Beltway needs new higher education ideas

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Jun 26, 2014

It’s time for some new ideas in Washington, D.C. to curb what is a very real problem.

The new documentary Ivory Tower does a good job of outlining that problem. Higher education tuition continues to rise. According to the White House, “Over the past three decades, the average tuition at a public four-year college has more than tripled, while a typical family’s income has barely budged.” Debt for college graduates is spiraling upward. The challenge of repaying the loans is growing.

In recent weeks, to solve this problem, President Obama and Senator Elizabeth Warren grabbed headlines with different proposals to curb what borrowers with federal student loans pay.

President Obama, for example, issued a directive to cap student loan payments for an addition 5 million borrowers at 10 percent of their income. The change in regulation should go into effect December 2015.

But this is just more of the same we’ve seen from Washington over the past several decades from members of all political parties in an effort to extend access to higher education at any cost. Although proposals like the President’s are well intentioned and—let me be clear—in the immediate term they will help many individual borrowers (yes, not all, as this New York Times piece details, but even in giving more options it will be helpful), they do not address the root cause of the problem at hand. In some cases, proposals of this kind that are meant for future student borrowers could even exacerbate the problem in the longer run.

Why? Expenditures at traditional colleges and universities continue to increase. It’s not the fault of the universities per se; when there are no economies of scale in an operation and entities are locked into sustaining innovation competition with each other, costs increase.

To support the increased expenditures, colleges and universities need naturally to bring in revenues. They can raise tuition, seek more government dollars, ask for more alumni contributions, and so forth. But someone has to foot the rising bill.

As historical government subsidies have not kept up with the pace of increasing college costs, colleges have consequently raised tuition. That means an increasing number of individuals have paid the bill by going into debt. The current proposals to allow more students to afford what is an increasingly expensive education would try to shift that burden back to taxpayers through the government, which itself is already in debt. With increasing pension and health costs on the horizon, the government likely only has more red ink in its future. This is a spiral that won’t lead to the access we want at a price the country and its individuals can afford.

We need efforts instead that help make higher education fundamentally affordable. Once that has happened, higher education will be more accessible to many more people.

In other words, we won’t make higher education affordable by simply allowing people to afford what is an expensive higher education.

But that’s what the majority of proposals in Washington continue to do. Lowering interest rates merely encourages students to continue to seek what are increasingly unaffordable educations.

The only way we’ll solve this is if new entrants enter higher education who can deliver results for students at dramatically lower costs. We are seeing the beginning of these entrants—online, competency-based programs like Western Governors University, Southern New Hampshire’s College for America, and UniversityNow’s Patten University, as well as new programs like Udacity’s nanodegrees. But their ability to grow is stifled when institutions with longer histories and better brands can, through a loan, appear to be low cost to students at the time a student makes a decision about where to enroll, even if they are not in fact low cost at all. These upstart institutions are working their way around the problem with partnerships with employers, who are financing the degree programs in many cases, but Washington could help as well.

One reason we proposed the QV Index a few years back was to try to take a stand about having the government allocate more dollars to institutions that delivered results for students as measured by student satisfaction and economic returns relative to total costs as measured by total expenditures, not just tuition costs (and therefore not measuring results just on an absolute scale but making comparisons between institutions more of an apples to apples one). The metric is of course not perfect, which is one reason we proposed starting only with new institutions seeking to gain accreditation to learn what does and does not work about the program. Giving students better access to helpful information is another route—although if the students are not spending their own money up front, the incentives do not necessarily line up.

The point is that although we do not have “the policy answer,” emerging online, competency-based programs that are disruptive are already seeding the long-term answer. We need Washington to stop stifling that answer and exacerbating the long-term problem. Some creativity to move in this direction—or some discipline to stop taking actions that slow it down at the very least—would be welcome news.

Michael is a co-founder and distinguished fellow at the Clayton Christensen Institute. He currently serves as Chairman of the Clayton Christensen Institute and works as a senior strategist at Guild Education.