How rethinking regulation could help innovation thrive in higher education

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Oct 16, 2018

In an era of escalating costs, low completion rates, and ballooning student debt, it seems fair to assert that American higher education is in crisis. But despite a landscape that appears bleak, there are bright spots of innovation on the horizon, illuminating new models that can help students learn, earn college degrees, and find their way in the workforce—all at a fraction of the cost of traditional college.

The key to helping these models succeed? Updating the federal laws that govern higher education.

A light on the horizon

One promising institution, with both a differentiated business model as well as a unique instructional model, is Western Governors University (WGU). Founded in the late 1990’s by a bipartisan group of governors of western states, WGU was designed to serve adult learners through fully online, competency-based programs.

Unlike many schools (both online and offline) that allow students to enroll and then leave them to sink or swim, WGU relies heavily on mentorship and coaching to ensure that students stay engaged in course material and motivated to complete their degrees. While traditional college coursework is broken out into fixed lengths of time—typically quarters or semesters—WGU breaks learning material down into fixed competencies, that students can take as much time as they need to master. In further contrast to the typical higher education model, in which costs ratchet up each year, WGU has raised tuition only once in the past ten years.

The results? WGU students finish school—often ahead of schedule—with $16,000 in debt, which is less than half of the burden carried by a typical college graduate. These students default on their loans at less than a third of the national rate, and they report high satisfaction with their education. Recently, WGU passed an enrollment milestone of 100,000 students, and earlier this year the school graduated its 100,000th student.

Regulatory clouds—and how Congress can clear them

But despite creating strong outcomes for students—at a fraction of the average price of college—WGU’s regulatory path hasn’t been smooth. Last year, the Office of the Inspector General of the Department of Education (OIG) released the results of an audit that found WGU in violation of federal financial aid rules, meaning that WGU would need to pay back nearly a billion dollars in federal financial aid.

The reason?

The OIG determined that WGU was in violation of a tiny clause in the Higher Education Act that requires interaction between students and “instructors” in online learning programs to be “regular and substantive.” Seen through the lens of common sense, this is nonsense: WGU students have 24/7 access to course instructors, and weekly or bi-weekly contact with their mentor. In plenty of cases, this will work out to be significantly more faculty interaction than a student would have taking classes in a giant lecture hall at a large research university.

But regulation—the process by which the laws passed by Congress are turned into detailed rules—doesn’t always have a common sense approach. WGU spent years being audited by the OIG, despite strong student outcomes. On the other hand, plenty of schools with weak outcomes—poor retention, graduation, and career success metrics—are raking in millions of federal financial aid dollars, without any notice from regulators. Unimaginably, higher education regulation doesn’t take outcomes into account for one critical reason: federal law doesn’t either.

Congress has the opportunity to remedy this. Unclear input-driven requirements, such as the “regular and substantive” clause should be stricken from the books, as it is in PROSPER, the House’s draft HEA reauthorization. Just as importantly, Congress should consider ways to hold colleges and universities to account based on the outcomes they create for students. There are a variety of ways to go about this.

First, Congress could look at the demands it places on accreditors and other potential approaches to quality assurance in higher education. Currently, it requires accreditors to evaluate schools using ten standards, but only one of those has anything to do with student outcomes. Stripping away input-based requirements could help accreditors refocus their efforts toward ensuring that schools are offering programs that create value for students.

Second, Congress should consider outcomes-based funding models, particularly for schools taking innovative approaches. Schools with novel instructional models, like WGU, have a tough time jumping through the hoops of an input-driven regulatory approach. Higher education desperately needs innovation, but in particular, it needs innovation that creates value for students. An alternative funding approach that allocates funding based on student outcomes would be a better way to regulate innovative schools, which have a tough time fitting into a regulatory framework that was never designed for them.

Third, all schools should be required to have more skin in the game. PROSPER does take small steps toward risk-sharing, but more is needed. Schools which are consistently producing graduates—or high numbers of dropouts—who are disproportionately likely to default on their loans shouldn’t continue to receive endless streams of federal funding. WGU has consistently brought down the debt burden on its graduates; other schools should be incentivized to do the same.

Higher education policy should support innovation

The traditional model of college is broken, dogged by high costs and weak outcomes. Colleges and universities shouldn’t shoulder all of the blame—in large part, they have done exactly what federal policy has incentivized them to do (enroll students at ever increasing costs), ignored areas that the law has not incentivized (student outcomes), and avoided what federal policy has strongly discouraged (innovation).

Changing the law could change the higher education landscape for the better, and encourage the proliferation and growth of successful, innovative models like WGU.

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.