Published on 2015/10/22
The EvoLLLution | It’s Time to Demand More of American Colleges: Here’s How
Though the existing regulatory framework designed to guarantee the quality of a postsecondary institution aren’t working, it’s important to thoroughly consider and understand the proposed alternatives before jumping in.

For too long, we’ve judged the quality of American higher education according to Supreme Court Justice Potter Stewart’s famous standard for pornography: “I know it when I see it.” Our current system evaluates colleges almost entirely on “inputs”—the academic pedigree of the students they admit, the credentials of their faculty, the number of volumes in their library, the flashiness of their amenities, and so on. We don’t actually measure quality in any meaningful way; we just approximate it based on how closely a given organization resembles the thing we’ve traditionally called “college.”

Federal policy is the poster child for this approach to quality assurance. It relies on accreditation agencies as the primary gatekeepers to federal aid, but these agencies engage in a peer review process that rewards mimicry and rarely leads to real sanctions. Federal rules insist on antiquated definitions of degrees, certificates and credit hours while paying minimal attention to student outcomes.

This policy regime has failed—often spectacularly—on two key fronts. First, it has not held existing colleges and universities to a high enough standard. Although Democrats have tried to cast these quality issues as being limited to for-profits, lackluster student outcomes transcend tax status.

Second, while federal policies have kept bad colleges in, their emphasis on inputs has also kept new models out. If you don’t offer degrees or certificates, or if you measure learning as opposed to seat time, you rarely “count” as a postsecondary institution. Your students may learn a lot and get good jobs, but if you don’t have PhD-trained faculty organized into degree-granting academic departments, you need not apply.

Misguided “free college” proposals largely wave their hands at these deep-seated problems. But some policymakers (on both sides of the aisle) are working to rethink the federal role. Needed is a comprehensive reform agenda—informed by careful experimentation—that changes the incentives for existing colleges and challenges their credentialing monopoly.

In an effort to inform these debates, we’ve laid out some key ideas in a series of policy papers (see here, here, here and here). Four overarching lessons emerged:

1. Avoid All-Or-Nothing Policies

Existing quality assurance policies operate as binary variables—schools are either accredited or not, their cohort default rates are either below the threshold or not, and they’re either licensed by the state or not.

The all-or-nothing nature of these policies does two things. First, it gives poorly performing institutions that can just get over the bar little reason to improve, and gives regulators few tools to encourage them to do so. Schools with a 27 percent default rate have the same access to federal aid as schools with a 2.7 percent default rate. And because the stakes of revoking eligibility are so high, regulators are gun-shy to do so (see here and here, for example).  Shifting to a system that holds all colleges accountable for performance on a continuous outcome variable—like a loan repayment rate—is a better approach.

Second, all-or-nothing policies make it much riskier to let new providers in. Once a provider is deemed eligible for federal aid, it can access the full complement of loan, grant, and tax credit programs. A tiered eligibility system, where new organizations gain limited access until they’ve proven their mettle, could lower barriers to entry while limiting taxpayer risk.

2. Outcomes-Based Regulation Sounds Good, But It’s Complicated

Higher education reformers—myself included—have routinely called for “outcomes-based” regulation. In theory, this is the way to go. In practice, it is harder than it sounds.

For one thing, regulating on the basis of student outcomes can create incentives for providers to “cream-skim,” or admit only the best students. As my colleague Kevin James argued in a recent paper on accountability in other sectors, studies have shown that training providers tended to enroll fewer risky students once they were held accountable for employment outcomes under the Workforce Investment Act.

There are also important questions about how to define and measure outcomes. Higher education programs are more difficult to evaluate than WIA programs. Stakeholders disagree on what outcomes to measure (learning? Earnings? Civic engagement?) and when to measure them. Even if we could agree, the feds currently lack the ability to collect the type of data necessary to measure most outcomes.

Regulators shouldn’t shy away from using student outcomes to judge providers, but they must acknowledge these concerns. Outcomes-based policies should only be based on sound, complete data and should, where possible, measure the value added by colleges (not the quality of admitted students).

3. Have Providers Put Their Money Where Their Mouth Is

The current regulatory regime attempts to limit risk by compelling providers to comply with various rules. These rules govern aid eligibility, but give colleges little “skin in the game” when it comes to student outcomes. The vast majority of colleges are paid in full whether their students are successful or not.

Instead, regulators should require providers to take on more risk. That might mean putting existing institutions on the hook for loans that their students fail to repay. Colleges could either buy an insurance policy to cover the financial risk or make payments to the federal government. This “risk-sharing” approach—discussed years ago by my colleague Alex Pollock—has begun to attract bipartisan support.

For new providers, policymakers could require them to put up their own capital to gain access to the market, either as a surety bond or in a pay-for-success agreement, where the provider fronts the money and is reimbursed based on their success. This would also leverage the private market in ensuring quality. Most new providers would have to raise capital from private investors or lenders, but funders would only have incentive to backstop organizations that are likely to be successful, thereby adding another layer of quality assurance.

4. Rely Primarily on Markets, Not Regulators, to Reward and Sanction Schools

There is a growing sense on the left that our existing voucher-funded higher education market does not and cannot force institutions to contain costs and focus on student success. Their solution is to substitute regulatory power for market discipline; hence “free college” proposals that call for a much more active federal role in shaping how colleges spend money and serve students.

The market certainly does not work as well as it should. But it’s a mistake to place all accountability in the hands of government regulators. No matter how insulated they are, regulators are subject to politics, and colleges are politically powerful.

Time and time again, we’ve seen institutions of higher education successfully appeal to their political masters for a reprieve from sanctions. That’s because it is much easier for those institutions to lobby for an indulgence than to convince thousands of consumers to continue purchasing your product. Sanctioning institutions only makes regulators’ lives more difficult. Individual consumers have incentive to seek out the options that best fit their needs.

The papers referenced here are obviously not a call for laissez faire, market-based accountability. But reformers must recognize how politics can limit even the most well designed regulatory regime. Consumer choice is still the key to meaningful quality assurance in higher education, and reforms should empower them to choose wisely.

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Readers Comments

Regina Tyler 2015/10/22 at 12:10 pm

I’ve been skeptical of the reform movement in higher education, but this is pretty thoroughly thought out. I agree that things need to change, but so much of what has been put forward in the past just isn’t feasible, and generally betrays a complete lack of understanding of how the current system functions. At least here we’re getting somewhere.

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