I have been very critical of the Brookings Institution report on student debt, particularly in my post “To see how illogical the Brookings Institution report on student loans is, just read the executive summary”.
D’oh! It turns out that real borrowers with real tax brackets paying off off real loans are having real problems. The percentage at least 90 days delinquent has more than doubled in just the past decade. In fact, based on another Federal Reserve report, the problem is much bigger for the future, “44% of borrowers are not yet in repayment, and excluding those, the effective 90+ delinquency rate rises to more than 30%”.
More than 30% of borrowers who should be paying off their loans are at least 90 days delinquent? It seems someone didn’t tell them that their payment-to-income ratios (at least for their mythical average friends) are just fine and that they’re “no worse off”.
Well now the Federal Reserve Board themselves weighs in on the subject with a new survey, at least as described by an article in The Huffington Post. I have read the Fed report and concur with HP analysis – it does argue against the Brookings findings.
Among the emerging risks spotlighted by the survey is the nation’s $1.3 trillion in unpaid student debt, suggesting that high levels of student debt are crimping the broader economy. Nearly half of Americans said they had to curb their spending last year in order to make payments on student loans, adding weight to the fear among federal financial regulators that the burden of student debt on households will depress economic growth for years to come.
Some 35 percent of survey respondents who are paying back student loans said they had to reduce their spending by “a little” over the past year to keep up with their student debt payments. Another 11 percent said they had to cut back their spending by “a lot.”
The Fed’s findings appear to challenge recent research by a pair of economists at the Brookings Institution, highlighted in The New York Times and cited by the White House, that argues that households with student debt are no worse off today than they were two decades ago.
The full Fed report can be found here. Much of the survey was focused on borrowers and their perceptions of how their student loans impact them, which is much more reliable than Brookings’ assumptions on how convoluted financial ratios should affect borrowers. In particular, consider this table:
Think about this situation – amongst borrowers who have completed their degrees, almost equal numbers think the financial benefits of a degree outweigh the costs as think the opposite (41.5% to 38.1%). I don’t see this as an argument against getting a degree, but rather as clear evidence that the student loan crisis is real and will have a big impact on the economy and future student decision-making.
Thanks to the Federal Reserve Board for helping us out.
Update: Clarified that this is Federal Reserve Board and not NY Fed.
The post Federal Reserve Board backs up e-Literate in criticism of Brookings report on student debt appeared first on e-Literate.
2U, the online service provider that went public in the spring, just released its financial report for the first full quarter of operations as a public company. The company beat estimates on total revenue and also lost less money than expected. Overall, it was a strong performance (see WSJ for basic summary or actual quarterly report for more details). The basics:
- Revenue of $24.7 million for the quarter and $51.1 m for the past six months, which represents year-over-year increase of 32 and 35%;
- EBITDA Losses of $7.1 m for the quarter and $10.9 m for the past six months, which represents year-over-year increase of -2% and 12%; and
- Enrollment growth of 31 – 34% year-over-year.
Per the WSJ coverage of the conference call:
“I’m very pleased with our second quarter results, and that we have both the basis and the visibility to increase all of our guidance measures for 2014,” said Chip Paucek, 2U’s Chief Executive Officer and co-founder. “We’ve reached a turning point where, even with continued high investment for growth, our losses have stopped accelerating. At the midpoint of our new guidance range, we now expect our full year 2014 adjusted EBITDA loss to improve by 17% over 2013. Further, we’ve announced a schedule that meets our stated annual goal for new program launches through 2015.”
The company went public in late March at $14 / share and is still at that range ($14.21 before the quarterly earnings release – it might go up tomorrow). As one of only three ed tech companies to have gone public in the US over the past five years, 2U remains worth watching both for its own news and as a bellwether of the IPO market for ed tech.Notes
The financials provide more insight into the world of Online Service Providers (OSP, aka Online Program Management, School-as-a-Service, Online Enablers, the market with no name). On the conference call 2U’s CEO Chip Paucek reminded analysts that they typically invest (money spent – revenue) $4 – $9 million per program in the early years and do not start to break even until years 3 – 4. 2U might be on the high side of these numbers given their focus on small class sizes at big-name schools, but this helps explain why the OSP market typically focuses on long-term contracts of 10+ years. Without such a long-term revenue-sharing contract, it would difficult for an OSP to ever break even.
As the market matures – with more competitors and with schools developing their own experiences in online programs, it will become more and more difficult for companies to maintain these commitments from schools. We have already seen signs over the past year of changes in institutional expectations.
2U, meanwhile, has positioned itself at the high-end of the market, relying on high tuitions and brand-name elite schools with small classes. The company for the most part will not even compete in a Request for Proposal process, avoiding direct competition with Embanet, Deltak, Academic Partnerships and others. Their prospects seem much stronger than the more competitive mainstream of OSP providers.
See the posts here at e-Literate for more background.
2U has changed one aspect of their strategy, as noted by Donna Murdoch on G+. At least through 2012 the company positioned itself as planning to work with one school per discipline (or vertical in their language). Pick one school for Masters of Social Work, one for MBA, etc. As described in Jan 2012:
“As we come into a new vertical, 2tor basically partners with one great school per vertical. We find one partner, one brand that is world-class. We partner with that brand over a long time period to create the market leader in that space for that discipline.”
2U now specifically plans for secondary schools in different verticals as can be seen in their press release put out today:
Note the duplication of Social Work between USC and Simmons, Nursing between Georgetown and Simmons, and Data Science between Berkeley and SMU. Note the new approach from page 20 of the quarterly report:
As described above, we have added, and we intend to continue to add, degree programs in a number of new academic disciplines each year, as well as to expand the delivery of existing degree programs to new clients.View Into Model
Along with the first quarter release (which was not based on a full quarter of operations as a public company), 2U release some interesting videos that give a better view into their pedagogical approach and platform. In this video they describe their “Bi-directional Learning Tool (BLT)”:
This image is from a page on the 2U website showing their approach, with a view of the infamous Brady Bunch layout for live classes (synchronous).
We’ll keep watching 2U and share significant developments as we see them.
The post Update on 2U: First full quarterly earnings and insight into model appeared first on e-Literate.
As you probably know, we run a consulting business (MindWires Consulting) and sometimes work with the companies and schools that we write about here. Consequently, we periodically remind you and update you on our conflict of interest policies. We do our best to avoid or minimize conflicts of interest where we can, but since our system isn’t perfect, we want you to understand how we handle them when they arise so that you can consider our analysis with the full context in mind. We value your trust and don’t take it for granted.
We talk a lot with each other about how to deal with conflicts of interest because we run into them a lot. On the one hand, we find that working with the vendors and schools that we write about provides us with insight that is helpful to a wide range of clients and readers. There just aren’t too many people who have the benefit of being able to see how all sides of the ed tech relationships work. But along with that perspective comes an inevitable and perpetual tension with objectivity. When we started our business together 18 months ago, we didn’t have a clear idea where these tensions would show up or how big of an issue they might turn out to be. We originally thought that our blogging was going to remain an addiction that was subsidized but somewhat disconnected from our consulting. But it turns out that more than 90% of our business comes from readers of the blog, and a significant portion of it comes out of conversations stimulated by a specific post. Now that we understand that relationship better, we’re getting a better handle on the kinds of conflict of interest that can arise and how best to mitigate them. Our particular approach in any given situation depends on lot on whether the client wants analysis or advice.Disclosure
In many cases, clients want us to provide deeper, more heavily researched, and more tailored versions of the analysis that we’ve provided publicly on this blog. In this situation, there isn’t a strong a direct conflict of interest between working providing them with what they are asking for and writing public analysis about various aspects of their business. That said, no matter how hard we try to write objectively about an organization that is, was, or could be a client, human nature being what it is, we can’t guarantee that we will never be even subconsciously influenced in our thinking. That is why we have a policy to always disclose when we are blogging about a client. We have done this in various ways in the past. Going forward, we are standardizing on an approach in which we will insert a disclosure footnote at the end of the first sentence in the post in which the client is named. It will look like this. (We are not fully satisfied that the footnote is prominent enough, so we will be investigating ways to make it a little more prominent.) We will insert these notices in all future posts on the blog, whether or not we are the authors of those posts. In cases where the company in question is not currently a client but was recently and could be again in the near future, we will note that the company “was recently a client of MindWires Consulting”.Recusal
Sometimes the client wants not only analysis but also strategic advice. Those situations can be trickier. We want to avoid cases in which we blog in praise (or condemnation) of a company for taking an action that they paid us to tell them to take. Our policy is that we don’t blog about any decisions that a company might make based on our advice. There are some theoretical situations in which we might consider making an exception to that rule, but if they ever do come up in reality, then the disclosure principle will apply. We will let you know if, when, and why we would make the exception. Aside from that currently theoretical exception, we recuse ourselves from blogging about the results of our own consulting advice. Furthermore, when potential clients ask us for advice that we think will put us into a long-term conflict of interest regarding one of our core areas of analysis, we turn down that work. Analysis take precedence over advice.Getting Better at This
We’re going to continue thinking about this and refining our approach as we learn more. We also have some ideas about business models that could further minimize potential conflicts in the future. We’ll share the details with you if and when we get to the point where we’re ready to move forward on them. In the meantime, we will continue to remind you of our current policy periodically so that you are in a better position to judge our analysis. And as always, we welcome your feedback.
- Full disclosure: Acme Ed Tech Company is a client of MindWires Consulting, the sponsor of e-Literate.