In a show of regulatory overreach, the Biden administration’s Department of Education issued guidance last week to expand its tentacles into the internal affairs of colleges and the contracts they sign with outside organizations. 

Why bureaucrats in Washington, and not the colleges themselves, are best positioned to monitor contracts with outside parties that serve students is unclear. Yet, the impact will be felt in higher costs and the stunting of needed innovation on behalf of students.

The immediate impact is that tens of thousands of contracts between colleges and third-party organizations will become exposed to intense scrutiny and new reporting requirements. Uncounted numbers will also be nullified as impermissible.

Nearly all outside actors—from those helping to monitor attendance to those assisting with enrollment, and from those providing curricula to those delivering tutoring or other support services—will be affected.

The problems with the approach are numerous. The regulatory red tape will increase costs at a time when most agree that the price of higher education has risen too high. It will also favor incumbents over nimble startups that do not have the budgets to comply. 

Nonprofits like Get Schooled, which provides first-generation, low-income students with support to complete their financial aid applications, will likely fall under the guidance and waste resources on red tape.

Startup companies that pioneer new innovations will struggle to comply with the costs of annual audits. This will favor larger, slower-moving incumbents with bigger balance sheets, which will cripple critical innovations for students.

The cost of the compliance will almost certainly get passed on to universities, which will then pass those costs to students through higher tuition. That’s, ironically, a phenomenon the Biden administration presumably wants to combat.

The new regulations also bar any foreign companies or those led by foreign nationals from holding these contracts. This is likely a blatant violation of America’s trade treaties with other nations.

Contracts with German software giant SAP are likely now illegal. A leading Canadian learning company, D2L, is barred from the market. Startups like Stellic, founded by a Pakistani, are locked out. Just imagine the outcry if the Trump administration had done this.

Of course, the chances of a university successfully replacing its back-end systems by the May 1 deadline are nil, which exposes how out of touch the education department is with the operations on college campus operations.

What could have possibly precipitated this move? Left-wing education policymakers have long disliked for-profit education companies that help universities launch and operate online programs. Their narrative is that out of a desire for profits, these companies have increased college costs and led to students taking out too much debt without a good return. Never mind that a Government Accountability Office report found no wrongdoing.

These activists have long targeted an obscure Obama-era “dear colleague” letter that permitted online program managers to share in a university’s revenue. They’ve wanted it declared an illegal form of incentive compensation.

Rather than narrowly roll back this provision, though, the Biden administration followed the left’s far more general distrust of for-profit companies and desire to micromanage how third parties interact with any college program eligible for federal financial aid.

Rather than create transparency around a limited slice of contracts numbering in the hundreds, the Education Department will now be responsible for monitoring tens of thousands of contracts. This will also overburden its small but zealous team.

As is often the case, the policy concern isn’t totally misplaced. There are many bad online college programs that have a miserable return on investment for students, just like there are many bad brick-and-mortar programs.

Yet, the instinct to intervene in which companies private and public accredited colleges are allowed to do business with or to micromanage the contracts with third-party organizations is misplaced. The regulation of inputs — how a college does its work — will only lock institutions into set ways of doing things and inhibit innovation. Policy should instead focus on student outcomes and empower schools to figure out the best ways to deliver.

Better policy would do things like tie the ability of college programs to participate in federal aid programs on the condition that their students get good-paying jobs when they leave and repay their debt.

Or Congress could pass policy to require that colleges share in the risk when student borrowers don’t repay what they borrow. Under this model, schools would have the incentive to cut off companies that added costs without benefiting students.

Yes, these moves might require working with Congress. They would involve deliberation and be slower than issuing regulations by fiat. They would also likely require compromise. No one will get everything.

Yet, such a process would also spare the department its current ideological disaster. It wouldn’t accidentally violate trade agreements, and it would boost innovation, affordability, and value for students.

This piece was originally published here in The Sun.


  • Michael B. Horn
    Michael B. Horn

    Michael B. Horn is Co-Founder, Distinguished Fellow, and Chairman at the Christensen Institute.