To balance innovation with protecting students, focus on outcomes


Feb 27, 2018

Online education holds tremendous promise: it has the potential to lower costs, enhance learning outcomes, and make college accessible for students who lack the flexibility or means to attend a traditional program. As a nation, our goal should be to improve and scale the highest quality online programs, thereby reducing costs for students, and making the most of the over $500 billion we collectively spend on higher education each year. We should also do our best to protect students from low quality programs—and we should especially avoid investing federal money in programs that produce poor outcomes.

Unfortunately, federal higher education policy isn’t set up to do any of those things. As we argue in a recent policy brief, Congress can do better. In reauthorizing the Higher Education Act, lawmakers not only should aim to give institutions the flexibility to develop instructional models that take advantage of the potential of technology, but also should focus on incentivizing quality through outcomes-based measures.

Distance vs. correspondence? Where federal policy stands today

Distance education was first defined by the Higher Education Act in 1992. At the time, the primary aim of lawmakers was to address waste, fraud and abuse by “correspondence programs”, which sent course materials mainly through the mail. In the 1980s, these had been responsible for an outsized share of student loan defaults. The language developed in 1992—which permissively noted that transmission by microwave was acceptable—excluded correspondence programs from receiving federal funds, but did not anticipate how online learning would develop, and therefore  have proved wholly inadequate to regulate online education.

The key variable separating distance education from correspondence programs was the concept of “regular and substantive interaction” between students and instructors. This has led to a series of Department of Education regulations on what is “regular”, what is “substantive”, and who is an “instructor”. These regulations constrain the ability of online programs to innovate around the instructional model, but they do nothing to ensure strong outcomes for students.

In 1992, online programs were just emerging, but today over 30% of students are learning online. Regulations which encourage innovation—while protecting students—have never been more important for online programs.

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The normalization of online learning?

The two houses of Congress are taking different approaches to drafting legislation to reauthorize the HEA. The Senate is taking a slower approach and is leaving the door open to drafting a bill with bipartisan support by holding committee hearings every few weeks that focus on affordability and federal financial aid programs. In contrast, with little public debate, the House Committee on Education and the Workforce approved the PROSPER Act on a party line vote in December.

PROSPER eliminates the concept of distance education (and microwaves) from the law. Online learning is addressed throughout the law as a normal means of conducting education. PROSPER doesn’t create any new or different requirements for online programs. The law also eliminates Department of Education regulations that schools seek authorization in every state in which they serve students, and instead proposes that schools only be authorized in the state in which they are physically located. States had largely resolved this issue themselves through SARA, the State Authorization Reciprocity Agreement, but this workaround would no longer be necessary if PROSPER became law.

Innovation is guided by incentives

PROSPER removes a complex and burdensome layer of regulation from online programs and allows schools the freedom to design instructional models that take advantage of advances in technology. But for innovation to thrive in ways that benefit students, the workforce, and society, all colleges need to be incentivized to provide affordable, high quality programs that are aligned to workforce needs.

No one, on either side of the aisle, wants to see the federal government dump cash into low-quality programs that are more focused on revenues than on providing an education that helps students succeed. PROSPER’s authors aim to unleash innovation in higher education, but the guardrails the bill places on the industry are simply too weak. Measures in the bill touted as “risk-sharing” are likely to have adverse consequences, but are unlikely to change institutional behavior in ways that protect students. The bill also requires programs to demonstrate that their graduates maintain a 45% student loan repayment rate, or else be ineligible to continue receiving funds. This is an improvement on prior metrics, but is still a laughably low bar, and fails to take into account the outcomes of students who don’t graduate.

Incentives for student success

Organizations design their business models around incentives. In higher education, institutions are paid to enroll students—they have incentives to expand access, but not to achieve outcomes like completion or career success. As a result, money has flowed relatively freely, quality assurance has been a thorny problem, and affordability is an increasingly pressing issue.

Instead, Congress should adopt regulatory mechanisms that focus on outcomes. Changing the way colleges are funded by creating meaningful alignment with student outcomes could improve quality for the entire industry, not just online programs. This could take the form of meaningful risk-sharing, whereby colleges have to repay some financial aid dollars if students default. It could also include increasing the role of income-sharing agreements, whereby some revenues become contingent on a student’s future earnings. These funding models would incentivize colleges to ensure that their programs are adequately preparing students to succeed in today’s labor market.

Using outcomes to create guardrails against waste, fraud, and abuse is preferable to complex, clunky federal definitions of what is meant by online education. Higher education providers will continue to innovate; the authors of the next HEA reauthorization can’t reasonably be expected to create definitions that will remain relevant through the next decade of technological change and business model evolution. Relying on outcomes gives institutions the flexibility to innovate, while still protecting students and taxpayers.

The House bill drops the outdated distance education definition, but doesn’t sufficiently improve risk-sharing or other mechanisms to align institutional incentives with student outcomes. We hope the Senate bill truly modernizes higher education regulation, not just for online education, but for all programs.

Alana leads the Institute’s higher education research and works to find solutions for a more affordable system that better serves both students and employers. In this role, Alana analyzes disruptive forces changing the higher education landscape.