Obama’s Bold Plan to Reshape American Higher Education

As a rule, speechwriters put the most dramatic parts of a president’s agenda front and center, leaving the boring policy details to the supplemental notes. Last night the Obama administration did the opposite: The higher-education section of the State of the Union address was much the same as last year’s, focusing on college affordability and putting institutions on notice that the gravy train of public support for rising prices would have to end. But the significant policy initiatives were left for the supplemental document released afterward, in which the Obama administration proposed the biggest change in federal higher-education policy since at least the Higher Education Amendments of 1972.

Those laws created what would become the Pell Grant program for low-income students, which has grown to a $40-billion pillar of government support for higher learning. The Pell Grant is a voucher system—any eligible student can use the grant to pay tuition at any accredited college.

The key words in that sentence are “accredited” and “college.” There are lots of ways to learn, but Pell Grants can be used only to purchase learning from organizations that fit the model of colleges as we know them today. And who decides, legally, what a “college” is? Accreditors, a group of independent nonprofit organizations run by … colleges. By controlling access to Pell Grants, student loans, and other forms of financial aid, existing colleges determine the price, structure, and character of higher learning.

This regulatory monopoly has had severe and sadly predictable negative effects on price and innovation. To compete on a level financial playing field, you have to teach, spend, and ultimately charge just as established institutions do.

The Obama administration wants to change all of that:

The president will call on Congress to consider value, affordability, and student outcomes in making determinations about which colleges and universities receive access to federal student aid, either by incorporating measures of value and affordability into the existing accreditation system; or by establishing a new, alternative system of accreditation that would provide pathways for higher-education models and colleges to receive federal student aid based on performance and results.

Last year, similar language tying federal aid to “value” was explicitly limited to a group of relatively minor programs. The Pell Grant and loan programs that make up $140-billion in annual aid were excluded. No such restrictions appear here (although the president did refer to only “certain types” of aid in his speech itself.) But the real kicker is at the end: a new, alternative system of accreditation that would provide pathways for higher-education models and colleges to receive federal student aid based on performance and results.

The existing accreditation club has been around since the end of the 19th century. It has had an exclusive franchise on determining federal financial-aid eligibility since the middle of the 20th century. Opening a new doorway to the Title IV financial-aid system would be an enormous change, particularly when coupled with “higher-education models and colleges.” The clear implication is that the higher-education models that would be eligible for federal financial aid through the alternate accreditation system wouldn’t have to be colleges at all. They could be any providers of higher education that meet standards of “performance and results.”

Shortly after the speech, Randi Weingarten, president of the American Federation of Teachers, tweeted a response to the proposal, warning that it was a “huge opening for profiteers.” That is exactly wrong. The financial-aid profiteering that occurred over the past decade happened because the old accreditation system was left in place. Any college that one might think plundered the U.S. Treasury was nonetheless a college, duly accredited by a nonprofit organization that lacked the wisdom or capacity to prevent plundering. Obama proposes creating standards of quality and accountability that don’t exist today. It is an antiplundering plan.

Clearly, a great deal of innovation is happening in higher education right now. Much is happening online, although it would be a mistake to assume that all innovation is technological and vice versa. The upward spiral of college costs isn’t going to be arrested by government price controls. Only intense new competition from high-quality, low-cost providers will create the kind of market pressure needed to change the way colleges spend, teach, and price their services. But that competition will never thrive if innovators are forced by incumbents to adopt expensive, centuries-old organizational models in order to have equal access to financial aid.

It will fall to the Obama administration to flesh out the details of this proposal. Here are some of the components I’d like to see:

  • A new set of eligibility criteria for Title IV aid. It should provide less money than the current system does—say, a maximum of $5,000 per equivalent of 60 credits, which is less than half of what the maximum Pell Grant provides today—in exchange for more transparency and quality assurance than accreditors now require. That is to ensure that only organizations that can provide great educational services to a large number of students for affordable prices would be eligible.
  • Approval through the new accreditation system at the course level. Right now, only organizations that provide whole degree programs can receive aid. But what if you want to specialize and provide nothing other than the world’s greatest linear-algebra class at a very affordable price? If we assume that a student takes 20 courses over two years (60 credits/three credits per), that comes to $250 per course or course-equivalent. That’s low enough that this policy would catalyze a market for people who want to pay from their own pockets for higher-education services with the quality-assurance imprimatur of the federal government, even if they don’t qualify for federal aid.
  • Pay for student success, not enrollment. Right now colleges can suck up most or all of a student’s grant aid even if that student drops out and doesn’t learn anything. Under the new system, higher-education providers would get paid only if their students succeed. Such a policy could also be used to finance prior-learning assessment of what students already know, a practice that is currently ineligible for federal aid.
  • Mandatory credit transfer. It’s high time that quality control in higher education actually function where it counts: when students assemble, as most do, credits earned from multiple institutions into credentials with value in the labor market. Any credits earned from the new accreditation system should be automatically transferable to any college or higher-education provider that receives federal financial aid under the new system or the old one.

In addition, applicants should be judged on a combination of broader criteria, including:

  • Organizational capacity. If Harvard and MIT form a nonprofit, then their capacity, academic quality, and financial resources should carry weight. If Carl Wieman wants to get in the Physics 101 business, his status as a Nobel Prize winner and researcher on best practices in teaching introductory physics should work in his favor. If Pixar wants to teach computer animation, Wall-E should count in its favor. (Cars 2, less so.)
  • National educational and work-force priorities. We don’t have to subsidize everything anyone happens to want to teach or happens to want to learn (another change from the existing system, in which this is more or less the case). We can make choices about what’s strategic, needed, and important.
  • Rigor. Organizations that are not only transparent about their goals and evaluation processes but are also objectively rigorous in their expectations should get preference.

I’d also advocate a combination of absolute requirements and human judgment in approving higher-education providers through the new system. The mandatory element would be transparency—in learning goals, in evaluation and assessment processes, and in timely results. In other words, you have to say what you’re trying to accomplish, how you evaluate student success, and how many students actually succeed.

Kevin Carey is director of the education-policy program at the New America Foundation.

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