This commentary originally appeared in Forbes on May 31, 2015.
“We’ll get it done this year,” predicted U.S. Senator Lamar Alexander (R-TN) when asked whether Congressional efforts to pass the reauthorization of the Higher Education Act would be successful. Alexander, who chairs the Senate education committee, plans to have legislation up for a vote after the Senate returns from its August recess this year. To this end, he has proposed a number of thoughtful reforms aimed at making our universities more accountable for student failures.
The need for such reforms—and more—is clear to all who have observed the trajectory of American higher education over the past fifty years: skyrocketing tuitions, crushing student-loan debt, poor student learning, and high college-graduate underemployment.
Alexander’s recent report, “Risk Sharing/Skin in the Game,” cites the “unintended consequences of coupling universal access with generous, easy-to-obtain government financing,” which may contribute to our “environment of over-borrowing and pricing that is becoming increasingly disconnected from a student’s ability to repay.” The existing federal framework rewards universities “for volume (number of students enrolled and associated loan and grant monies).” However federal policies enforce “few, if any, consequences for institutions that leave students with mountains of student debt and defaulted loans.” Although Alexander does not intend Congress to move away from its “focus on ensuring access,” the country is entitled to expect that its publicly-funded colleges and universities “maintain a greater stake in,” or become “better aligned with, their students’ success, debt and ability to repay.”
The evidence grounding Alexander’s critique is compelling. The latest data from the U.S. Department of Education reveal that “more than 1800 colleges have default rates above 15 percent” (the national average is 13.7 percent). Moreover, “nearly one out of every three borrowers defaulted on their federal student loans at more than 200 colleges.” This distressing news is made all the more distressing when we reflect on the fact that nearly all of the Obama Department of Education’s indignation has been directed at for-profit colleges, which educate only roughly ten percent of postsecondary students (and which cost taxpayers less to support than non-profit schools). Meanwhile, up until now, the terribly underperforming non-profit schools have suffered no comparable federal intervention.
The lack on the part of universities of what Alexander labels “skin in the game” contributes to the fact that there are today roughly seven million borrowers who are in default on their student loans, which total approximately $99 billion. A study by the New America Foundation finds that the average amount of each defaulted loan is $14,000—by no means trifling—which “damage[s] credit ratings with consequences for purchasing a car or a home, and wage and tax refund garnishment.”
High default rates are in part the product of low graduation rates at many colleges. “Approximately 70 percent of borrowers who default on their loans withdrew from college before completing their program.” After suffering the demoralizing experience of trying college and failing, student-loan borrowers must attempt to repay their loans lacking the higher income that customarily comes with a college degree. With this, we have insult added to injury.
Alexander’s critique is true enough, but how to remedy this in an age that appears driven by the utopian goal of providing “college for all”? His answer: “skin in the game” for higher education. “Colleges and universities [should] assume a liability based on some factor related to their former students’ repayment of federal student loans.” He cites former U.S. Secretary of Education Bill Bennett’s proposal that each school pay “a fee for every one of its students who defaults on a student loan, or have a 10 to 20 percent equity stake in each loan that originates at its school.” Bennett’s solution was echoed by a recent report in The Economist, which argues that, if universities “were made liable for a slice of unpaid student debts—say 10% or 20% of the total—they would have more skin in the game.”
In short, concludes Alexander’s report, “the risk of enrolling a student would be shared among all those who finance a student’s education: the student, the federal government, and now, the institution.” Doing so would guarantee that schools finally “have a clear financial stake in their students’ success, debt, and ability to repay their taxpayer-subsidized student loans.”
Alexander’s proposal carries a bracing shot of economic reality. But does it go far enough? Higher education analyst Richard Vedder has his doubts. Although he welcomes the Senator’s proposed reforms as necessary first steps, he worries that they “do not even touch the largest single policy mishap — the totally dysfunctional federal student financial-aid programs.” Tuition hyperinflation, Vedder argues, began when “federal student-loan and grant programs started to become large in the late 1970s.” Since then, schools “have effectively confiscated federal loan and grant money designated for students and used it to help fund an academic arms race that has given us climbing walls, lazy rivers, and million-dollar university presidents — but declining literacy among college students and a massive mismatch between students’ labor-market expectations and the realities of the job market.” Vedder reminds us that, “before these large programs began, we did not have nearly half of college graduates taking jobs usually filled by those with only a high-school education. . . .”
Vedder also reminds us of an even more disquieting fact. When they began, “the primary goal of the federal student-aid programs was to improve access to college for lower-income persons.” But the result has been a “total failure: A smaller percentage of recent college graduates come from the bottom quartile of the income distribution today than was the case in 1970,” when these programs began.” Accordingly, only by “rethink[ing] financial aid” can we hope to achieve “real, effective reform.”
Vedder is correct. And I would not be surprised to learn that Senator Alexander agrees with him, but deems real, systemic solutions to our systemic crisis beyond the realm of the politically possible at this point.
I would add that the college accountability, tuition hyperinflation, and student-loan debt crises are as much effects as they are causes. The deepest cause, which Charles Murray lays bare in his book, Real Education, is our educational romanticism, according to which many in our society today believe that virtually all high-school graduates should go to college. Once students who really could not master college-level work began to arrive in droves, with easy-federal-loan-money in hand, it was not difficult to forecast what the results would be: lower college-completion rates, ever-higher tuitions and debt, and diluted education quality.
Until we address this, the deepest driver of our discontents, we will have to rest content with the doubtless serious but less-transformative solutions Senator Alexander proposes.