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A New Lesson Plan for Education Under President Trump

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A New Lesson Plan for Education Under President Trump

As with a number of other major policy issues, the Trump administration’s position on education is still somewhat unclear.
 

The nomination of Betsy DeVos for Secretary of Education was unexpected but is in line with Trump’s campaign promises to increase school choice. As a long term advocate of such choice, DeVos has experience lobbying for and funding charter schools in her home state of Michigan. Her lack of experience in education, however, creates uncertainty concerning how she might develop and implement education policy.

The Department of Education is responsible for overseeing all of the nation’s educational institutions, from prekindergarten programs to graduate schools of business. With the exception of two former governors (both of whom had enacted significant education reform measures), since the inception of the modern Department of Education in 1980 almost every head of the Department has had direct experience in teaching or educational administration. Given the challenges of evolving pedagogy, changing technologies, education priorities, and student demographics a grounding in education seems to be a prudent prerequisite for heading the U.S. federal government’s education support efforts.

Tracing its history back to 1867, the Department has guided the evolution of education in the United States for 150 years. In the United States’ education system the primary responsibility for the provision of education is shouldered by the states and local communities. State and local governments, along with public and private organizations, found schools and colleges, develop curricula, and determine requirements for enrollment and graduation. It is also at the local and state level that the majority of funding for public schools is raised and allocated. In K-12 school systems, roughly 92% of the funding comes from sources other than the federal government. The role of the federal government in education is limited, but critical.

The current mission of the Department of Education is “to promote student achievement and preparation for global competitiveness by fostering educational excellence and ensuring equal access.” This encompasses diverse areas ranging from promoting equity of opportunity in education to encouraging greater family and community engagement to overseeing the “Race to the Top” education program. The tenor of the Department and its areas of emphasis are driven by the Secretary of Education, acting as directed by the President of the United States to achieve the administration’s stated goals.

One of the initial challenges faced by the incoming Administration will be balancing the campaign promises for increased school choice with the above outlined core mission of the Department of Education. Over its history, the United States has struggled with its commitment to providing equal access to public education for all regardless of gender, race, ethnicity, religion, or economic background. These types of access challenges have often been addressed through court action such as Brown v. Board of Education, Guey Heung Lee v. Johnson, Parents Involved in Community Schools v. Seattle School District No. 1, and others. As a result, the Department has made a directed effort over most of the past decade to ensure that promoted policies and programs do not unfairly disadvantage one group of students over another.

Issues of race and immigration status, as well as economic disparity, dominated the Presidential campaign in 2016. While Trump ran on a populist platform, many of his campaign promises were rooted in a growing fault line in America on the lines of race and income. The challenge for the Department of Education, and particularly for the new Secretary, will be to ensure that these political controversies do not express as a division in the school systems themselves. As schools have re-segregated over the past three decades, drawing away from the height of school integration in 1988, the challenge of equal access has emerged as an issue that requires renewed focus.

Both during the campaign and after his election, Trump has emphasized that a school voucher program will be the main emphasis of the administration’s education policy. The initial outline of that policy revolves around block grants to the states to encourage the implementation of school choice programs on a broader basis. This approach is welcome to supporters of voucher programs and supporters of charter schools but is of concern to supporters of the traditional public school model.

The ongoing debate about vouchers, charter schools, and the traditional public school model will likely become more energized as a result of the Trump administration’s policy emphasis. The city of Detroit began allowing charter schools over twenty-five years ago, to very mixed results. The city still lags behind all major urban areas in academic performance and outcomes for K-12 students, with the charter schools performing only moderately better than the public school system. In contrast, the city of New Orleans introduced charter schools after Hurricane Katrina. The city is almost 100% charter schools now and those schools have performed much better than their public counterparts and predecessors. The primary difference between the two systems has been the degree of government oversight of the charter schools’ admission policies, curricula, and pedagogy. Other states and cities have introduced charter school and/or voucher programs to varied results including Wisconsin, Indiana, Washington D.C., and New York City.

As an advocate of and one of the primary donors supporting the Detroit school model, DeVos may choose to promote policies that lead to less government oversight of school choice programs. These policies will face heavy criticism and resistance from professional educators, Boards of Education, state policy makers, and other stakeholder groups who advocate for consistent standards to ensure the provision of equivalent educational opportunities to all students. Supporters of such policies will likely rely on market-based arguments that the best accountability for school systems comes from parents who are empowered to choose schools that work for their children. Critics will also point out that these types of programs do not work well in rural areas where school choice is limited nor do they address the logistic challenges disproportionately faced by poor American families who are unable to afford transportation options for their children, after school programs, or even reliable childcare.

In addition to K-12 school systems, the Department of Education also has oversight of secondary education programs including community college systems, universities, and graduate schools. The administration has stated that their primary goals for this sector of the education system are to increase access and reduce the cost of secondary education programs for all students. Little other detail has been provided by the administration so few conclusions can be drawn on this front. Given the importance of secondary education to economic potential, however, policies developed by the Department under the new administration will be critical to economic development in the upcoming decade.

During the campaign, community colleges were a frequent topic of discussion. For those who are unable to attend a traditional 4-year university or college, community colleges build a bridge to economic opportunity. As of 2015, nearly half of all undergraduate students enrolled in programs in the United States were attending community college. Over half of all community college students are members of minority groups and over 57% of students are female. Community colleges provide an opportunity for students to receive an education at a fraction of the cost of a traditional 4-year public college, with the average tuition for community colleges in the 2015-2016 academic year totaling $3,430 compared to $9,410 for in-state/in-district college tuition.

A degree or a certificate from a 2-year program can significantly increase a person’s employability, which in turn provides improvement in overall lifestyle and health. Adults with just a high school diploma earn an average of $1.2 million over their working life compared to over $1.6 million in lifetime earnings for community college graduates. That is an average difference of $10,000 per year over the course of a 40 year working life. Removing a source of financial burden, in this case by increasing access to economic opportunity, individuals and families can improve their lives through better healthcare, better diets, and more consistent childcare.

Any policies promoted by the Department of Education under the Trump administration that lead to an increase in access to a community college education for economically disadvantaged students will have a notable impact on future economic prospects for both the student and the national economy. As Trump indirectly noted during his campaign, one of the challenges faced by the United States is that the current education system does not seem to be preparing Americans to be lifetime learners or to be able to adapt as the world changes. For example, Ford Motor Company recently cancelled plans to build a $1.6 billion automotive manufacturing plant in San Luis Potosi, Mexico that would have employed over 2,000. Instead the company is investing over $700 million to build an automated factory in Flat Rock, Michigan that will employ approximately 700 American workers. The challenge is that most of those jobs will require more than a high school diploma. These jobs, like most new manufacturing jobs in the United States, require a technical education such as that provided by the community college system.

As with community colleges, the incoming Trump administration has articulated a basic policy approach. The administration has pledged to “Work with Congress on reforms to ensure universities are making a good faith effort to reduce the cost of college and student debt in exchange for the federal tax breaks and tax dollars.” An emphasis on the affordability of a university education will also provide long-term economic benefits for both the student and the national economy.

By completing a 4-year degree and/or a postgraduate degree, students greatly increase their marketability, employability, and economic opportunities. Students from a wide variety of backgrounds utilize state-funded or private higher education providers to improve their conditions overall. With greater economic opportunity, graduates experience greater financial security leading to improved health, less stress, and a higher quality of life. The local and national economy also benefits from having an educated workforce.

Adults with just a high school diploma earn an average of $1.2 million over their working life while, as outlined earlier, community college graduates can expect to earn over $1.6 million during the same time frame. Compare this to those individuals with a bachelor’s degree who will earn $2.1 million while those with a master’s degree will earn $2.5 million over the same projected 40 year working life. That is an average annual difference of $22,500 per year for those with a bachelor’s degree compared to individuals with just a high school diploma.

So what does this all mean for fixed income investors concerned about education? How will any of these potential policies or changes affect the outcomes of investments in school systems, community colleges, or university systems? The answer, as with many other policy effects of the administration, is unclear at this time. While SNW believes that the bright spot for 2017 will be the municipal bond market, the education sector will likely see the most uncertainty under the new administration.

Any policy shift intended to increase school choice in the K-12 sector has the potential to disrupt funding for existing school systems. This would be particularly true of a block grant approach for federal funding if such funding will, as the Trump administration has promised, “…favor states that have private school choice, magnet schools and charter laws, encouraging them to participate.” While federal funding only represents roughly 8% of the total funding for K-12 school systems, state governments will be reluctant to risk these funds by not complying with the stipulations outlined by the administration. Such compliance will, in turn, likely result in states placing requirements on local school systems to increase private school choice, adopt charter laws, and create magnet schools. Given the limited amount of funding available to local school systems, absent any changes in tax rates, the systems will divert funds from existing public schools to comply with these requirements.

With community colleges, the outlook is more positive. Any increase in federal funding for these systems will be welcome and would allow many of the systems to push for increased enrollment resulting in better financial results for these systems. However, should the administration push for increased access and more affordable tuition without providing any increased federal funding, the potential outcomes are less financially favorable.

University systems may face a slightly different scenario under the incoming administration than that faced by community colleges. With tuition costs rising at an average rate of 5% over the past decade, universities will face pressure to reduce the rate of increase or to freeze tuition costs completely. As our recent internal analysis of the higher education sector outlined, declining high school matriculation rates and tuition affordability are the major secular and cyclical trends impacting the sector. In addition, juris doctorate programs have experienced significant declines in enrollment due to the “great recession” and have yet to recover. Large, well-regarded and wealthy public and private institution have pricing power and competitive advantages even in crowded market environments but regional institutions will struggle to compete and attract students. Any pressure on tuition will compound the challenges faced by public regional universities.

As more clarity is provided by the new administration in the upcoming months regarding their education priorities and policies, our analysis of the impacts of these priorities and policies will be updated. SNW will continue to assess and invest in appropriate education credits for all of our clients, helping to ensure that there is a market for issuers committed to positive educational outcomes.and competitive advantages even in crowded market environments but regional institutions will struggle to compete and attract students. Any pressure on tuition will compound the challenges faced by public regional universities.

 

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