'Modernizing' Federal Regulation

New paper by conservative think tank argues that federal government should hold colleges more accountable not by expanding its regulatory reach but rather by using new metrics.

October 6, 2014
 

The federal government needs to revamp its oversight of higher education so that colleges and universities are held more accountable for the federal funds they receive, according to a new policy paper published today by a prominent conservative think tank.

The report, by the American Enterprise Institute, also calls on federal policymakers to do a better job of promoting a transparent higher education market, which would allow consumers to reward good colleges and punish bad ones. The federal government, it says, should provide far better information about a program’s graduation rate and the earnings a student can expect.

The authors, Andrew Kelly and Kevin James, both of AEI, write that while growing questions about the return that taxpayers are getting on their multibillion-dollar investment in higher education each year may be appropriate and worthwhile, the proposals that have been inspired by such scrutiny are not. In particular, they criticize efforts to beef up federal regulation of higher education, such as the Obama administration’s ratings proposal, which they see as well-intentioned but misguided.

“The intensifying drumbeat for reform has created a window of opportunity to improve quality assurance,” the authors write. “Fortunately, policymakers do not need to completely dismantle the building blocks of the current system, but they do need to think more broadly about how to modernize them.”

Among the changes they propose is having a more effective regulatory regime at the Department of Education. The federal government, while steering clear of judgments about a program’s academic quality or value, should set bright-line standards that actually stop taxpayer dollars from flowing to the worst-performing colleges.

In calling for this revamped accountability scheme, the paper echoes some of the proposals that Senate Democrats have offered recently. For example, the authors argue that the Education Department should hold colleges accountable for the rate at which their former students are making progress in repaying their student loans. That metric, they argue, would be more straightforward than the current loan default standards, and less susceptible to manipulation by colleges.

In his draft plan to reauthorize the Higher Education Act, Senator Tom Harkin, the Democrat who chairs the Senate education committee, has also called for using a loan repayment rate. Unlike the AEI paper, however, Harkin’s bill would use the loan repayment rate as a complement to default rates, not a replacement.

Kelly and James also propose a risk-sharing system so that colleges have more “skin in the game” when it comes to their students’ loans. Under the system, colleges would be held responsible for a share of their former students' loan defaults. Such a proposal, they say, would put pressure on all institutions to improve, not just the worst-performing colleges.

A handful of Senate Democrats and other student aid reformers, like the Institute for College Access and Success, have similarly called for risk-sharing mechanisms in federal loan policy. The Democrats’ bill in Congress would require colleges with high student loan default rates to pay a penalty to the government that is proportional to the defaulted debt.

Boosting Transparency and Improving Accreditation

Revamping the federal government’s direct oversight of higher education is only one component of improving federal higher education policy, the paper argues. Federal policymakers also need to “fundamentally reshape” the accreditation system and take steps to improve access to consumer information in the higher education marketplace.

On accreditation, the authors echo previous calls for the federal government to open up the accreditation system to new entities, like states or groups of employers. But they also highlight the need to make sure new authorizers grant access to federal aid responsibly. For example, they suggest that the Education Department give these new entities the ability to grant different tiers of access to federal student aid (accreditors are currently only allowed to either allow access to federal aid or not).

In addition, they propose a risk-sharing mechanism for these new alternative accreditors, so that they have a more direct stake in the student outcomes at the institutions they allow to receive federal aid. These new accreditors would be held financially responsible for a share of the delinquent loans at institutions they monitor.

"Just as all colleges and universities would bear some of the risk of student failure under a new risk-sharing policy, so too would authorizers that were recognized via the alternative path,” they write.

Finally, the paper calls on the federal government to collect and publish better data that consumers can use in making decisions about where to attend college. For example, the government should make available the information it already has on the earnings and enrollment rates of students who have received federal aid.

“Data collection and transparency are areas where the federal government is poised to contribute substantially, far more than any other actor — public or private — in the system,” the authors write. “This is particularly true when it comes to the kind of information that would be very valuable to prospective students who are about to make one of the biggest investments of their lives.”

Read more by

Back to Top