Reforms to increase transparency in higher education

Editor’s note: The next president is in for a rough welcome to the Oval Office given the list of immediate crises and slow-burning policy challenges, both foreign and domestic. What should Washington do? Why should the average American care? We’ve set out to clearly define US strategic interests and provide actionable policy solutions to help the new administration build a 2017 agenda that strengthens American leadership abroad while bolstering prosperity at home.

What to Do: Policy Recommendations for 2017 is an ongoing project from AEI. Click here for access to the complete series, which addresses a wide range of issues from rebuilding America’s military to higher education reform to helping people find work.

Higher education is one of the biggest investments that individuals make over the course of a lifetime. To help students make the most of this investment, federal higher-education policy supports portable grants, loans, and tax credits available to prospective students and allows them to choose from a diverse array of providers. When the system was designed, policymakers assumed that providing voucher-like Pell grants, for example, and future tax benefits to students and allowing them to choose would reward schools that offer high-quality programs and punish those that fall short. In the aggregate, it was hoped, these choices would create market forces that would hold colleges and universities accountable for what they charge and the quality of the education they deliver.

Market competition works best when consumers can find and use clear, comparable information about the costs and quality of different offerings. If such information is lacking, either because it does not exist or because it is difficult to find and use, then market competition will be based on other attributes that may or may not be related to the key dimensions that enhance quality and efficiency. In the case of higher education, that means students might judge campuses based on their proximity to home, amenities (lazy rivers, climbing walls, top chefs), or, in some cases, tuition costs (as a proxy for quality). In the aggregate, choices based on these dimensions might reward campuses that have a geographic monopoly or those that inflate their tuition, stunting the ability of market forces to improve the system as a whole.

To be sure, evaluating the quality of post-secondary institutions and programs is a difficult task, even when information is plentiful. Part of this is because of the nature of the good: A post-secondary education is an “experience good,” meaning it is difficult to assess a school’s value until after you’ve actually enrolled. In some cases, the true value is not recognized until many years in the future when graduates learn how much their degree is rewarded in the labor market. And most students only purchase a post-secondary education once or twice, meaning they have little opportunity to learn from experience.

Consumers also face a dearth of clear, comparable data on the cost and quality of different offerings. Some basic pieces of information, such as the actual out-of-pocket costs for a given student at a given institution, are available only at the very end of the college-application process, after students have settled on a set of choices (and schools often change the terms of their financial-aid packages from year to year).

Other information is incomplete: Federal graduation rates, which provide a basic measure of the likelihood of completing a credential, are currently based on first-time, full-time students only, which excludes students who transfer in and complete a credential or transfer out and complete one somewhere else. Data on how much students learn is largely non-existent. And information on how graduates of particular programs fare after finishing school — in terms of finding a fulfilling job, repaying loans, and contributing to society — is also not systematically available outside of a handful of states or institutions. Popular private rankings suffer from the same limitations.

The federal government, in concert with the states and institutions, could do more to increase transparency and enhance market accountability  in  higher  education.  More  effectively  reporting  data  that  it already collects and collecting better data on basic measures of cost, quality, and value would provide a number of benefits.

First, students could use the information to avoid investing in schools or programs that do not provide a positive return on investment and to discover options that they may have eliminated on the basis of incomplete or faulty information. For instance, while many argue that a bachelor’s degree is the only surefire path to the middle class, a closer look at the earnings of workers with associate’s degrees or certificates in technical fields, or those who complete apprenticeships, reveals that there are many other affordable, worthwhile opportunities to consider.

Second, researchers and policymakers could more readily judge where investments in federal aid are paying off and where reforms could  improve  efficiency  and  reduce  waste.  Though  the  Office  of Federal  Student  Aid  sits  on  millions  of  student-level  records  that measure the receipt of grants and loans, completion or separation status, and loan repayment, very little of that data is used to inform the policymaking or budgeting process. And almost none of those administrative data are made available to researchers who could help answer pressing questions.

Third, private firms could use new, more granular data to come up with all manner of rankings and ratings to reflect the unique preferences of different students. The most popular rankings tend to reward admissions selectivity and spending over actual measures of student learning  or  value-added.  Better  data  on  post-graduation  outcomes would provide a fuller picture of institutional quality and, eventually, encourage institutions to compete on how well their graduates do after graduation rather than how well they scored on their entrance exams. Early evidence suggests that the earnings data released on the newly revamped College Scorecard affected student choices.

Fourth, private lenders and funders could use labor-market outcome data to improve underwriting and extend credit on the basis of a student’s potential rather than the student’s past experience with credit products. Without reliable data on the likely return on investment to different options, lenders are forced to rely on credit scores and the availability of credit-worthy co-signers. These measures exclude students who may have high potential but no credit history.

While there are opportunities to enhance transparency, it is important to place clear restrictions on what federal regulators can use such data for, to make sure these efforts are designed to serve a specific audience and to protect students’ privacy.

To view the full chapter, visit: https://nationalaffairs.com/storage/app/uploads/public/doclib/HigherEd_Ch4_Schneider.pdf