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Making Higher Education Pay

BERKELEY – Higher education is a great investment, with each additional year of post-secondary education yielding a 10-15% return, on average. For university graduates, that means hundreds of thousands of dollars over a lifetime. Unfortunately, students aspiring to a higher education, especially those from low-income families and underperforming secondary schools, lack the information they need to make wise choices about where to go and what to study to maximize the return on their investment.

In the United States, President Barack Obama’s administration is trying to close that information gap with the College ScoreCard, a free, easily searchable database that offers unbiased information about the performance and costs of US public and private institutions providing post-secondary education. Instead of proposing an overall ranking of institutions based on some composite measure of key indicators, the database offers detailed data covering five broad categories: costs, student debt and repayment, degree completion rates, post-enrollment earnings, and access for disadvantaged students.

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Making federal data readily available to the private sector and encouraging open innovation platforms to address social challenges are hallmarks of Obama’s government. Journalists are already crunching the numbers in the College ScoreCard to propose rankings and recommendations. Ideas for new business opportunities are sure to follow.

The College ScoreCard is a big step forward for transparency. It will not only help students and their families make better choices; it will also spur a dialogue that encourages research and innovation by educators and state policymakers, and puts pressure on underperforming institutions to improve.

For students, this information can prove to be invaluable. As Isabel Sawhill and Stephanie Owen of the Brookings Institution found, there are large variations in returns by institution and major. While the average four-year college degree delivers $570,000 in additional lifetime earnings, the returns on investment are actually negative for one in five of the institutions in their 853-institution sample. Likewise, the University of Pennsylvania’s Peter Cappelli estimates that as many as one in four college programs yield negative returns for their students. There is also large variation in the returns among programs offering associate degrees (generally two years of post-secondary education) and vocational training.

At the same time, tuition costs are climbing much faster than median family incomes across the board. Student loan debt has quadrupled since 2010, now totaling more than $1 trillion. Worse yet, many of the more expensive colleges – especially private, for-profit institutions – have low graduation rates. Researchers at the US Treasury Department and the Brookings Institution recently found that 70% of students who defaulted after leaving college in 2011 came from “non-traditional” institutions – mostly for-profit universities.

These problems raise the imperative of developing new models of education delivery. In that effort, “progressive” federalism – whereby the federal government sets goals for performance, affordability, and access; demands accountability by providers; and spurs private and public institutions at the state and local levels to innovate – can play a critical role.

Conservative skeptics argue that higher education is a matter for the states, not the federal government. But the federal government already plays a major financial role in higher education. Indeed, while states account for the bulk of public spending on higher education, the federal government finances a big share of that spending via guaranteed loans and grants to students.

The problem is that the institutions of higher education – both public and private – that have been receiving significant levels of federal support have not been subject to much accountability. Meanwhile, many states have slashed public spending on higher education and tried to make up the difference by raising tuition and forcing students to take on more federally financed debt.

A well-designed progressive federalist policy for higher education would set goals for key performance indicators – based on the measures highlighted in the College ScoreCard – and reward states that advance toward those goals. It would encourage and finance state efforts to test new approaches to expand access, increase graduation rates, and improve students’ lifetime outcomes.

Presidential candidate Hillary Clinton’s higher-education reform proposals embody such a progressive federalist approach. Her “College Compact” would grant federal subsidies to states if they commit to – and succeed in – containing the costs of higher education, including by providing free enrollment at two-year community colleges.

Many institutions of higher education are already testing new models. Arizona State University has deployed an array of online technologies, as well as mentoring programs, to keep students on track. Since 2008, ASU’s cost per graduate (which includes both state spending and tuition) has fallen from $68,000 to $56,000. Last year, ASU teamed up with Starbucks to allow the company’s employees to complete their college degrees for free online. Meanwhile, the school’s overall graduation rate has climbed from 33% to 49%.

Another promising innovator is Western Governors University, a private nonprofit online institution founded by 19 state governors that serves about 58,000 students spread across the US. WGU offers accredited college-degree programs in fields from teaching and nursing to business. By focusing on the attainment of specific competencies, rather than on the amount of time spent in a classroom, WGU has been able to offer flexibility at bargain rates; a full-time program, including textbooks and a mentor, costs about $6,000 a year.

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Progressive federalism can also build on state and local innovations to expand access. Tennessee, a Republican-led state, has attracted nationwide attention with a program to offer all high school graduates free tuition at any community college. The program is funded by the state’s lottery, and brings Tennessee closer than any other state to making community college as universal as high school. Indeed, Obama cited Tennessee as inspiration for his proposal to make community college tuition-free nationwide.

Progressive federalism offers a way to tap into and build on these innovations. The federal government can and should set the strategic direction, establish measurable goals, and foster new models wherever they might arise to build an educational system fit for the twenty-first century.