Each year, colleges around the country confer around two million bachelor’s degrees to passionate learners. However, one million students each year will also default on their student loans, and that number increases by more than 1,400 each day. There are currently $1.6 trillion in outstanding student loans owed by over 44 million borrowers around the country — student debt is now the second-highest source of household debt, behind mortgage debt. The average student debt for a student in the Class of 2018 was $29,800, according to a study by Student Loan Hero, and students are continuing to take out more loans to finance their education. The U.S. spends more than any other developed country on higher education — excluding Luxembourg — at around $30,000 per student, according to a report by the Organization for Economic Cooperation and Development.
Even though the price of college is increasing — and with it the amount of debt students take on — four in 10 recent college graduates are in a job that does not require a degree, according to a report by the New York Federal Reserve. A report by the National Student Clearinghouse Research Center found that 6 in 10 college students will not graduate within six years of enrolling. College was previously seen as a ticket toward higher earnings and more job security, although this is slowly changing. While college does indeed pay off for many people around the country, rises in tuition makes college a less-attractive option for students interested in pursuing further education. More students are starting to overlook college altogether because they can no longer afford to attend a university.
The Higher Education Act (HEA) — the legislation that governs most of the higher education system, ranging from accountability to student aid — is due to be reauthorized soon, which means that Congress is considering what changes need to be made to create a more fair and equitable higher education system. The last time the Act was renewed was in 2008, and a lot has changed in higher education since then — prominently, outstanding student debt passed the $1 trillion mark. Policymakers and education experts have a lot of proposals surrounding how the HEA can be reformed to help boost the development of the higher education system, covering various topics. This year, affordability and access have been popular topics, but at the center of the debate over higher education reform is accountability. The recent rises in the cost of tuition have occurred in large part due to a lack of accountability for higher education institutions, and policymakers are looking to revise legislation to prevent against such tuition rises in the future.
The Problems With Low Accountability
The lack of accountability in higher education has had major impacts across the industry for students. The first, and perhaps most important impact, is that tuition prices have been allowed to rise over the last few decades without much control from the government. There are a few reasons why the price of tuition has increased, but the most important has been lower state funding which previously subsidized the cost of college for many students. Many state legislatures have been spending less per student on higher education for the last three decades, which have meant that universities that rely on state funding have had to increase tuition to earn the money back they used to receive from the state.
Three out of four American college students attend public schools, which are funded almost fully through state and local subsidies, and have been disproportionately affected by state cuts. Rather than working to downsize, institutions have instead tried to find students willing to pay more money for their education. Some universities enrolled more full-paying out-of-state students to cover costs, and increased their sticker prices further to raise more money from wealthy students. Because state colleges increased their tuition, other universities could follow suit without having to worry about students not attending their institution — other institutions were just as expensive for students.
These tuition rises have meant that the federal government has become more involved in student loan financing. As the price of tuition has increased, the federal government has increased the size of Pell Grants — grants for low-income students that do not need to be repaid — and has also created more loan programs for students. The federal government controls over $1.4 trillion of outstanding student loans as a result. With more student aid available, colleges have been free to increase their prices because students can access more capital from the government to finance their education. This has led to a virtuous cycle where colleges charge more for tuition, and the federal government increases access to financing options for students, which in turn causes colleges to increase their tuition even further. There is a rule — the 90/10 rule — which states that for-profit institutions can only receive up to 90 percent of their income from federal aid sources; the other 10 percent must come from other sources such as donations, endowment gains, et cetera. But this rule has failed to hold colleges fully accountable for their actions.
The lack of accountability has not only increased the price of tuition, but has also allowed colleges to focus less on the graduation and student success rates for their students. More students are starting to drop-out of college for a variety of different reasons. One of the largest is that tuition increases have made college less affordable, and many students exhaust their aid options before graduating. Increases in tuition have also made more students get jobs while attending college — 81 percent of part-time students were employed, and 43 percent of full-time students were employed in 2017, according to Education Department data — which has made it more difficult for them to focus on their studies. Students who drop out still have to repay their loans, but they do not have the degree with is the key to unlocking higher salaries and better jobs in the labor market. If a student drops out, the college suffers no consequences — the school is free to continue onboarding students, even if their services are subpar.
Holding Colleges to Account
These are only a few of the problems associated with a lack of college accountability — problems such as higher spending on non-teaching costs and a 28 percent increase in administrative spending between 2012 and 2016 are also the result of a lack of accountability. Policymakers are therefore looking for more ways to hold colleges to account for their students’ success, and give them more skin-in-the-game to ensure that they are providing the highest possible quality of education to their students. There have been a few proposals on how to solve this issue, ranging from making college free — students wouldn’t pay for tuition increases, the government would, who would have a stronger incentive to act to ensure the quality of education — to revising the 90/10 rule. Senator Lamar Alexander, chairperson of the Senate Committee on Health, Education, Labor, and Pensions, has made accountability the centerpiece of his higher education reform proposals.
Focus on Outcomes
Senator Alexander highlighted in a recent New York Times op-ed his idea for a new accountability system. The proposal would make the federal government take into account student loan repayment rates when deciding whether or not to allow students to access federal financial aid under Title IV. Therefore, if too many students are not repaying their debts, the program could lose its ability to offer federal student aid to their students — which will make many people unable to attend their program. This would incentivize schools to pay more attention to their graduation rates, and provide more support to students when they are looking to find a job. Colleges would also have a new incentive to provide support to students about borrowing more than they can reasonably afford, and may also be incentivized to lower their cost of tuition — lower tuition costs would mean less debt, which would increase the likelihood students could repay that money.
One key element of holding colleges to account would be to focus on multiple outcomes and statistics. At present, accountability proposals such as Senator Alexander’s suggest that the government should measure repayment rates for students. However, the federal government should also account for other outcome statistics depending on each school’s mission and goals. For example, the government should also take into account graduation rates, student employment outcomes — if they find jobs in their field — salary growth, and whether graduates were satisfied with the quality of education they received. This would ensure that schools paid attention to not only default rates, but also the other important metrics that define student success. Schools would have a new incentive to focus on conferring useful skills around employability and to focus on helping people find good jobs, as well as teaching students the knowledge and skills they need to thrive in the modern workforce.
Offer Pay-for-Performance Tuition
Another way to hold colleges more accountable would be for colleges to start offering more pay-for-performance tuition packages to students. Thomas College in Maine promises that its graduates will find a job related to their major within six months of graduating. If the student does not find a job, the school offers graduates the option of having their federal student loan payments covered for a year, or by being allowed to start a master’s degree program at no cost. These types of guarantees are very similar to those offered by various coding bootcamps, where if a student does not find a job after graduation, they do not have to pay their tuition — or at least are given a discount on their tuition.
Colleges could also move toward offering Income Share Agreements to students — a method of financing where a student receives the money they need upfront to pay for their education, in exchange for a percentage of their future income. Students who use an ISA to pay for their education will only make payments when they earn over a certain amount — so if they become unemployed or underemployed, they will not have to repay their ISA. Thus far, colleges such as the University of Utah, and Purdue University have launched their own ISA programs which offer ISAs as an alternative to student debt.
Accreditation bodies could also be tasked with holding institutions further to account. Accreditors mainly focus on metrics such as tuition discount rates, how much a school spends on teaching, and an institution’s financials. These metrics do not paint a full picture when evaluating the quality of a school, however. Future accountability legislation could force accreditors — of which there are dozens around the country — to focus on student outcomes when evaluating whether or not an institution should be allowed to confer degrees. Accreditors should focus more on whether a school is creating value for students; institutions that do not create value for students should be warned by accreditors, or denied accreditation until they fix their problems.
The Future of Accountability in Higher Education
The main problem that critics have with accountability proposals is that schools that focus on certain groups, such as all-women schools and Historically Black Colleges and Universities (HBCUs), may be disproportionately effected due to existing discrimination in the labor market. For example, women hold nearly two-thirds of outstanding student loan debt in the U.S. — 58 percent of graduate degrees are offered to women. Further, African-American students are more likely to take out loans, borrow larger amounts, and also are more likely to default on their loans than other borrowers. Therefore, accountability proposals — if not appropriately structured — could have serious consequences for these institutions. However, if schools take into account a variety of metrics, not just student default rates, then this effect can be partially mitigated. Accountability proposals should also add unique provisions to ensure that schools such as HBCUs and all-women institutions are subjected to proportionate standards equal to their success rates.
Holding colleges to account for student success will be heavily discussed as talks over reauthorizing the Higher Education Act continue. Colleges have been able to increase the cost of their tuition without adequate oversight from the government, and are also not liable if students do not succeed after graduation. If a student takes out tens of thousands of dollars to cover their education, there should be some type of accountability in place to ensure that the money the students have invested in a college education will indeed help them succeed and command higher salaries after graduation. Accountability is only one part of addressing the systemic issues in the higher education system, but solving this problem would go a long way in creating a new standard of quality and ensuring that access to a high-quality education is available for all who have the ambition to go to college.