains. (In their written response to the lawsuit, Westwood College officials offered a "categorical rejection" of the allegations brought by Estes and her clients.)

Significantly, many proprietary schools are pushing institutional loans even when they know students won't be able to pay them off; Career Education and Corinthian Colleges only expect to recover roughly half of the money they distribute through their institutional lending programs, according to communications with shareholders. Why would they lend knowing they won't get the money back? Because any loss is more than offset by federal loans and financial aid dollars, which, despite the surge in private educational lending, still fund the bulk of tuition at proprietary schools. Say a student gets a $60,000 federal financial aid package and supplements it with a $20,000 institutional loan. The school comes out $40,000 ahead even if the borrower ultimately defaults. Plus, getting students in the door pumps up enrollment numbers, which makes for happy shareholders.

As the credit crunch eases, traditional lenders may well go back to making private loans to proprietary school students, especially given the changes afoot in the industry. President Obama aims to get rid of the program that allows lending companies to collect lucrative fees and interest for serving as the middleman on federal student loans and instead have the government offer the loans directly. Once forced out of the federal student loan program, traditional lenders will have a powerful incentive to seek profits by wading deeper into the private student loan market, and for-profit schools, with their exponential growth, could once again be an appealing target

The good news is that the Obama administration seems more inclined than its predecessor to stand up against the abuses of proprietary schools. In May, the Department of Education revealed that it was considering reversing changes the Bush administration made to weaken the law that prohibits colleges from compensating recruiters based on the number of students they enroll. It is also thinking about adding teeth to the rules requiring proprietary colleges to show that graduates are finding "gainful employment" in their field and cracking down on schools that willfully mislead prospective students. "Our overall goal at the Department of Education in post-secondary education is to make sure that students ... have the information they need to make good choices," Robert Shireman, the deputy undersecretary of education, told financial analysts and investors during a conference call earlier this year.

These proposals are a good start, but more steps will be needed. For starters, the Department of Education should publish the data that it already collects on the number of students at each school who default over the lifetime of their loans. At the moment, it only releases the number who default during the first two years after leaving college, which is of limited value, not only because this is such a short time span, but also because the rates can be easily manipulated by schools.

Just publishing lifetime default rates would give prospective students a clearer picture of the risks of enrolling in a particular school. But the impact would be far greater if Congress used this data, along with graduation rates, to weed out abusive institutions; ideally, any school that failed to meet a certain threshold should be kicked out of the federal financial aid programs.

At the same time, Congress should require companies that offer private student loans to give the same kinds of flexible repayment options and consumer protections as are available through the federal student loan program, including allowing borrowers to repay their loans as a percentage of their income. Lawmakers also need to revisit changes Congress made to the bankruptcy code in 2005, which make it exceedingly difficult for financially distressed borrowers, including those with private student loans, to discharge their debt in bankruptcy.

These changes would go a long way toward helping people like Martine Leveque escape their mountains of debt and ensuring that future students don't wind up in the same situation. It would also guarantee that taxpayers don't go on bankrolling giant companies that profit by exploiting those who are struggling to build better lives.

Duncan and Blair Speak Out on Community Schools

Maggie Severns — Thu, 29 Oct 2009 14:00:00 -0400

"The interesting thing about education reform is that we actually do know what works," former Prime Minister Tony Blair said during an event at the Center for American Progress yesterday. "The difficulty is in implementing it."

Blair was speaking about Britain's decision to convert all of its 23,000 public schools into community schools, which stay open longer and provide a range of activities and support to their local communities, between 2004 and 2011. Legislation enacted in 2004 provides over $3 billion in start-up-funds to help schools create partnerships with community organizations during the 8-year transition period. Blair spoke with confidence about Britain's educational change, stating that he never regretted making bold decisions when it came to education reform.

The United States is host to a small number of community schools, but there has been little effort or support to scale-up successful community school programs. However, a number of current policy developments-- the Obama administration's Promise Neighborhood program, prospective funding through Race to the Top grants, and community school legislation recently introduced in the House by Majority Leader Steny Hoyer (D-Md.) and in the Senate by Ben Nelson (D-Neb.)-- suggest that community schools are gaining momentum on this side of the pond as well.

There is no single model of a community school, but all of these schools seek to improve the quality of education by partnering with community organizations to provide resources and services, such as health care, school facilities, and parental involvement, that schools often lack. Though the range of services provided by community schools varies, many feature on-site Early Head Start or Medicaid programs. Having schools co-located with these programs can help leverage federal and other funding streams that are available to both the partnering organization and the school, such as Medicaid funding. No extensive research has been conducted on the extent to which community schools have succeeded in improving the lives of their students, though anecdotal reports are promising.

Community schools have real potential to improve PreK-3^rd alignment and early education opportunities for disadvantaged youngsters. Aside from the obvious benefits of co-locating Early Head Start, Head Start, and preschool providers with elementary schools, schools that are able to connect children and their families with medical, mental health, and social services can more effectively support the development of "the whole child"--which is critical during the preschool and early elementary years. Community schools that offer parenting and adult education classes on site may also be better able to engage parents who would not otherwise have the time or transportation resources (or, for that matter, babysitters) to access several different community programs. And that increased parental education and engagement in turn produces benefits for children.

At the event yesterday, Blair and Secretary Duncan discussed the merits of community schools as opportunities for improving students' lives and maximizing the potential of school and community resources. Duncan drew heavily on his experience creating community schools in Chicago to speak about how the transitions to community schools can be made in the U.S. "I don't know why we continue to build Boys & Girls Clubs and YMCA's," Duncan said. "I think we should put these scarce resources straight into schools."

Duncan also spoke about community schools as a mechanism for increasing parental involvement. "We are not welcoming parents into schools," he said. "They're supposed to drop them off in the morning, and pick them up later. This is a fundamental change." Often times, community schools, like those Duncan supported with the Chicago Public Schools Community Schools Initiative, offer adult education and/or ESL classes to parents.

Congressman Hoyer, who has been working to expand funding opportunities for community schools for over 15 years, expressed hope that community schools will gain more support from policymakers in the coming years. Yesterday, he remarked, "My expectation is that under President Obama's leadership, and Secretary Duncan's leadership, we will start making much more progress." We at Early Ed Watch hope that Hoyer and other community schools proponents will keep a strong focus on early ed, ensuring that expansion of community schools also brings expansion in children's access to high-quality early learning opportunities aligned with the public elementary schools.

The Subprime Student Loan Racket

Ed Policy — Wed, 28 Oct 2009 14:00:00 -0400

[Editor's Note: In this month's edition of the Washington Monthly, Higher Ed Watch Editor Stephen Burd looks at the subprime student loan crisis at some of the nation's largest chains of for-profit colleges. We've included an excerpt from the piece below. To read the full article, click here.]

At the age of forty-three, Martine Leveque decided it was time to start over. For several years, she had worked in the movie business, writing subtitles in Italian and French for English-language films, but her employer moved overseas. She then tried her hand at sales, but each time the economy dipped sales tumbled, along with her income, and as a single mother with a teenage son, she wanted a job that offered more security. She decided to pursue a career in nursing, a high-demand field where she could also do some good.

While researching her options online, Leveque (pictured on the left) stumbled on the Web site for Everest College, part of the Corinthian Colleges chain, which pictured students in lab coats and scrubs probing a replica of a human heart and a string of glowing testimonials from graduates. "Now I know exactly where I am going. And now I'm making very good money," enthused a former student named Anjali B. The school, near Leveque's home in Alhambra, California, offered a Licensed Vocational Nursing program that would take her just one year to complete. When Leveque contacted the admissions office, she was told she would receive hands-on training from experienced nurses in state-of-the-art labs with the most modern equipment-including a recently purchased $30,000 mannequin that could simulate the birthing process. She also says recruiters told her that she would be able to do rotations at the University of California, Los Angeles Medical Center, one of the nation's best hospitals.

Leveque was intrigued, though she was initially put off by the $29,000 tuition. But the school's recruiters assured her there was nothing to be concerned about: Everest had an exceptional track record of helping students find employment -- they claimed the typical Everest College LVN graduates landed a job paying between $28 and $35 an hour straight out of school. And the school would arrange a financial aid package to cover her costs.

In the end, Leveque decided to enroll. The day she came in to fill out her paperwork, she says, the recruiters rushed her through the process and discouraged her from taking the forms home to look over. They told her that she would be taking out private loans in addition to federal loans that are traditionally used to pay educational expenses, but did not explain what the terms of those loans would be. "They just kept telling me that ‘we're with you,' and that they would try to get me the maximum amount of federal loans allowed," she says. Only later did she learn that those private loans -- which made up two-thirds of her "financial aid" package --carried double-digit interest rates and other onerous terms.

To make matters worse, the program did not come close to delivering on the promises that had been made. The instructors had little recent medical experience. Instead of really teaching, she says, they usually just read textbooks aloud in class and sometimes offered students the answers on tests ahead of time. On the rare occasions when Leveque and her class were given time in the lab, she found that the equipment was broken down and shoddy-except for the expensive new mannequin, which no one knew how to use. Instead of the promised rotations at UCLA Medical Center, her clinical training consisted of helping pass out pills at a nursing home. (A spokeswoman for Corinthian Colleges denied many of Leveque's allegations, insisting that the company does not condone cheating, that all LVN instructors at Everest College have "at least the minimum qualifications" set by the California Board of Vocational Nursing, and that UCLA Medical Center "is not and has never been" one of the school's official clinical training sites.)

Since graduating in 2008, Leveque has been unable to find a nursing job, perhaps because she never learned how to perform basic tasks such as giving shots. Instead, she works as an occasional home health care aid earning at the most $1,200 a month --not enough to pay her rent on the cramped apartment she shares with her sister and son or keep gas in her car, much less pay off her student loans. As a result, her loan balance has ballooned to $40,000, and she has no idea how she will ever pay it off. "My credit is ruined," Leveque says. "I made one mistake, and I will be paying for it for the rest of my life."

Leveque's story is far from unique. Each year, more than two million Americans enroll in for-profit colleges, also known as proprietary schools, and their popularity has only grown since the financial crisis. While traditional four-year colleges are struggling with dwindling student bodies and budget gaps, proprietary schools are reporting record enrollments as the newly unemployed try to retool their skills so they can wade back into the job market. Some of the largest for-profit chains say their numbers have doubled over the last year.

The students who are flocking to these schools are mostly poor and working class, and they rely heavily on student loans to cover tuition. According to a College Board analysis of Department of Education data, 60 percent of bachelor's degree recipients at for-profit colleges graduate with $30,000 or more in student loans-one and a half times the percentage of those at traditional private colleges and three times more than those at four-year public colleges and universities. Similarly, those who earn two-year degrees from proprietary schools rack up nearly three times as much debt as those at community colleges, which serve a similar student population. Proprietary school students are also much more likely to take on private student loans, which, unlike their federal counterparts, are not guaranteed by the federal government, offer scant consumer protections, and tend to charge astronomical interest -- in some cases as high as 20 percent.

These figures are all the more troubling in light of these schools' spotty record of graduating students; the median graduation rate for proprietary schools is only 38 percent -- by far the lowest rate in the higher education sector. What's more, even those students who make it through often can't find jobs. The reason for this is simple: while some proprietary schools offer a good education, many more are subpar at best. Thus large numbers of students leave with little to show for their effort other than a heap of debt. Not surprisingly, students at proprietary schools are far more likely to default on their loans than those at other colleges.

The appalling treatment of disadvantaged students at the hands of proprietary schools ought to be a national scandal, especially at a time when America desperately needs more college graduates to stay competitive. But the problem has barely registered in Washington. That's partly because the proprietary school lobby has enough clout among lawmakers on both sides of the aisle to keep the issue quiet. But Congress and the Obama administration have also had their hands full advancing other higher education reforms -- in particular, legislation to kick private lenders out of the federally subsidized student loan program. This will create tens of billions of dollars in cost savings that will go toward larger Pell grants for low-income students. But that measure, vital as it is, affects only lending within the federal student loan program. It leaves untouched the private loans that are increasingly being foisted on students like Leveque and the loosely regulated schools that are profiting as a result.