Is Opting Out of Federal Student Aid the Key to Higher Ed Innovation?

by Reihan Salam

The New York Times recently released a supplement on higher education, and it includes two articles by Anya Kamenetz, the author of DIY U and $1 Trillion and Rising, the new Third Way report on reforming public higher education. In “Are You Competent? Prove It,” she offers a balanced account of the emergence of competency-based education, an alternative to a more traditional time-based approach:

Frederick M. Hurst, who directs Northern Arizona University’s new Personalized Learning Program, says that competency transcripts do a better job of communicating a graduate’s value to employers. “As an example,” he says, “if you look at someone’s transcript and it says they have three three-hour courses in history, an employer doesn’t know what that means other than someone knows about these time periods in history. If you break it down in a different way and talk about the writing skills that a student got out of those courses, that’s a skill someone will need in the workplace.”

Competency-based innovations, however, are getting some pushback.

“It’s scary for faculty,” Dr. Reilly says. “There’s a continuing sense that students can and do draw on so many sources of information that are now available at their fingertips. They don’t need to come to the monastery for four years and sit at the feet of the monks.”

“Now, I’m an old English professor who taught the Joyce course here at Madison two years ago,” he says. “The idea that you can’t understand Joyce unless you take it from Reilly three hours a week — that we faculty own the knowledge and anyone who’s going to be well educated has to get it from us — the world has changed so much that that’s no longer true.”

Markie Blumer teaches in the Human Development and Family Studies Department at the University of Wisconsin, Stout, which is reviewing ways that its online programs could fit with the Flexible Option. “I hear a lot of fear,” she confirms, ticking off concerns: What will happen to the bricks-and-mortar institution? Do students get the same quality of education? Will the Wisconsin system’s reputation be damaged?

An entire program built around assessments necessitates a high degree of confidence in their quality. But there are no widely adopted measurements of learning across higher education. Western Governors uses the Collegiate Learning Assessment, a test of critical thinking and related skills that is given to students at different colleges to provide a basis for comparison. But the newer programs rely entirely on assessments created in-house, and the quality will surely vary widely. For example, Mr. Sherman completed his College for America degree without writing anything longer than a1,500-word research paper; other “deliverables” included PowerPoint presentations, blog posts and “Internet Scavenger Hunt” results.

Ideally, we’d see assessments developed by third-party organizations, like edX, take the place of in-house assessments. Essentially, instructional providers would compete to help students demonstrate mastery on high-quality assessments devised by institutions that are indifferent as to which providers succeed or fail. And assessors would compete with each other to emerge as the gold standard in various disciplines. Something like this is already happening, and the trend will likely pick up speed.

Elsewhere, Kamenetz describes serial education entrepreneur Gene Wade’s new ultra-low-cost for-profit higher education venture, UniversityNow, which, interestingly, has opted out of all federal student aid programs:

Patten and New Charter are among very few accredited colleges that don’t accept federal student aid. Opting out, Mr. Wade says, significantly cuts payroll and lowers administrative overhead. It allows students to be truly self-paced — to take as little as one course at a time, and to hit pause for a few days or weeks rather than having to carry a minimum course load, as required if a school accepts Title IV student aid. Opting out also exempts the colleges from regulations intended to rein in some of the excesses of the for-profit sector, like the one that prevents schools from compensating recruiters based on the number of students they sign up — a practice that has been known to tempt recruiters into enrolling students unable to benefit from college work.

Mr. Wade says UniversityNow recruiters and call-center employees are indeed paid by the number of students they enroll. But, he says, the college monitors students for “satisfactory academic progress” and refunds the money of the 3 to 4 percent who drop out in their first two months. “The idea that I have to take Title IV to do right by people is preposterous,” he says, calling federal money the “perverse incentive” that leads for-profit colleges to recruit aggressively.

In place of federal aid, UniversityNow has embraced private subsidies. It is recruiting students through employers like A.T.& T., taking advantage of tuition reimbursement policies. “Eighty-five percent of employers in America offer tuition reimbursement; 90 percent of employees don’t use it,” says Thomas Stewart, president of Patten. While these subsidies barely pay for one class at most colleges, they can cover the full undergraduate tuition at Patten online, which is $1,316 per four-month term, including learning materials; New Charter is $796.

Rather remarkably, UniversityNow has gained favored among public employees in the cities of Oakland, San Francisco, and Sacramento:

When asked why city officials would turn to a for-profit company rather than a public college, Desley Brooks, an Oakland City Council member, said the answer is cost: “You can’t even go to a J.C. and get this level of education for that amount of money. The trust comes from the people who are involved.”

Freed from the strictures of the federal student aid program, Wade has been forced to devise a program that employers and students consider valuable enough to pay for out-of-pocket, which seems like a good source of discipline. And opting out of federal student aid insulates Wade from the charge that his goal is to game subsidies by loading up vulnerable students with debt they can’t afford.

UniversityNow is a paradigmatic example of disruptive innovation in higher education, which Clayton Christensen and Michael Horn describe as follows:

For-profit universities latched on early to online learning, rough as it was in the 1990s. The target, as with all disruptive innovations, was customers who wouldn’t otherwise consume their product — in this case, working adults for whom traditional higher education was inconvenient. In theory, for-profit companies should have shaken up the higher education landscape. But federal financial aid seems to have gummed up the disruption: the easy revenue has encouraged some schools to indiscriminately enroll, often at the expense of quality, and has discouraged cost reduction.

Still, the theory predicts that, be it steam or online education, existing consumers will ultimately adopt the disruption, and a host of struggling colleges and universities — the bottom 25 percent of every tier, we predict — will disappear or merge in the next 10 to 15 years. Already traditional universities are showing the strains of a broken business model, reflecting demand and pricing pressures previously unheard-of in higher education. [Emphasis added]

One hopes that UniversityNow will be the first of many education start-ups to go this route. In a similar vein, one can imagine K-12 start-ups that decide to scale up without the aid of taxpayer-financed tuition subsidies, drawing instead on the lessons of ultra-low-cost private schools in the developing world that succeed in competing with “free” state-sponsored schools by offering a higher-quality experience at a very low (but non-zero) cost.

The Agenda

NRO’s domestic-policy blog, by Reihan Salam.