The Corner

Don’t Want More Higher-Ed Regulation? Then We Need More Transparency

Last week, the Pope Center’s George Leef offered a critical take on proposals to gather more data on higher education. Leef argues that federal efforts to make information like graduation rates, average earnings, and student debt loads available to the public will inevitably lead to even greater government interference in the market:

Data (on education and almost everything else) simply encourage more government meddling. They appear to identify “problems” and politicians and policy experts immediately jump in with proposed solutions. Such solutions, however, usually cause new problems and deepen the government’s interference in the workings of the free market. Therefore, it is better not to collect data at all.

In our view, Leef’s last sentence, in particular, misses a critical point: As we argue in a recent AEI paper, increased transparency can actually fend off calls for increased regulation by improving market function. After all, politicians tend to respond when their constituents complain about the cost of a particular good or service. And as we’ve just witnessed with Obamacare, popular discontent can quickly translate to a vast expansion of the government’s role.

While conservatives are right to point out that many of higher ed’s problems are rooted in existing government interventions, the sector’s troubles also stem from the fact that it’s so difficult for consumers to assess the quality of the product they’re purchasing. Concerns about college affordability actually boil down to questions of value — is the degree program I’m investing in going to provide a payoff large enough to justify the cost? The point of making outcomes data available is to empower consumers to make better decisions about which providers pass that cost-benefit test. In the aggregate, informed decisions create the market discipline that conservatives know and love so much — the discipline that empowers consumers, rather than regulators, to hold institutions accountable.

But do consumers really want this type of information? Leef continues:  

No one demands statistics about activities that the government has nothing to do with – gyms and health clubs, for example. Some consumers make great use of them and rapidly improve in whatever metrics most concern them – weight loss, stamina, lifting, and so on. Others rarely go, or fritter away their time when they do. Whatever statistics may be collected are collected by individuals for themselves. Policy wonks do not insist on data that might show which clubs are more “effective” than others.

Why not? Because no government money is spent on subsidizing health club memberships. Even the most interventionist politicians seem to understand that individuals will act as they think best with regard to fitness since they’re spending their own money. No health club data could make any difference.

Is it really the case that consumers never demand information about product quality in markets that the government doesn’t subsidize?  The popularity of services like Consumer Reports, Angie’s List, and Yelp seems to indicate otherwise.

And the success of the U.S. News and World Report college rankings suggests this demand for information carries over into the higher-education market as well.  But there’s a major difference between evaluating consumer goods and higher-education institutions: While PC Magazine can perform a relatively inexpensive battery of tests to evaluate laptops, for instance, it’s much more difficult for a private firm to systematically compile the data needed to calculate the likely return on postsecondary investments — like the earnings for a typical graduate from a particular program. Collecting such outcome data for all graduates requires access to wage records that are collected and maintained by the government for tax purposes. Private-sector efforts like PayScale.com have made great strides in collecting salary information from users who log onto their site, but these self-reported, un-verified data are far from perfect.

As a result, rankings like those published by U.S. News rely heavily on inputs — endowment size, faculty–student ratios, etc. – as a measure of quality, a process that creates many perverse incentives for institutions. Given that nearly 90 percent of students say they want their higher-education experience to help them get a better job, government collection and dissemination of labor-market-outcome data can help such private efforts give consumers the information they want.

Choosing a postsecondary program also involves higher stakes than purchasing a gym membership. The relative costs of making a poor decision about a gym membership are small, making it far less risky to experiment with a few different options in order to find the one that matches preferences. Investing in the wrong college can lead to sizable debt and nothing to show for it. And individuals only buy it once or twice over the course of their lifetime, leaving little room to learn from experience.  

Lastly, students are not the only stakeholders that can benefit from data. Private lenders can use data to help identify those programs which are serving students well and those that are not.  Helping private financing markets operate effectively is important to developing alternatives to government programs.

Data are not a panacea. The mere existence of data will not cure every market distortion created by government’s involvement in higher education. Those must be addressed through other reforms designed to rein in government’s role in the sector and expand the role of private markets. 

However, clear, objective outcome data will help consumers effectively unleash the kind of market discipline the sector desperately needs. A more competitive market will reduce, rather than increase, calls for the feds to take a more expansive role in micromanaging colleges and universities from Washington. 

— Kevin James is a research fellow at the American Enterprise Institute and Andrew P. Kelly is resident Scholar and director at the institute’s Center on Higher Education Reform.