December 6, 2023

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Mike Pierce is the company’s managing director Student Borrower Protection Center. Prior to founding the SBPC in 2018, he spent seven years at the Consumer Financial Protection Bureau, where he was the lead regulator for the student financial services industry.

The sudden collapse of Silicon Valley Bank and Signature Bank should put colleges, federal education officials and lawmakers on high alert. The economic chaos currently engulfing Silicon Valley and the banking system exposes higher education to systemic risks.

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Mike Pierce, Executive Director, Student Borrower Protection Center

Permission granted by the Student Borrower Protection Center

These risks exist because colleges, especially the largest public colleges, have become dependent on shadowy, private technology firms to provide tuition and financial aid to students across the country. The ed tech industry has exploded over the past three years and grown to allow colleges to meet the demand for online instruction during the pandemic.

Where online higher education was once the province of large chain schools like the for-profit University of Phoenix and the nonprofit Southern New Hampshire University, COVID-19 has forced public colleges to move online in real time. The rapid growth of companies like 2U and Anthology has enabled this transformation—firms are now making billions performing an unprecedented array of functions for colleges from all sectors.

This month, three seemingly unrelated events offer a clear indication that the rapid growth of ed tech, left unchecked, poses unprecedented risks to colleges and students:

  • The collapse of SVB and Signature Bank shows that the technology industry, including ed tech, is not prepared for an economic downturn. We have more questions than answers right now, but it’s clear that some of the biggest players in the ed tech industry will struggle financially amid the broader downturn in Silicon Valley. It is still not clear which companies had deposits with SVB and Signature and whether the financial situation of the largest companies will deteriorate rapidly in the coming days. We know that ed tech industry leaders like Blackbaud have received funding from SVB in the past, but the extent of these firms’ traditional banking relationships with damaged regional banks remains a mystery. We also know that investor interest in ed tech stocks seems to be decreasing — a by-product of related macro-economic conditions that are far beyond the control of universities.
  • Congress is hurtling forward toward a windfall for ed tech. Earlier this month, Republican and Democratic leaders on the House Education and Workforce Committee offered an imminent bilateral agreement expand student access to Pell Grants, the primary financial aid grant program for higher education, and expand their reach into the murky world of short-term online programs. These short term programs – which are often shoddy and produce poor results – are built and operated by many of the same dark tech firms that support providing online education for colleges across the country. This potential deal would be of some benefit to ed-tech firms that may struggle to stay afloat in the coming year. It would also be the biggest consumer protection risk in the education sector to low-income and other economically vulnerable people — in this case, students who are systematically recruited and targeted by scandal-plagued online degree programs run by some of these companies. .
  • The Biden administration has backed away from its renewed commitment to demand transparency from ed tech-dependent schools. Following a forceful and immediate push of universities, the ed tech industry and higher education lobbyists, the Biden administration quickly shelved new guidance on “third-party servicers” — a term for contractors who perform key financial, administrative and technology functions for colleges. Instead of immediately implementing the new oversight, federal school officials delayed implementation until September. This delay makes it clear to the industry that there is no police officer to audit their finances, assess their compliance with the Higher Education Act, or assess the systemic risk that the largest ed-tech companies pose to our higher education system.

Taken together, these three events show that colleges, Congress, and the Biden administration are willing to allow public dollars to support a volatile tech sector, risking a disastrous outcome for the most economically vulnerable students.

President Biden has a short window to step back from the industry’s fringes and reins before it’s too late. The U.S. Department of Education must require all colleges participating in the federal student aid program to immediately identify vendors with exposure to Silicon Valley Bank and other regional banks facing bank attacks and stress test the financial health of companies performing key online delivery functions education and financial aid.

Lawmakers should pay attention to these warning signs as well. This is the worst possible time to open a Pell Grant major for an online senior. As the banking system continues to fight the contagion that SVB started, students deserve better than toothless regulators and industry bailouts.

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