Obama Proposes to Shake-up Higher Education | 08.23.13

Posted in News By David Levy

Citing “higher education as the single most important investment students can make in their own futures,” the Obama administration offered a plan to make college more affordable for American families.

Among several proposals, the initiative would create a new ratings system for judging colleges based on the value they provide to students and taxpayers. The new ratings system would become available before the 2015 academic year and would use a combination of factors to determine value:

  • student outcomes (i.e., graduation rates and graduation earnings),
  • affordability (average tuition, scholarships, and manageable loan debt) and
  • access (the percentage of students receiving Federal Pell Grants).

Institutional eligibility for student aid funding would be linked to these ratings starting in 2018. Students who enroll at high-performing colleges would receive larger Federal Pell Grants and better interest rates on loans.

Additionally, the plan would create an incentive program for colleges based upon the number of Federal Pell Grant recipients they graduate, similar to a 2004 proposal (subscription required) by Robert Shireman for “placing a bounty on each grant recipient’s head.” The proposal would also tie completion of a certain percentage of classes, as opposed to enrollment or seat time, to a student’s continued receipt of financial aid. In short, the proposal would link “federal student aid to college performance so that students maximize their federal aid at institutions providing the best value.”

Providing clear information about college affordability and quality will help families make more informed decisions about where to enroll. But tying institutional aid eligibility to a new scorecard measure might hurt access to postsecondary education while failing to improve quality. In a 2012 student aid policy analysis paper, Mark Kantrowitz, Publisher of Edvisors, demonstrated that tying aid eligibility to graduation rates would have counter-intuitive results. For example, establishing a 20% minimum graduation rate for Federal Pell Grant eligibility would shift $5 billion in funding away from community colleges, reducing the number of students obtaining college degrees. Faced with the potential loss of federal aid funding, colleges would become more selective in the students they admit. The quickest path to improved graduation rates is to block access by high-risk students, as opposed to eliminating barriers to student success. Improving graduation rates does not, however, increase the number of students graduating. Consider that there is more room for improvement at colleges with the lowest graduation rates. Shifting funding from low-performing schools to high-performing schools might improve graduation rates at the elite institutions by a little, but this will be more than offset by the reduction in the number of students graduating from the colleges that serve at-risk students. Also, the higher performance at the elite institutions may have more to do with their aggregating the most talented students than in the value added by these colleges. About 11% of the enrollment at the most-selective institutions is Federal Pell Grant recipients, compared with about a quarter of the students at public and private non-profit institutions and two-thirds of the students at for-profit colleges. Most potential quality measures will be heavily influenced by demographics.

For example, students who are single parents have high dropout rates. If their babysitter is sick, they have to stay home from school, missing classes. When they miss enough classes, they fall behind and their academic performance suffers. A college could react to the Obama proposal by denying admission to students who are least likely to graduate, hurting access to college by these students. Or the college could implement programs to provide these students with high quality childcare facilities, such as by providing reliable childcare on campus and giving students lists of emergency drop-in childcare facilities. The former action hurts access to college while the latter helps and, ideally, enhances persistence and graduation rates.

The real problem continues to be inadequate funding of postsecondary education by the federal and state governments.

State legislatures have cut their appropriations for decades, despite higher enrollments, forcing colleges to do more with less. This is the primary driver of public college tuition inflation. There are three main outcomes from cuts in state appropriations: increases in college tuition, shifts in enrollment from in-state students to out-of-state and international students who pay higher out-of-state tuition rates, and cuts in enrollment to match the lower available funding.

President Obama’s proposal might hurt low-income students more than it helps. Federal Pell Grant funding has decreased on a constant dollar per-student basis. The failure of grants to keep pace with increases in college costs forces students to graduate with thousands of dollars of additional debt, to shift their enrollment from higher-cost colleges to lower-cost colleges (e.g., not just from private non-profit colleges to public colleges, but also from 4-year colleges to 2-year colleges, hurting Bachelor’s degree attainment rates), and for some students, especially low-income students, to avoid college enrollment altogether. Low and moderate-income students are increasingly being priced out of a college education.

There are, however, some good ideas in the Obama administration’s proposal. For example, current federal law requires colleges to disburse federal student aid once an academic term. Colleges would like the flexibility to use multiple disbursements over the term, to help students better manage their financial aid funds. This would teach students basic money management skills, such as budgeting, many of them desire, but lack.

David-Levy-EdvisorsDavid Levy is Associate Editor of the Edvisors Network. David brings 30 years of experience as Director of Financial Aid at some of the nation’s leading colleges, including the Scripps College, California Institute of Technology and Occidental College. He is respected by students, parents and financial aid professionals nationwide because of his extensive outreach and volunteer activities, his extensive knowledge of financial aid and his leadership in helping to simplify the aid application process.

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