Kevin Carey, the policy director of Education Sector, has been writing about recent breakthroughs in how we talk about higher education. The president, who has presided over a dramatic increase in funding for Pell Grants and who has devoted most of his political energies in higher education to attacking for-profits and private student loans, has shifted gears:
At a speech Friday morning at the University of Michigan, Obama elaborated even further. He proposed a “Race to the Top” modeled after his successful efforts to spur state reform of K-12 schools. States would be rewarded for restructuring their college financing systems and continuing to support higher learning. A new “College Scorecard” would rate colleges on price, graduation, debt and employment, helping students and parents decide where to enroll. Work-study jobs would double, and student loan interest rates would be kept low. Most importantly, billions of dollars in federal aid would become contingent on colleges keeping prices reasonable and low. Colleges that successfully enroll and graduate low-income students, educate people well, and help students find jobs and repay debt would get more federal aid for student loans and other programs. Colleges that fail would not.
The speech sets a striking precedent. For the first time, a Democratic President is threatening the funding of his bedrock liberal constituency in traditional higher education. This is a welcome and necessary development—indeed, only someone with Obama’s liberal credentials will be able to make headway in taking on an industry that has long protected its special relationship with the American taxpayer. It won’t be easy, though. If Obama is serious about holding down college costs, he’ll find that his battles with lenders and for-profits were only a warm-up for the main event. [Emphasis added]
Elsewhere, Carey has offered his own prescription for attacking cost growth in higher education. After lucidly explaining the role subsidies play in exacerbating the tuition bubble:
BACK-BREAKING TUITION increases are, in many ways, an inevitable consequence of the way our higher education system is currently designed. Imagine you’re in the business of selling apples that cost $1 on the open market. Then the government decides that more people should have the opportunity to buy apples and society would benefit from a net increase in apple consumption. So it decides to drop the price of apples to 60 cents. Sometimes it does this by giving you 40 cents for every apple you sell, on the condition that you start selling apples for 60 cents. Sometimes it gives people vouchers worth 40 cents that can only be used to purchase apples from approved vendors.
At first, the policy works splendidly. Apples are effectively less expensive so more people buy them and the nation is suffused with apple goodness. But then you, the apple vendor, look at the situation and say “Hey, the market price of an apple is still $1. Wouldn’t it be great if I could charge $1 for apples, but still get 40 cents from the government for every apple I sell?” Raising the price all the way from 60 cents back to $1 in a single year would be too obvious and jeopardize political support for the apple subsidy program. So you start raising prices by three, four, or five percent above inflation annually. When annoyed public officials begin asking why, you explain that apple production is an expensive, labor-intensive business, and that all of the extra money is being used to produce the very best apples money can buy. Since apple quality is substantially a matter of taste, this is a hard claim to refute.
Meanwhile, you use some of your new profits to sponsor crowd-pleasing sports events on weekends, building public goodwill. Other profits are used to hire professional lobbyists to plead for both more subsidies and more freedom to set prices. You also convince the government to allow you and other incumbent apple sellers to form a private organization with the authority to decide whether new sellers can become “approved apple vendors” for the purposes of receiving public subsidies. Unsurprisingly, few new sellers are approved.
But eventually things start to break down. As time passes and price increases accumulate, the public starts to notice that while the taxes they pay to support apple subsidies are staying the same, the price of subsidized apples is creeping closer to the market price. This seems unreasonable. Meanwhile, when the economy turns sour, available tax receipts for apple subsidization decline. Instead of raising taxes to make up the difference, public officials drop the per-apple subsidy to 30 cents. This is bad for you, because it means you either have to spend less money on the exotic orchid greenhouse you’ve built next to the apple orchard—the reason, truth be told, you got into the apple business in the first place—or raise prices even further. Luckily, since you’ve kept new vendors out of the market and prices are still below the market rate, you can get away with raising prices, and so you do.
This is essentially the story of public higher education over the last thirty years.
First, they would be subject to strict price regulation. They would be free to offer courses for less than the maximum allowable amount per credit, but not more. Second, they would have to be extremely transparent about quality. They would be required to provide public information about how much their students learn, and have their access to federal aid rescinded if students are not learning enough.
These new providers would not have to be approved by independent accrediting bodies run by existing colleges and universities, as recipients of federal aid are today. In fact, they wouldn’t have to be colleges at all. InsideHigherEd recently reported that a pair of well-known Stanford professors are currently teaching an Artificial Intelligence course to about 200 Stanford students—and more than twenty thousand students around the world, online. The non-Stanford students won’t receive credits from Stanford, but they will receive official documentation from the professors as to how they scored on course tests and their overall rank. Under this new system, those professors would be free to set up their own business teaching Artificial Intelligence over the Internet, and students would be free to pay them with federal aid. Other providers might take advantage of the fast-growing body of open educational resources—free online courses, videos, lectures, and syllabi—and add value primarily through mentoring, designing course sequences, and assessing learning.
Students, of course, won’t want to pay for these courses if they can’t receive college credit that can be translated into a degree. So as part of the new system, any existing colleges that want to continue receiving federal financial aid will be required to accept any credits granted by participants in the new system in transfer. Because these new providers will have the imprimatur of United States government approval, they will be able to compete for students who want degrees backed by sufficient reputation. And because they will be inexpensive and attached to verifiable data about how much students are learning, they will make a compelling value proposition when competing with traditional colleges that have no such data, charge more money, and are weighed down by legacy expenses and change-resistant cultures.
Many conservatives will object to elements of Carey’s approach, e.g., the strict price regulation. But remember that these organizations are being accredited under an alternative regime and this accreditation establishes eligibility for taxpayer funds. As Carey goes on to explain, the rise of these new low-cost instructional providers would put tremendous pressure on high education incumbents to either increase productivity, demonstrate their value to fee-paying students, or go out of business. And that is exactly the kind of pressure the higher education sector needs.