Overhauling Federal Student Aid

Just as the real estate industry has a crazy stranglehold on Congress, thanks to its awe-inspiring geographical dispersion and deep pockets, the higher education industry has managed to paint a series of tax expenditures and other measures that tend to exacerbate price increases as ways to meet the affordability challenge — an affordability challenge that is created, one could plausibly argue, by the cartel-like structure of the higher education industry. It’s a rhetorical feat so gutsy that you kind of have to tip your hat. Andrew Gillen, now of Education Sector, wrote a terrific theoretical paper — not peer-reviewed, higher education incumbents will remind you — that explains why student aid policies restricted to low-income students are likely to make college more affordable while those that are not, e.g., education tax credits, might actually lead to higher tuition.

In Rebalancing Resources and Incentives in Federal Student Aid, a new report from the Education Policy Program at the New America Foundation, Stephen Burd, Kevin Carey, Jason Delisle, Rachel Fishman, Alex Holt, Amy Laitinen, and Clare McCann offer a set of proposals designed to address this underlying dynamic. Among other things, the report calls for scrapping education tax credits:

Redirect more than $180 billion in savings over 10 years primarily to the Pell Grant program by eliminating complicated tuition tax breaks, tax-advantaged savings plans, and the student loan interest deduction.

The report also addresses the reality that many students are struggling to finish their courses of study, and that colleges and universities have weak incentives to help them finish on schedule. It calls for limiting eligibility for Pell Grants and federal students loans to 125 and 150 percent of program length. 

My favorite aspect of the report might be the following:

We propose an accountability regime using a combination of eligibility thresholds and financial incentives to encourage colleges to keep higher education affordable and help students earn degrees. All higher education programs, for-profit and non-profit, would be publicly evaluated using the gainful employment metrics. Institutions with extremely poor results would, as is the case now with default rate regulations, lose eligibility entirely. Those with mediocre results would be subject to limits in the aggregate amount of financial aid they can receive per student. [Emphasis added]

This accountability regime, in turn, requires a proper data infrastructure:

Despite the hundreds of billions of dollars the government spends in financial aid, policymakers cannot answer basic questions like, “Do Pell Grant students from X institution graduate?” or, “Can students from Y institutions comfortably pay back their loans?,” let alone more granular questions like, “How do Latino, male, or students from Z high school fare at A, B, or C institution?” Without better information, there can be no meaningful transparency or accountability, which limits our ability to improve education outcomes.

Yet proposals to build a better information infrastructure have been stymied by narrow interest groups whose members would rather avoid scrutiny. Institutional self-interest is often masked by concerns about privacy. This institutional self-interest resulted in a major setback to consumer information and choice in the 2008 Higher Education Opportunity Act: the ban on a national education database or system that would allow student progress to be followed over time.

And so the report advocates scrapping the unit record ban to allow parents and students to have a better sense of the value offered by different degree programs. That we allow parents and students to make these decisions in what amounts to a vacuum of real, high-quality comparative data is insane. It is incredible that we allow higher education incumbents to get away with this, and we ought to organize parents — particularly the parents of adult college graduates who are living at home due to an inability to find gainful employment — to strike back. 

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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