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Regulating existing colleges won't fix the fundamental problem plaguing higher education.
View related content: Economics of Education
Earlier this month, the Department of Education convened a panel of experts to weigh in on President Obama’s call for a new system of federal college ratings. Back in August, the President called on Congress to begin allocating federal student aid based on how well colleges fare on measures of access, affordability and student success, starting in 2018. Students who attend campuses with low tuition prices, lots of low-income students and high rates of student success would receive larger Pell Grants and better loan terms. Poorly-rated campuses would lose out.
The proposal has attracted some deserved praise from higher education reformers. Traditionally, the federal government has handed out gobs of student aid money based on enrollment, giving colleges lots of incentive to let students in and little incentive to worry about whether those students are successful. Helping students find good, less costly programs, while giving colleges some skin in the game, are welcome changes.
But the plan continues the Obama administration’s focus on trying to fix higher education by regulating existing colleges and ignores the sector’s fundamental supply-side problem. The number of seats at the country’s best colleges is limited, and they have every incentive to keep it that way. The business model of selective four-year colleges is built on scarcity and rationing, such that the more students schools reject, the more students want to go there. Keeping students out actually helps institutions climb in rankings like U.S. News and World Report’s.
The result is predictable: Enrollments at colleges with high rates of student success grow slowly from year to year. According to data from the National Center for Education Statistics, first-time undergraduate enrollments in two and four-year colleges grew by more than 440,000 between 2004 and 2011. Among colleges with six-year graduation rates above 80 percent, enrollment growth accounted for less than 16 percent of the overall increase. In other words, five out of six new students enrolled at institutions where their odds of graduating were below 80 percent. The colleges that captivate the popular imagination — the top fifty in the U.S. News rankings — grew by just 10,000 first-time students over that time.
Even worse, enrollments at colleges with graduation rates of 20 percent or less grew by almost 250,000 first-time undergraduates — accounting for more than half of the overall growth in enrollments. Most of these colleges are “open access,” accepting almost all comers who have a high school diploma. Because of their mission, they are less concerned about the rankings that preoccupy others and tend to expand when demand increases. But these colleges also graduate a small fraction of their students, meaning large increases in the number of seats translate into small upticks in the number of graduates.
Will Obama’s ratings plan increase the supply of quality seats? To do so, it will have to push great colleges to get bigger or encourage bad ones to improve. The former seems unlikely. Under a ratings system, top-performing colleges will likely be even more attractive to prospective students because they’ll be entitled to juicier grants and loans if they go there. But top-rated schools will still be reticent to take on more students. As public and nonprofit organizations, they don’t seek to maximize tuition revenues, and taking on too many additional students could damage their rankings. In fact, having more applicants would allow these top performers to become even more selective than they already are, thereby enhancing their advantage.
At the other end, it’s possible the new ratings system will encourage mediocre schools to improve. But as long as the size of the pie remains more or less fixed among top-rated colleges, surplus demand will continue to trickle down to lower-quality colleges, as it always has. To be sure, some colleges will make efforts to improve and rise in the ratings. But other schools will be content to soak up excess demand and make up for any lost revenue in volume.
Essential is a supply-side strategy that focuses on boosting the supply of affordable, high-quality college opportunities. Policies should encourage high-performing institutions to serve more students, not become more selective. Rewarding institutions based on the number of students they graduate, combined with measures of student success after graduation, would be a start.
Our nation’s leaders must also look beyond today’s colleges in their efforts to create opportunity. In the past, policy and entrepreneurship have combined to create space for entirely new models of higher education designed to serve new groups of students. Land-grant colleges in the late 19th century, community colleges in the 1960s and online programs in this decade were all borne of this spirit.
Today, the components of a college degree — content, instruction and assessment — are more readily available and cheaper to deliver than ever before. Yet providers who don’t look like traditional colleges, or whose offerings do not fit with the traditional academic calendar, are stifled by outdated regulations and accreditation requirements. Instead of relying on the usual suspects, policymakers should break down barriers to entry, allow new players into the market and reward those that serve students well. The Obama administration proposed reforms to accreditation in the past, but the idea has not gone anywhere.
Unless we tackle the supply-side of higher education reform, we’ll continue with the zero-sum game, shuffling students across institutions and wondering why educational attainment has slowed to a crawl. Unfortunately, the president’s ratings plan promises more of the same, and America’s prospective students deserve better than that.
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