What Impact do the Trump Tax Cuts Have on Education?

by Dr. Watson Scott Swail, President & Senior Research Scientist

Yesterday the Trump Administration, through the auspices of Steve Mnuchin and Gary Cohn, released a trial balloon to test their tax plan in the media and Congress. True to Trump’s word, this is potentially the biggest change in the tax system in generations, starting with the reduction of corporate tax from 35 to 15 percent and continuing through the elimination of the death tax, the doubling of the standard individual deduction, and the elimination of all but two tax deductions from the code for individuals and families.

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Not many people like the tax code, so the thought of changing the system doesn’t really produce the same ill-will that the health care discussion does. People don’t like taxes. Everyone wants to pay less.

But, in the end, someone has to pay for any tax cut. George Bush provided a large tax cut in his early years in the White House. The problem was that it wasn’t balanced with cuts in spending and federal spending and the deficit went through the roof.  The early reviews on Trump’s plan is that it could cost the government (e.g., taxpayers) $2 trillion in revenue over the next decade. The Administration says that the trickle down from the corporate cuts will boost the economy which, in turn, will pay for the tax plan. Certainly there will be some effect from cutting the corporate tax, but not likely anywhere near $2 trillion worth. To put this in perspective, the entire federal budget totals $3.65 trillion. A reduction of the corporate tax rate will not make up that gap in revenue.

It isn’t necessarily that people don’t agree with cutting the corporate tax and eliminating the death tax, or even reducing the number of tax brackets from 7 to 3 (although that is relatively meaningless in the end, whether it be 3 or 23; it is a graduated rate). People do care about the cost of it and whether it can be revenue neutral. This plan is not revenue neutral.

An important part of the plan is the simplification of the tax system, in part, by eliminating many of the standard deductions that are currently in place. Two major deductions have been left alone, including the mortgage deduction and deductions for charitable giving. President Trump said on the campaign trail that he would eliminate the mortgage deduction. However, 32 million people used this deduction in 2016 and the political reality is that people would have a conniption if it were to be removed. Therein lies the tricky trail for retooling the tax code: taxpayers want it simplified, but only if you leave their deductions alone.

There are several potential impacts to education in this tax plan. The first is the student loan interest deduction. This allows borrowers with incomes under $80,000 to deduct up to $2,500 of their loan interest from their taxes. This would be gone. Second, taxpayers who receive educational benefits from their employers are allowed up to $5,250 in tax-free benefits to help with their higher education. This would go away and those benefits would be fully taxable. The American Opportunity Tax Credit (AOTC), an annual credit of $2,500, would also disappear. And as a colleague mentioned to me yesterday, the elimination of deductions for state and local taxes paid could have a serious impact on K12 and higher education funding at the local and state level, forcing higher taxes at those levels. He also mentioned that even teachers would get hurt since they get to deduct classroom supplies that they personally purchase. All gone.

Finally, what does the federal government do with student loan forgiveness? There is currently a plan in place to allow students to have their student loans eliminated after 20 years if they work in the non-profit world during that time. There are many stipulations, but the Administration has talked about removing this program which would have a huge income on people who plan their careers around this benefit. Regardless, there is the issue whether this is a taxable benefit.

As with all public policies, there are ramifications attached to the Administration’s tax plan and people should be well aware. Few details, other than those mentioned, were provided yesterday. Mnuchin said they were working to get more details negotiated with Congress. At some point, the Congressional Budget Office (CBO) will score these policy positions and provide estimates of the cost and benefit of the plan. Until then, we don’t really know the impact of the Trump Administration’s proposal.

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New York Takes the First Dive into Free Tuition

by Watson Scott Swail, President & CEO, Educational Policy Institute

On Friday, the State of New York announced that it would provide free tuition to families earning less than $125,000. The cost of the program is budgeted at $163 million/year in today’s dollars, noting that those costs will escalate in the coming years beyond the cost of tuition.

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For those who support tuition-free policies, this is a big win in their column. Student debt is often crushing for students, and the risk of going to college sometimes outweighs the benefits in the minds of students, especially first-generation, low-income students. The Excelsior Scholarship is expected to cover 940,000 New Yorkers each year. This is not insignificant.

However, there are challenges with tuition-free programs, and I have been vocal against them for several years for some very real reasons. Here is my take on New York’s Excelsior Scholarship Program, knowing that some of the details are vague at this point.

First, while Excelsior provides tuition funding for students at two- and four-year public institutions, it does not cover cost of attendance. At public institutions of higher education, the cost of room, board, books, and other fees outweigh the cost of tuition. So students and families will still be stuck with at least 50 percent of the cost of attendance (unless they are commuter students). Students will still take on loans to cover their actual cost. Funds will be set aside for e-books, but the $8 million budgeted will unlikely cover all students. Let us not negate this: covering the tuition is a hefty burden to remove from students, but they still have to cover their other costs. In the final analysis, I believe it is good to have students bear part of the responsibility for a lifelong, personal benefit. But I agree that debt must be reduced.

Excelsior also requires students to enroll in 30 credits a year or equivalent full-time status. This is a big problem because many students have trouble handling 30 credits per year, especially historically-disadvantaged students. As well, what happens when a student drops a course? Does it take them out of eligibility? Do they get left holding the burden when the state says, “sorry, but you dropped and are only at 27 credit hours. You owe us.” The program does say there is flexibility in the program, but we do not know what that looks like at this stage.

The program also has a requirement that two-year students stay in the state for at least two years following their degree and four years for four-year students. Great in theory but problematic from a program issue. The state will have to track students (perhaps through taxation system) to determine whether they are in state or out of state during that time. EPI currently conducts tracking for the US Department of Education on a Special Education program, and trust us: it is not easy tracking students after the fact. New York will need to track millions of students each year to determine whether they need to repay. Then they need to determine what needs to be repaid and how that repayment will occur. What happens if a student lives in NY but works in NJ? Does that matter? Or vis-versa? If your spouse gets a good job in a different state, do you split the family until the time period is up, or do you just pay it and move? Remember, these students will likely still have debt from cost of attendance, so they are only repaying the tuition portion.

And what happens to students that drop out regardless? What do they pay? Anything? Or not?

There are two other economic pieces to this. First, as Art Hauptman said years ago, these economic stimuli have an impact on tuition pricing and cost of attendance. What has the state done to ensure that the cost of attendance doesn’t spike up, which, in turn, would drive up the cost of the program? Do colleges now add special fees to cost of attendance to make the difference, where the COA will increase by 2-3 times inflation while tuition sits idle? And second, this stimuli will likely result in more students going to college and university. Is that actually a good thing for society? One can easily make the argument that too many students go to university-level education. How many BAs do we need? Not as many as we have, I can assure you. The true need of our society is more certificates and less-than-two-year learning opportunities, as well as more associates degrees. But not more BAs.

In the end, the Excelsior Scholarship is a last-dollar scholarship, meaning that all other grants and scholarships are put into the financial aid package before the state dollars. This is fine, expect there are a lot of private scholarship programs that also claim to be a last-dollar scholarship. So, who wins this battle of last dollar? The Gates Foundation? Rotary Club? Who?

It will be interesting to see what pressure this program puts on other states. New York did have Bernie Sanders at the unveiling, who campaigned on free tuition during his campaign. Almost two years ago I wrote a Swail Letter about Bernie’s plan. Bernie was wrong then; he remains wrong today.

Taking the bite out of student debt is not a bad thing. But New York will likely find out, much like Ireland did in the 90s and 00s, that once you have free tuition, the budgetary cost becomes a massive anchor to legislatures for eons to come. And no politician will ever be able to suggest a repeal without getting thrown out of office.

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The Federal Government and Public Education (A Budget Analysis)

by Watson Scott Swail, President & CEO, Educational Policy Institute

I’ve written lately on the issues related to the Trump Administration and Education Secretary Betsy DeVos. There are certainly red flags about the direction of the Administration, but these issues will take a while to play out, even though many of us have concerns about recent changes to student loans and the federal budget. But let us take a step back to look at the role that the US Department of Education, as well as other Departments, means for education nationally.

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Without a history lesson, the US Department of Education has played an important role in public education by using both bully pulpit and directed funds to protect the needs of low-income, minority, and disabled students. The official funding of the US Department of Education is $67 billion per year, but other estimates suggest that total education funding across the entire federal budget accounts for $108 billion (see here for more information). This last number represents approximately three percent of total federal spending.

Exhibit 1. Federal Education Spending, Fiscal year 2012 (in billions)

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As illustrated in the graphic above, $15 billion of funding for nutritional programs (e.g., school lunch) comes from the US Department of Agriculture and $8 billion in Head Start funding comes from the Department of Health and Human Services (HHS). Understand that these calculations can get very cranky because many funds occur through refundable and other forms of tax credits.

I have taken a fair bit of time to compile the US Department of Education budget for 2017 (the current budget, not the President’s budget, which is for FY 2018). This is a challenging budget because of the sheer complexity of a massive department with countless idiosyncrasies and programs. But, alas, I was able to make some sense of it and provided a few graphics as well as a downloadable excel sheet for readers who have further interest. (Download the Excel here).

The graphic below (Exhibit 2) illustrates the US Department of Education budget without those other important add-ons from other federal departments. A second illustration, Exhibit 3, simply aggregates these line items into grand categories.

Exhibit 2. US Department of Education Spending 2017 Budget

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The Trump Administration has said that it plans to shrink the US Department of Education. Some people want the entire department eliminated. The latter item is untenable; there are simply too many important aspects to the Department’s work that need to happen, regardless of political ideology. The former is difficult due to the way budget funding is distributed. From Exhibit 3, note that almost half of all Department funding goes towards financial aid via grants (e.g., Pell, SEOG) and student loans. Student loans are a special category because they are what we refer to as “revolving” funds. That is, the government pays out student loan funding to students who in turn pay it to institutions (seamlessly due to Title IV provisions), but they also collect it when the loan becomes due. Thus they “revolve.” The Department does spend money on servicing the loans (although there are fees to help with those costs) and they also spend money to subsidize loans via zero interest during school for low-income students. These numbers add up significantly.

Exhibit 3. US Department of Education Spending 2017 Budget (aggregated)

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Readers can also see that over $32 billion, or 37 percent of funds, go towards programs and services for students with disabilities. This is arguably one of the most moral and ethical services that the federal government provides: providing assistance in research and services to those with significant handicaps. These funds pass through the Office of Special Education and Rehabilitation Services (OSERS), which also houses the Office of Special Education Programs (OSEP). One interesting funding piece is that the Department funds Gallaudet University in Washington, DC, the worlds’ only university designed to be barrier free for people with hearing disabilities. Without an annual appropriation of $121 million, Gallaudet ceases to be.

Special Education and Student Financial Assistance account for 86 percent of the US Department of Education budget. It is hardly likely that any real cuts can be made in these two areas unless the Administration chooses to provide less financial aid to students and lowers its support to those who have extraordinarily special needs. Surely, a  hard fight in Congress and in the public arena. The other 14 percent of the budget provides many other important programs, including Title I programs for low-income students in elementary schools (e.g., Early Reading and Readiness programs), TRIO and GEAR UP programs for low-income students, and school improvement programs, such as Investing in Innovation (i3) and Race to the Top grants to school districts and states. A critical piece of funding is in the research and development in education through the Institute for Education Sciences (IES) and the National Center for Education Statistics (NCES). Our critical studies of student pathways, college affordability, and student learning come from IES. It is one component of the US federal government that really differentiates itself from the rest of the world: world class research with free and available data for researchers and policymakers. I use these data consistently for our EPIGraphs and for other projects. Without such data, we would have great difficulty determining the purpose and utility of our public policies.

Simply put, there isn’t a lot of waste in the US Department of Education. Remember: only three percent of the entire federal budget is devoted to education. In contrast, the Military accounts for 16 percent of the total federal budget, Social Security 25 percent, and Health and Human Services 28 percent (which includes Medicare and Medicaid). Some programs can be cut to save money, and some probably should be. But it could similarly be argued that the Department could be enlarged to provide more support in research and programming to aid states, districts, and colleges.

We will continue to watch and learn.

 

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The Rubber Hits the Road

by Watson Scott Swail, Ed.D., President & CEO, Educational Policy Institute

In February, I wrote about what a Betsy DeVos Education Department might look like. Last night, the proverbial rubber hit the proverbial road when the Trump White House released “America First: A Budget Blueprint to Make America Great Again.” Basically, a fancy title for the President’s FY 2018 federal budget.

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If there is one thing to hand to President Trump, it is that he has done to the budget what he said he would do on the campaign trail. This draft significantly increases military spending and dramatically cuts almost everything else, with some exceptions. Total military spending will increase by $54 billion in FY 2018. That number, by the way, is far below what the congressional Republicans want for defense. But even with Trump’s increase, the share of discretionary spending allotted to military will account for more than the 54 percent in FY 2017. These military increases will be based on an ever-increasing foundation that increased during the Bush II Administration by 70 percent.

The Administration education is budgeted to shrink by 13 percent, or $9 billion, to help account for these large increases in military expenditures. This budget includes a $1.4 billion increase in school choice (totaling $20 billion), targeting charter schools and school choice. As well, it requires Title I funds to be used for open enrollment programs for school choice. Many programs are either eliminated or significantly reduced. The budget eliminates $2.4 billion teacher training grants and $1.2 billion for summer- and after-school programs. The 21st Century Community Learning Centers program ($1.2 billion) is eliminated, and the federal GEAR UP program is reduced from $323 billion (FY 2017) to $219 billion (32 percent). TRIO programs are reduced $82 million to a total of $808 million. The Supplemental Educational Opportunity Grant (SEOG) program for low-income students is eliminated ($732 million), and work-study programs are promised to be reduced “significantly,” although the numbers were not provided. Currently, $1.1 billion is provided to work-study programs to more than 670,000 college students averaging $1,600/year/student.

While plenty of people are getting hung up on these reductions to mainstream programs, it seems that people are missing the real point of this budget: it is a starting point not for this year, but for future years. That is, the FY 2018 Presidential Budget Request hints at future program eliminations, such as TRIO and GEAR UP. Are these cuts appropriate? Prudent? It depends on who one asks. Both TRIO and GEAR UP have been targeted by Republicans for decades due to a lack of clear evidence of program effectiveness. This conclusion is not necessarily incorrect. TRIO and GEAR UP programs vary greatly in impact, and the data to determine future effectiveness is largely absent. But this is the point: there needs to be a process for elimination and reduction, not just a tree-cutting swatch that is neither democratic nor scientific.

I expect a strong backlash by Democrats AND Republicans against these cuts, including those against the Corporation for Public Broadcasting, Meals on Wheels, and the EPA, to name only a few. But if military funding, through rhetoric based on fear rather than data, becomes the primary focus on budget issues, then something has to go somewhere. These softer programs become the true target of budget reductions, as will Medicare, Medicaid, and Social Security. The federal government has a historical role to protect and provide safety net programs for low-income persons and those with cognitive and physical disabilities. If the federal government turns away from these students, then what?

The “then” will result in a serious dilemma which will likely result in even more catastrophic cuts in FY 2019 and FY 2020. Unless, of course, the mid-term elections in 2018 take away enough of the GOP lead in the House and return the Senate to Democrats. Even then, the Democrats will have to fight the third rail of federal politics: tax the rich and reduce the military. The right thing to do, but the type of politics they really don’t want to play. Bernie Sanders campaigned to do just this, but it is why he was never electable in America. To all Berners out there, it was never going to happen.

It can certainly be argued that cuts to federal spending—not necessarily cuts to federal taxation and revenues—are in order. Despite what many Democrats say, the federal government is bloated. Perhaps we are better establishing a BRAC (Base Realignment & Closure)-like Commission in each of the federal departments to reduce the size, scope, and spending of the federal government. Not many people like BRAC, which is used to determine which military bases to close, but it at least provides a vehicle for open discussion to determine where and how cuts happen.

Remember this: the Trump budget, even though it will not go as stated, is only the start of an austerity-like situation in America. If the Administration doesn’t play it accurately, it could reduce the GDP in the United States and increase the welfare state. With the cuts designed by the Trump Administration, that would be an unwarranted and perhaps unsustainable situation.

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What Betsy DeVos Means as Secretary of Education

by Watson Scott Swail, Ed.D., President & CEO, Educational Policy Institute

A little later today, the education world will find out if billionaire Betsy DeVos will take the reins of the U.S. Department of Education. Much has been said about DeVos, the husband of former Amway CEO Dick DeVos and brother of former Blackwater founder and CEO Erik Prince. I only mention those two relatives because it illustrates where the money came from and how. DeVos is an extraordinarily affluent person who has used her wealth to support charter schools and Republicans over the decades. You can judge whether that is good or bad. In the end, it isn’t necessarily a meaningful piece of information. There are plenty of affluent people who give millions to Democrats and support mission-based purposes, too. The difference is that those people have never been appointed to a Cabinet-level position before.

As of this morning, there are two Republicans who say they will vote against DeVos (Senators Collins and Murkowski). Even so, it is likely that DeVos will meet the threshold with the tie-breaking vote from Vice President Pence.

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With DeVos at the helm, what will happen at the U.S. Department of Education? This is always difficult to say, but there have been some red flag warnings given her background. Overall, we know that President Trump could push the US into some type of austerity package, with significant if not severe cuts in the size, scope, and budget of the federal government, with some exception for the Department of Defense. Here are some thoughts:

  1. The U.S. Department of Education will undergo a massive (some say, “HUUUUGE”) SWAT analysis to determine what programs to cut. I expect cuts in the 20+ percent range by the end of four years, but it could be even larger. I don’t expect them to get rid of the Department, but they could even cut it by half if they mean what they say. What will get cut? Expect programs like TRiO and GEAR UP to get hit, although many GOP governors and representatives will argue against cutting any programs that give their states funding. Expect Race to the Top and I3 programs to take either a large hit or be fully eliminated. Other competitive programs will likely be defunded.
  2. Part of the large cuts will happen because the Department will move toward transfer payments back to the states to do the job of the Feds. How will this look? Programs like Special Education and Title I will be transferred to the states in the millions and millions of dollars and the states will be required to do the work—however they want to. I dare say, part of me likes that and part of me hates it. I do not trust the states to do the right thing most of the time, which is the problem. There are way too many politics at the state level that change way too often, leaving a very unstable system. Also understand that states control almost all of education funding. The feds funding and programs have always been a way of tinkering with new methods or strategies and ensuring that children with the greatest needs are supported regardless of those political changes. Now, all that changes with a few strokes of the pen. Good states will use the funds better, and less-good states will not. If I live in the traditionally poorly run southern states, I would be worried. Can you imagine what would happen in Texas? Or Arizona?
  3. Research budgets will be reduced significantly. Besides protecting the rights of poor and disabled students, the U.S. Department of Education provides world-class, if not world-best, research services to help determine what works in the education arena. The many surveys conducted by ED, including NPSAS, B&B, BPS, IPEDS, ECLS, CCD, and PISA, provide us with critical knowledge of the impact of public policies as well as tell data-based stories of students and teachers in our education system. Unfortunately, I believe the ED research budget through NCES will be ripped to shreds. I hope not. The research done there should be a national, non-partisan priority.
  4. The federal student loan programs will likely begin to shift from a Direct Loan (i.e., government operated) to a market-based loan program (guaranteed by the government but operated by private banks). The Direct loan began under Clinton as a healthy competitor to the banks (FFEL) and then, under Obama, become the only government-subsidized loan program. We’ll either be back to two systems again or the Trump Administration will completely implode the Direct Loan system. The FFEL program was a subsidy-based free market system, and the GOP and Trump will aggressively push for free market, with the exception, of course, of NAFTA. That type of free trade is not apparently liked by the free traders in the White House.
  5. A massive amount of money will be steered towards both charters and vouchers. That is DeVos’ thing. This is what she has spent millions on with her wealth in the past and now has the pulpit and the budget to do it on a massive scale. Expect large transfer funding and/or matching programs with the states to double or triple charter schools.
  6. The Department will have NOTHING to do with the Common Core. I would strongly encourage the new Schedule Cs at the U.S. Department of Education to do their research very carefully: the Common Core is not a federal program. It is a grassroots program that started with leadership from, at the time, the GOP-led National Governors Association and the Council for Chief State School Officers (CCSSO), among several other non-profit organizations. It developed that way it was supposed to be done: by teachers and other stakeholders from across the country. The only thing the Department did was tie some program funding to help support the Common Core (see Race to the Top, which is why it is gone). The Core couldn’t have come out in a better manner, but it became a hotly contested political football when it shouldn’t have. Anyone who thinks a form of national standards—created from the ground up—is a bad idea should get their head examined.
  7. And finally, restrictions and regulations on private higher education will be largely exorcised from the system. The Senate took on private, for-profit higher education with gainful employment legislation to rid the sector of fly-by-nights and other even more mainstream institutions from overcharging people for degrees that do not result in jobs let alone careers. This, in addition to the large reliance on Pell Grant funds and federal student loans, caused the Senate to take action. But the new administration largely wants to get rid of these regulations. This will become a problem for Pell Grant funding and other programs.

These are my initial thoughts. It is hard to say exactly what will come, but these are very likely. The $87 billion in FY2015 expenditures will be cut drastically. The 4,400 staff at ED will also be cut significantly. Consultants around the country should be jumping with joy, because work of the 1,000+ staffers who get laid off from the Department will be replaced by consultants who will receive state-funds via the transfer payments to the Department.

By this afternoon, we’ll at least know who if Betsy DeVos is the new Secretary of Education.

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“Put a Glock to Their Heads”

by Dr. Watson Scott Swail, President & CEO, Educational Policy Institute

“This is hard for you because you think of the students as cuddly bunnies, but you can’t. You just have to drown the bunnies. Put a Glock to their heads.”

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The above is a quote from former Mount St. Mary’s University President Simon Newman earlier this year. I say former, because the quote, in part, forced him to resign from his position only a few weeks after stating this to other faculty and less than a year after being hired for the job.

The undoing of the former private equity manager began with his insistence that a freshman student survey be used to weed out 20-25 students as a strategy to increase student retention rates 4 to 5 percent. Certain faculty members rightly had significant issues for the imprudent use of a student survey.

The student newspaper published the quote and other insights into the President’s actions. It is said that President Newman fired two personnel who were in the line of fire, including the advisor to the student newspaper. Although he reversed those firings shortly thereafter due to increasing faculty pressure, the faculty senate voted 87 to 3 to demand that he resign. He did.

So here are the two faces of student retention. Or perhaps the two edges of a sharply-honed sword that can cut efficiently in two separate directions. Policymakers and stakeholders continue to push for more efficiency in higher education, as they should. However, the downside is that administrators will sometimes resort to dastardly strategies to bring up their rankings in US News & World Report, the Times Higher Education Rankings, and other highly-noted systems that institutions use to promote themselves, and that students and families use in the college-choice stage.

We have the complexity of working as a unit to increase retention rates, graduation rates, and student learning at universities, while simultaneously keeping a watchful eye on how the university works, in an ethical and moral manner, to help students. These issues can certainly be mutually symbiotic, but when ill-considered, they can cause devastation to students and institutions.

There is seemingly constant fight on many colleges about student retention. The “glock to the head” circle includes faculty and staff who believe that students should be able to stand alone. Students are adults now and should be able to weather the academic and social conditions that college brings. Conversely, the “bunny cuddlers” believe that institutions should be extremely cognizant of student experiences and do whatever possible to ensure potential success for every student.

It should be little surprise that I rest with the latter group. But I wouldn’t call myself a cuddler because I have some understanding and appreciation for the former. At institutions of higher education, there must be an acknowledge of both sides of this issue. There is some truth that students must be able to serve as their own best self-advocate and stand for themselves. But the truth is, college is tough for almost anybody, especially for those who are historically underrepresented in college, such as low-income, first-generation, and minority student groups. Some students are as young as 17. Going to college is hard. Going away to college even harder.

But holding hands and easing the pathway must be done strategically to allow students to build confidence and acquire the necessary skill sets and knowledge to persevere, both academically and socially, through the college experience. Making college too easy is not the answer. And neither is making it so cold and empty that students feel lost.

I’m a proponent of ensuring the right fit between students and institutions, or students and faculty members. The Admissions Office is critical to ensuring that the students who are admitted and subsequently enroll have the wherewithal to persist. They must possess the basic skills to succeed. If they do not, they probably are better served not being admitted. Of course, many institutions suffer from a Macbethian thirst for more and more students, requiring that they enroll students who ultimately will not graduate from their university. Instead, these recruits will stay around for a semester, a year, and sometimes more. But they won’t graduate.

This is the ethical concern of institutions of higher education. If an institution believes they should put a glock to the head, that is only because they themselves failed along the way. They failed during the admissions process; they failed as teachers and educators; they failed as social workers.

Do me a favor: when you consider how to improve student success at your institution, keep in mind the culture you wish to enhance and nurture across your campus. Which side are you on?

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So How Much Does Student Departure Cost Your Institution?

By Dr. Watson Scott Swail, President & CEO, Educational Policy Institute

In 2013, state and federal governments spent approximately $150 billion on higher education. This includes funding for Pell Grants, state grants, research, and direct subsidies for students. To put this in some perspective, federal funding amounted to $227 per person in the US, and about double that if state funds are included. On the federal level, this accounts for 2 percent of the federal budget. By comparison, the US defense budget in 2013 was $610 billion, or 17.5 percent of the US budget. This isn’t to discount the value of $75 million in federal money. That amount is simply huge, but everything pales in comparison to the US Department of Defense budget.

Beyond state and federal funds, parents and students pay over $63 million annually on tuition and fee charges. This does not include student housing fees.

The point is simple: higher education is big business. There are currently over 27 million students attending 7,000+ Title IV institutions in the US.[1] With graduate rates for all Title IV institutions averaging 50 percent, and grad rates at four-year institutions about 10 points higher, there are a lot of students that fail to earn a degree. Students loose in opportunity cost and student debt; institutions loose by spending a lot of funds on students that do not complete and leave a lot of potential revenue on the table.

The Educational Policy Institute created the Retention Calculator to try and put a number to this issue. The calculator is free for use and we urge institutional administrators to use the calculator to help guide their student success initiatives and campus budgeting.

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For today’s example, I am using Virginia Commonwealth University (VCU) in Richmond, Virginia, and Youngstown State University (YSU) in Youngstown, Ohio, both of which were picked for no particular purpose. The numbers used in the calculation were pulled from institutional documents, IPEDs, the College Board, and other sources. I had to generate some numbers based on others. Understand that although I believe this is by far the best cost calculator available, it is still not a perfect science because of the various imperfections of higher education data and the sheer complication of cost and price. But it provides a legitimate record of cost for the university.

 

 

VIRGINIA COMMONWEALTH UNIVERSITY (VCU)

Basic Input:

  • VCU has approximately 31,000 students, of whom 24,000 are undergraduates, of which 2,000 are incoming transfers.
  • Based on a 34 percent enrollment rate from new admits, VCU has approximately 5,000 freshman students.
  • Eleven percent of VCU students are from out of state, paying a tuition fee of $31,464.
  • In state tuition is $12,772.
  • Over the past several years, tuition and fee charges have increased, on average, 10 percent per year.
  • $7,600 in state subsidy per students. This is only a national average provided by the College Board. Certainly these numbers vary greatly by institution and state.
  • The fall-to-fall freshman retention rate at VCU is 86 percent.
  • The six-year graduation rate is 62 percent.

Given this scenario, the 5,000 freshman students at VCU will translate into approximately 3,100 graduates within six years. Based on the output from the EPI Retention Calculator, here are the findings:

  • VCU will lose 700 of their freshman students by the start of the sophomore year, leaving 4,300 of the original cohort. That cohort will drop to 3,135 students by year six (62 percent graduation rate).
  • The cost of losing students at the current rate is $36 million in this academic year.
  • The cost associated with losing only the students from the freshman cohort climbs to $54 million over a four-year period.
  • The cost associated with losing all students during these six years is $86 million.

Let us be real for a moment: there is no way that any institution can retain all students over a six-year period, unless your name is Harvard, which has a 98 percent fall-to-fall retention rate and, get this, a 98 percent six-year graduation rate, meaning that after the first year, Harvard doesn’t lose anyone. That is truly unbelievable. Yale is hardly outdone with a 99 percent fall-to-fall rate and 97 percent six-year graduation rate. Within Virginia, the University of Virginia has a 97 percent fall-to-fall rate and 93 percent six-year graduation rate.

The Ivy Leagues and other very selective institutions are outstanding and tell us two things: (1) these are among the most selective institutions in the world; and (2) they do prudence with respect to student support services to students on campus. The moderately selective and non-selective universities are in a difficult boat, however. Their incoming students are more diverse, academically and otherwise, with entering student SATs of 900 to 1200 rather than 1500 and above. This makes all the difference in the world in terms of retaining students. However, one rule applies to all universities regardless of whom they admit: promise to do whatever possible to help students succeed.

If institutions dedicate themselves to improving student and academic services to enhance the student experience, they can increase the percentage of students returning after freshman, sophomore, and junior years and, in turn, increase the four- and six-year graduation rates at their institutions.

Here is the dollar value of improving the fall-to-fall rate at VCU:

  • If VCU increased its freshman-to-sophomore rates 2.5 percent, they would save $2.5 million in this academic year and up to $10 million across a four-year period.
  • If they increase that rate to five percent, the current year savings are $4.9 million and four-year rates approximately $19 million.

 

YOUNGSTOWN STATE UNIVERSITY (YSU)

Basic Input:

  • YSU has approximately 12,400 students, of whom 11,100 are undergraduates, of which 500 are incoming transfers.
  • Based on a 36 percent enrollment rate from new admits, YSU has approximately 2,868 freshman students.
  • 13 percent of YSU students are from out of state, paying a tuition fee of $8,557, not much different than the instate mark of $8,317.
  • Tuition and fee charges have increased less than one percent over the last several years.
  • $7,600 in state subsidy per student, which is a national average provided by the College Board. These data vary greatly by institution and state so these are a filler.
  • The fall-to-fall freshman retention rate at YSU is 86 percent.
  • The six-year graduation rate is 30 percent.

Given this scenario, the 2,868 freshman students at YSU will translate into approximately 866 graduates within six years. Based on the output from the EPI Retention Calculator, here are the findings:

  • YSU will lose 700 of their freshman students by the start of the sophomore year, leaving 2,151 of their original cohort. That cohort will drop to 847 (approx.) by year six (30 percent graduation rate).
  • The cost of losing students at the current rate is $28 million in this academic year.
  • The cost associated with losing only the students from the freshman cohort climbs to $35 million over a four-year period.
  • The cost associated with losing all students during these four years is $60 million.

As said with the VCU example, YSU cannot retain all students over a six-year period. But they can do better and the money saved would easily pay for whatever efforts they spend, as long as they can front load the effort.

  • If YSU increased its freshman-to-sophomore rates 2.5 percent, they would save $609,000 in this academic year and up to $3.5 million across a four-year period.
  • If they increase that rate to five percent, the current year savings are $1.2 million and four-year rates approximately $7 million.

* * * * *

These calculations are highly conservative. They do not include the cost to institutions for inflated staffing and infrastructure for recruiting and admitting 150 percent of their expended student body. Institutions understand that they will hemorrhage students, so they build it into their staffing model. If institutions could be more effective in (a) recruiting better-fit students who have a higher propensity of success, and (b) do more with the students while under their care, then institutions could hire accordingly and spend accordingly. Instead of working at a 150-percent model, they could perhaps work at a 120- or 110-percent model. Harvard works on a 102-percent model. Pretty cool.

 

New EPI Retention Calculator Record

Date Time: 11/28/2016 2:30:31 PM UTC

Field Value
Institution Name Virginia Commonwealth University
2-4 Year 4 Year
Full Time Freshmen 5000
Out of state Percent 11%
In-State Cost 12772
Out-of-State Cost 31464
Annual Fee Increase 10%
Subsidy 7600
Year1 return for Year2 86%
Year2 return for Year3 90%
Year3 return for Year4 90%
Year4 completed 90%


Results

  Percentage Increase in Freshman Retention Rate
Student Retention 0 % 2.5 % 5.0 % 7.5 % 10.0 % 12.5 %
Original Freshman Cohort 5,000 5,000 5,000 5,000 5,000 5,000
Freshman-to-Sophmore Cohort 4,300 4,425 4,550 4,675 4,800 4,925
Sophmore-to-Junior Cohort 3,870 3,982 4,095 4,208 4,320 4,432
Junior-to-Senior Cohort 3,483 3,584 3,686 3,787 3,888 3,989
Senior-to-Complete 3,135 3,226 3,317 3,408 3,499 3,590

 

The cost of student attrition to your institution: Lost Revenue Change in Lost Revenue by Increasing Freshman-to-Sophomore Retention by:
    2.5% 5.0% 7.5% 10.0% 12.5%
THIS ACADEMIC YEAR ONLY — from all students (sophomore, junior, and seniors) who did not return from the previous academic year. 36,272,884 33,857,880 31,418,965 29,003,961 26,588,956 24,173,952
FRESHMAN STUDENTS ONLY — those who will never return to your institution over a typical four-year period. 53,752,429 44,153,781 34,555,133 24,956,485 15,357,837 5,759,189
ALL STUDENTS, ALL YEARS — Freshman, sophomore, junior, and seniors who left over a typical four-year period. 86,003,085 77,365,217 68,701,806 60,011,060 51,373,191 42,735,322

 

  Change in Revenue by Increasing the Freshman-to-Sophomore Retention rate by:
  2.5% 5.0% 7.5% 10.0% 12.5%
THIS ACADEMIC YEAR ONLY — from all students (sophomore, junior, and seniors) who did not return from the previous academic year. 2,415,004 4,853,919 7,268,923 9,683,927 12,098,932
FRESHMAN STUDENTS ONLY — those who will never return to your institution over a typical four-year period. 9,598,648 19,197,296 28,795,944 38,394,592 47,993,241
ALL STUDENTS, ALL YEARS — Freshman, sophomore, junior, and seniors who left over a typical four-year period. 8,637,869 17,301,279 25,992,026 34,629,894 43,267,763

 

New EPI Retention Calculator Record

Date Time: 11/28/2016 5:18:19 PM UTC

Field Value
Institution Name Youngstown State University
2-4 Year 4 Year
Full Time Freshmen 2868
Out of state Percent 13%
In-State Cost 8317
Out-of-State Cost 8557
Annual Fee Increase 1%
Subsidy 7600
Year1 return for Year2 75%
Year2 return for Year3 75%
Year3 return for Year4 80%
Year4 completed 80%


Results

  Percentage Increase in Freshman Retention Rate
Student Retention 0 % 2.5 % 5.0 % 7.5 % 10.0 % 12.5 %
Original Freshman Cohort 2,868 2,868 2,868 2,868 2,868 2,868
Freshman-to-Sophmore Cohort 2,151 2,223 2,294 2,366 2,438 2,510
Sophmore-to-Junior Cohort 1,613 1,667 1,721 1,775 1,828 1,882
Junior-to-Senior Cohort 1,291 1,334 1,377 1,420 1,463 1,506
Senior-to-Complete 1,032 1,067 1,101 1,136 1,170 1,205

 

The cost of student attrition to your institution: Lost Revenue Change in Lost Revenue by Increasing Freshman-to-Sophomore Retention by:
    2.5% 5.0% 7.5% 10.0% 12.5%
THIS ACADEMIC YEAR ONLY — from all students (sophomore, junior, and seniors) who did not return from the previous academic year. 25,281,963 24,592,600 23,903,238 23,213,876 22,524,513 21,835,151
FRESHMAN STUDENTS ONLY — those who will never return to your institution over a typical four-year period. 34,666,118 31,185,002 27,752,234 24,271,117 20,790,001 17,308,885
ALL STUDENTS, ALL YEARS — Freshman, sophomore, junior, and seniors who left over a typical four-year period. 56,248,849 53,479,051 50,741,485 47,971,687 45,250,407 42,480,608

 

  Change in Revenue by Increasing the Freshman-to-Sophomore Retention rate by:
  2.5% 5.0% 7.5% 10.0% 12.5%
THIS ACADEMIC YEAR ONLY — from all students (sophomore, junior, and seniors) who did not return from the previous academic year. 689,362 1,378,725 2,068,087 2,757,449 3,446,812
FRESHMAN STUDENTS ONLY — those who will never return to your institution over a typical four-year period. 3,481,116 6,913,884 10,395,001 13,876,117 17,357,233
ALL STUDENTS, ALL YEARS — Freshman, sophomore, junior, and seniors who left over a typical four-year period. 2,769,798 5,507,364 8,277,162 10,998,442 13,768,241


[1]
Title IV institutions are those that are approved and accredited to provide federal financial aid to students. The 27 million number is unduplicated students. See http://nces.ed.gov/pubs2016/2016112rev.pdf.

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When Money Trumps Education: A Story of Wealth and Educational Legacy

by Dr. Watson Scott Swail, President & CEO, Educational Policy Institute

Higher education is about legacy. If a parent goes to a certain university, it is likely that their children will go to college. If the parent graduated from an Ivy-League or very selective institution, it is more likely that their kids will attend that institution. A 2005 study of 180,000 students who attended selective institutions that legacies chance of admissions was 20 percent higher than non-legacy students when SAT scores were held equal.

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Many universities, especially very selective institutions, have legacy policies that allow children of alumni to pass through admissions, regardless of entrance examination score. The case in point exists in front of us with Donald Trump’s family. Three of Donald Trump’s children went to the University of Pennsylvania under the legacy preference clause. We have no information on whether they would have gained admissions regardless. A more interesting case is that of Jared Kushner, Ivanka Trump’s husband. Jared is the son of real estate mogul Charles Kushner, who went to prison in 2005 for illegal campaign contributions, tax evasion, and witness tampering. Kushner gave Donald Trump’s campaign $100,000 this year.

Here is the interesting part. The same year that Kushner’s son Jared entered Harvard University, the father gave Harvard a $2.5 million gift. When Jared applied and was admitted to the law program at NYU several years later, Charles gifted $3 million to the university.

These are the stories of two extraordinarily affluent families influencing the admissions policies of various universities by legacy and by money.

Is this appropriate?

Whether appropriate or not, this is a common courtesy bestowed upon influential alums and/or donors. Money buys access. Donald Trump has said he would revolt against lobbies and preferences as president in the White House. But he used his preference to get his kids into Wharton just like Kushner used his influence to get his sons into Harvard and NYU. It happens in many other ways, too. But most notably is legacy at these institutions.

Many institutions will argue that legacy is a good thing for the university because it creates an atmosphere of prestige and worth at an institution. Not all universities have blanket legacy rules: some give legacies extra admissions point as they might for an athlete or a musician. But there is a benefit to being legacy.

For families who come from historically underrepresented backgrounds, such as minority or low-income, there is no similar legacy. They do not get the same opportunity benefit. And legacy begets legacy, continuing potentially forever in a pyramid dynamic. One person who graduates from Harvard can extend the legacy rule to dozens of family members over generations via these rules.

Is this appropriate? From my vantage point, I understand having a legacy rule, but I also understand having a limits on the policy, such that academics and other factors remain important considerations in the admissions decision.

The “pay-to-play” schemes are more notorious and challenging. In many ways, they are akin to the illegal campaign contributions that Charles Kushner made in the 2000s. Just because someone gives to University A should not mean their child is “given” admissions into that university. This is how slippery slopes are made. If that works, then why couldn’t I give a $100,000 campaign contribution to a future president and not expect some pay back?

Right now, Charles Kushner’s son is part of Trump’s transition team. Donald Trump is asking that he receive security clearance. Pay back?

Just sayin.’ Money Trumps Education.

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The Insatiable Desire for Fundraising in Education

by Dr. Watson Scott Swail, President & CEO, Educational Policy Institute

If you have kids, at some point you’ve either heard of, supported, or even participated in your local Parent Teacher Association (PTA) or Organization (PTA). These arms-length non-for-profit organizations provide funds and other support to local schools. The new movie, Bad Moms, showcases PTOs in a tremendously poor light (led in a very funny way by Christina Applegate), but these organizations do help in significant ways. I’ve seen PTOs provide funds for school playgrounds, digital signage, and scholarships.

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Like any organization, PTOs vary in numbers and strength. Some are small linkages of parents that conduct bake sales and other events and raise modest amounts of money to purchase supplies for teachers (e.g., paper, pencils, pens, which is insane when you think about it) while others are large, well-organized units that raise tens of thousands of dollars each year and have significant clout in the school. What is also interesting to note is that the larger PTOs tend to exist in the most affluent neighborhoods with the best public schools.

So what?

It means that advantage always has advantage, even in the public school system. People who live in nicer areas with nicer schools and better teachers also have larger support systems, such as the PTOs. While the funding from the schools is fairly set, these PTOs raise huge dollars for their affluent public schools compared to those living in less-privileged areas. It isn’t a bad thing to raise money necessarily, but it continues to tilt the table of opportunity for underserved populations.

In public higher education, fundraising has become a major focal point. If you speak with college presidents and VPs of fundraising, finding donors is about survival. They blame state legislators for not providing the money necessary to operate their institutions, which is mostly true. But not to be lost in this conversation is the unbridled quest of institutions to be bigger and better. Again, not a bad thing on the surface. Who doesn’t want better institutions with better services and buildings? But at what cost?

My point is that public institutions, whether they be elementary, secondary, or postsecondary, are looking to the private sector for more of their operating funds to increase their advantage over other schools. In some ways, it is a zero-sum game, because since everyone is doing it, there may be no significant difference in competition, except for the example I gave above where the best schools are simply better at fund raising.

Would we be better served by ensuring that schools have the necessary funding to operate at a high level and remove them from the fundraising game? Currently, there is little incentive to reduce the quest for higher and higher infrastructure because institutions are finding they can be successful at fundraising. The Chronicle of Higher Education and InsideHigherEd.com recently posted articles about how to better fundraise at institutions, and many national organizations focus on improved fundraising. One of the most prestigious positions at a public institution is the fundraiser. At private institutions, it is the hedge-funds guy. Think I jest? At Harvard, the top TWO fund managers earned $69 million in compensation in 2003. In 2012, 10 Harvard executives earned a combined $44 million and had a staff of 200 people (paid from a different budget).

Money is big business in higher education.

While the devil is in the details, the devil is mostly in currency. Money makes higher education go ‘round. And with it, comes an insatiable desire to build and collect more. And state policymakers are loving it because lets them off the financial hook.

It’s time to put the state governments back on the hook and perhaps limit fundraising for public institutions. While institutions claim that they the fundraising to compete, they wouldn’t if we restructured the system from the ground up.

Stay tuned.

 

 

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One Heck of a Week

by Dr. Watson Scott Swail, President & CEO, Educational Policy Institute

Unless you were part of a very tight group of people in the Donald Trump campaign, you were likely surprised at the outcome of last Tuesday’s Presidential Election. Trump shocked the nation with his victory, and when I say nation, I mean everyone, from voters, to children, to prognosticators, and especially pollsters. Pollsters got this so wrong that an election that was set to be a landslide ended as a huge upturn of political society.

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To be fair and honest, I was not particularly thrilled with the outcome of this election. But it “is what it is,” as we like to say, and America will move forward. My hope is that Donald Trump will rebound and not be like he was during his campaign. That he will be more “presidential,” less likely to lash out at 3am on twitter, and do things not just for the greater good, but with all citizens in mind, not just those who voted for him. In the end, that is what people want their president to be—fair and open minded, with the understanding that he leads 330 million people, not just the 60 million that voted for him.

With Trump’s acceptance on early Wednesday morning, he sounded a conciliatory tone that was, well, presidential. There existed a moment of calmness that this may not be us unnerving for some as we thought.

But then the activity began and the ground began to shake.

First was the announcement of Myron Ebell, a climate denier, as head of the EPA transition. It doesn’t seem to make much sense to appoint someone like Ebell unless you want to upend current federal policy and alter agreements in support of dirty coal and oil, setting back energy policy 40 years. Second, on Friday afternoon during a taping for 60 minutes that aired last night, Trump announced that he would immediately pursue, lock up, and deport up to 3 million illegal aliens who have criminal records. From an argumentative point of view, most of us could understand the point, but it is much more complex than it seems. Not all of the “criminals” are severe criminals. They aren’t all murders or rapists, of any of a serious ilk. But regardless, how we find and deport that many people is currently not logistically feasible. We can try, but we aren’t going to find a majority of them. What happens to the other, non-criminal illegal immigrants is unknown.

Then yesterday, Trump made the announcement that Stephen Bannon will serve as Chief Strategist of the Administration. Bannon is the former head of Breitbart News, a news agency that is anything but accurate and makes Fox News look like MSNBC by comparison. Breitbart is well known for its anti-Semitic and racist viewpoints.

From an education perspective, we aren’t really sure what Trump will do. Ben Carson has been floated as a possible Secretary of Education. Dr. Carson seems like a smart, decent person, so it is hard to argue that he would not be a good fit. What we do not know is what will happen with the US Department of Education in the near future. Will funding be significantly cut under Trump? Or will he heed pressure from right-wing demagogues who want the Department completely vanquished from the federal government?

The latter is unlikely. I think the days have passed when Republicans wanted to dismantle ED. But a majority of them would like to shrink it, and they will have their opportunity to do so. The Trump Chief of Staff is Reince Priebus, the Chairman of the GOP party. Priebus was chair of the Wisconsin Republican Party and helped bring Governor Scott Walker to power, who cut funding for the university system by hundreds of millions of dollars and weakened the power of academia in the state. Walker’s efforts sent shudders through American higher education. We will see if Priebus extends a similar effort via the US Department of Education.

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In K-12, there is speculation that the Administration will end the Common Core, which is interesting because the Common Core is a non-federal, non-profit entity that is supported in large part by the Republican-majority National Governors Association. However, it is possible that the Trump Administration could remove current strings to Race to the Top funding that support the Common Core (this is likely), if not eliminate RTTT and many other programs like it, including i3 and First in the World. There is talk that more federal money will be targeted to charter schools.

There are large parts of the Department of Education that can’t really be touched in a considerable way. They could be moved, but not eliminated. The Department currently runs the Direct Loan programs for higher education, and it is possible that a Trump Administration could revert the program back to private banks. But the Department would still need to administer the program, so the SFA could not be eliminated completely. The Department also provides legislation and financial support for Special Education and other programs that focus on historically underrepresented population.Title I programs focused on poor and minority students could be challenged, as well as English Language Acquisition grants and other “leveling” grants could be dismantled. These programs could not easily be eliminated without widespread and widesweeping legislation that Congress is unlikely to want to remove or change.

However, other programs could exit. Current programs that focus on low-income and minority students could disappear. Trio and GEAR, for instance, could be gone in a second if the president wants them gone. Certainly, the idea of free community college is off the table, but Republicans have stood up for a more affordable higher education, so something positive may come in this light.

It is too early to understand the ramifications of a Trump Presidency, the good and the bad. The reality is that with GOP control of the White House, the House, the Senate, and soon the Judiciary, Congress can do almost whatever it wants if they can agree with one another.

And that will be the challenge within the Republican Party.

As with the Democrats, Republicans do not all read from the same book. Trump will still be forced to create coalitions within his own party, and then, and only then, will they be able to ramrod legislation through Congress. But this will be no easy feat, given than Congress controls the purse strings of the federal government, not the president. Trump can veto, but if he does, he puts himself in a tough situation against his own party.

Whether you voted Republican, Democrat, Independent, or not at all, there is one thing we can all agree on: this will be a very interesting 2017.

Stay tuned, folks.

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