October 25, 2020

cedric-lachat

education gives you strength

How to Save Higher Education

19 min read
Nick Sirotich There has never been a crisis in American higher education like the one...

There has never been a crisis in American higher education like the one we are facing today. While fall enrollment numbers are still in flux as colleges scramble to deal with an out-of-control pandemic, there is no question that all but the wealthiest institutions are facing deep financial pain and potential catastrophe. Even relatively conservative estimates like those published by the college financial planning firm Edmit suggest that, thanks to declining revenue and investment returns, one-third of all private colleges are now on track to run out of money within six years—a nearly 50 percent increase in estimates from 2019—and many are vulnerable to bankruptcy much sooner. Public universities, meanwhile, are about to be hammered by steep cuts in government funding, forcing them to raise prices, cut services, and turn away students, including millions of newly unemployed workers. 

Check out the complete 2020 Washington Monthly rankings here.

The higher education system was weak before the coronavirus hit. Thanks to long-term enrollment declines, recent years have already seen a spate of small-college bankruptcies, each a minor tragedy of shocked students, heartsick alumni, and another town or city suddenly without a vital institution whose generational roots were somehow not deep enough. Many regional public universities had been steadily drained of vitality as state budget cuts accumulated, year after year. 

But COVID-19 has turbocharged all of these trends, with serious consequences for America’s most vulnerable. Low-income and first-generation students, immigrants, and people of color will be more likely to delay going to college or to drop out. Because colleges will charge more and families will have less, many more students will take out loans and, with diplomas or without, end up in default, widening economic inequality and the racial wealth gap. For many poorer communities, colleges have been like stubborn plants, protecting them from the erosion of globalization and economic disruption. When their schools close, it will further social decay. 

The need for college won’t go away, however, particularly with widespread unemployment. For-profit colleges backed by private equity will surge into the gap, using aggressive and deceptive marketing tactics to sign up naive students who will pay outsized tuition with no-questions-asked loans from the U.S. Department of Education. Much of that debt will never be repaid, ruining credit, wasting lives, and costing taxpayers billions. 

Many of these calamities can and should be mitigated in the short run by a sufficiently large federal rescue package. But even that will leave the system significantly worse than it was pre-pandemic: diminished, sclerotic, and vulnerable to the next unforeseen disaster. A fundamentally different policy architecture is needed for American higher education, and the best time to build it is now. This essay describes how that plan would work. 

The plan would change how the federal government supports colleges and universities, staving off immediate disaster, boosting resources for historically underfunded schools, and fundamentally realigning the financial incentives that drive many colleges to put money and status ahead of students. At the same time, the plan would usher in a new era of intercollegiate cooperation, transforming an archipelago of endangered, isolated institutions into a network of technology-enabled learning communities. 

Not all colleges would choose to participate in such a network, preserving the American tradition of diversity and independence in higher learning. But those outside the system would mostly be rich colleges that mostly serve rich students, and we would tax them in a way that helps pay for everyone else. 

The result would be a new higher education ecosystem that works for everyone, not just the chosen few. 

For a long time, the federal government did very little to fund higher learning. Until the mid-20th century, states paid the overwhelming majority of the costs for public colleges, students paid for private ones, and nobody paid that much. But after World War II, higher learning opened up to the masses as matriculation became a path to upward mobility for the burgeoning middle class, women entered the labor market, and the economy shifted toward white-collar work. The GI Bill set the precedent for the federal government’s market-oriented, voucher-based method for supporting higher education institutions: Give or lend students money, and let them decide where to spend it. 

COVID will bankrupt many colleges. But the need for higher education won’t go away, particularly with widespread unemployment. Absent major reform, for-profit colleges backed by private equity will surge into the gap, using aggressive and deceptive marketing tactics.

This system, which persists to this day, has had its virtues. Collegiate learning and scholarship are complicated, sometimes esoteric, and not especially amenable to the kind of direct government regulation that often follows direct government subsidies. The market approach helped make American higher education uniquely large and diverse, encompassing thousands of institutions with different missions, philosophies, and student bodies. Nearly every existing college found a place in the new order. Elite research universities expanded spectacularly,
attracting money and talent from around the world. 

But the system rested on the strength of a few key assumptions that have steadily weakened over time. It presupposed that state governments would continue to sustain and expand public colleges and universities, as they had while building out regional public universities and community colleges in the 1950s, ’60s, and ’70s. That turned out to be deeply mistaken. Some states, like California, New York, and North Carolina, invested in their public universities and kept tuition low. But others, like Pennsylvania, Colorado, and New Hampshire, were stingy, letting students and parents foot the bill. And in every economic downturn since the 1980s, states have disproportionately cut college and university budgets. 

The logic was always the same—unlike K–12 schools, prisons, and health care for the poor, higher education could raise prices to make up for lost revenue. So tuition increased during recessions to fill the budget gaps, backed by a federal loan program with bottomless reserves and no credit standards for borrowers. The process worked like a ratchet: When funding was restored during boom times, tuition never went back down. Adjusted for inflation, tuition prices at public four-year universities have almost tripled over the past 30 years. The post-2008 period has been especially harsh. Some states, mostly governed by Republicans, never restored lost funding. If Great Recession–era funding cuts are repeated over the next few years, 23 states will end up with systems that receive two dollars in tuition for every one dollar in state funding, a threshold beyond which the whole idea of being a “public university” is seriously in question. 

The system also assumed that an unregulated, consumer-driven free market for higher education would successfully match students with the institutions best prepared to serve them while imposing market discipline on quality and prices. But the higher education market does not work like the simple models freshmen are taught in Econ 101. Choosing an institution with which to have an intense multiyear relationship involving hundreds of people and countless unforeseeable future decisions is a lot more complicated than shopping for toothpaste at CVS. Undergraduates are inexperienced consumers by definition—few people return to college for another bachelor’s degree. Students and parents are highly susceptible to marketing and pressure tactics, rumor and innuendo, peer pressure, and vaguely defined reputation. The fact that colleges disclose little hard data about the quality of their courses doesn’t help. 

Colleges also do their best to make prices hard to understand. Car dealers are a cultural stereotype of caveat emptor sleaziness. Yet when you shop for a car, at least dealers are required to list various key features along with the price in a standard window sticker that is the same at every dealer. Colleges are subject to no such regulation. Instead, each adopts a different financial aid “award letter” format that is often a nightmare of deliberate obfuscation. A New America study of more than 500 award letters found that a third of colleges don’t even disclose how much they actually cost. Seventy percent combine grants and loans into a single measure of college “aid.” Many then tell students that their “net price”—tuition minus “aid”—is $0, even when it’s financed by tens of thousands of dollars in loans. All of this translates into congenital market failure, measured by the millions of Americans who drop out of college and default on their student loans. 

This system has obviously disadvantaged customers. Yet for decades, it worked just fine for schools. The economy continued to shift away from blue-collar labor toward jobs that require college degrees, stoking demand and expanding the pool of students to include more diverse consumers. Beginning in the late 1990s, the gigantic Millennial generation ensured that there were enough customers for everyone, and colleges were able to keep labor costs down by creating a constant oversupply of newly minted PhDs and then using the resulting power imbalance in the labor market to hire them as adjunct professors for wages low enough to qualify for food stamps. As a result, many colleges prospered. If you’re old enough to revisit a familiar college campus after a decade or two away, you will almost certainly be struck by how much bigger and nicer everything has become—even if the school isn’t famously wealthy. 

Can you imagine if you had to disgorge every detail of your finances before haggling with a seller who was legally allowed to lie to you about how much their product actually costs? If you’ve ever sent kids to college, you don’t have to imagine.

But in the long run, consumerization and privatization were a trap for most colleges. Like countless other dimensions of American society, the higher education sector became increasingly financialized and winner-takes-all. While upper-upper-tier institutions accumulated almost unimaginable amounts of new financial wealth and global brand prestige, many schools were swept into a race for status and students. After the Millennials finished school and the overall size of the college-going population declined, that race became less-than-zero sum. 

To make the numbers add up every year, some colleges, especially in the private nonprofit sector, spent millions on “enrollment management” consultants whose marketing tactics generated thousands of applications that were fed into the kind of sophisticated mathematical models that airlines use to generate ticket prices, with the goal of maximizing tuition revenue from each seat in the lecture hall. Can you imagine if you had to disgorge every detail of your earnings and assets before haggling with a seller who was legally allowed to lie to you about how much their product actually costs? If you’ve ever sent kids to college, you don’t have to imagine.

This complex price discrimination helped sustain creaky college finances for a while. But like all systems that rely on statistical analysis of the past, it was vulnerable to a future black swan event like a once-a-century pandemic. As the virus tanked the economy, it blew up state budgets and turned every classroom and frat house into a potential public health disaster. It also prompted our anti-immigrant president to move even more aggressively to keep out international students, who often prop up university budgets by paying full tuition. With less money from states, fewer Americans who are willing to attend school for fear of getting sick, and a smaller pool of international applicants, many colleges stand on the precipice. 

Many people already believe that the time has come to upend the old system. Outrage over the $1.6 trillion mountain of outstanding student debt helped fuel the Bernie Sanders “free college” movement that upended American electoral politics. The Sanders plan, and a similar proposal from Elizabeth Warren, would give states enough money to reduce undergraduate tuition at public colleges and universities to $0. The cost would be split between new federal grants and state matching funds. As part of the post-primary rapprochement between rival campaigns, Joe Biden has broadly endorsed the program. 

“Free college” is a well-motivated but poorly designed idea. Understanding why shows what to do instead. By giving each state enough money to bring public university tuition down to $0, “free college” would unjustly reward states that previously cut college funding and let tuition rise, while perversely penalizing states that did the right thing by spending more to keep tuition low. The stingy states, especially over the last decade, have largely been governed by Republicans. “Free college” is essentially a bailout for tax-cutting, government-hating right-wingers. And by requiring states to opt in and spend additional matching funds if they want to make college free, it would all but guarantee that some states opt out, as they did with the Medicaid expansion under Obamacare. 

“Free college” would give far more money per student to wealthy elite public research universities that charge higher tuition and enroll many well-off students than to regional universities and open-access community colleges where tuition is already low. By excluding private nonprofits, it would leave out hundreds of schools that serve racially and economically diverse students, including many historically Black institutions. 

Finally, some people can and should pay for college. Higher education is both an essential public service that should be accessible to all and an expensive private good that is bought and sold for large amounts of money in the free market. Other things work this way, which is why many people believe affordable housing is a basic human right but few, if any, believe that all houses should be free. 

There’s a better way, one that would bring private nonprofit colleges into the fold, make higher learning affordable for everyone, and greatly improve the quality of education that students, especially the most vulnerable, receive. Here’s how it would work.

To start, the federal government should create a new program that provides a direct annual subsidy of $10,000 per full-time-equivalent (FTE) student to any college, public or private nonprofit, that agrees to certain terms. It’s important, here, to distinguish tuition prices from tuition revenue. Colleges often provide scholarships and discounts that bring prices substantially below listed rates, and most students attend public institutions that charge much less than the eye-popping rates at some private colleges. As a result, the majority of undergraduates today attend a college where tuition revenue is less than $10,000 per FTE student. 

The first condition would be to adopt a uniform pricing system. (“Free college” is an exceptionally simple form of uniform prices, in that there aren’t any.) Anyone with a household income below $75,000 would pay nothing. From there, tuition would increase on a sliding scale and cap out at $10,000—roughly the average tuition price at public four-year universities—for households earning more than $250,000 per year. At public universities, prices would be the same for in- and out-of-state-students, eliminating the financial incentive for colleges to recruit wealthy students from far away at the expense of local taxpayers. The existing Pell Grant program would be maintained, providing lower-income students with additional funding to pay for books, housing, and living expenses. 

“Free college” would keep school funding levels roughly the same. In this plan, by contrast, the combination of tuition from the uniform price schedule and the annual federal subsidy would be more money than most public and nonprofit colleges receive in tuition today. For some, it would be much more. That’s a good thing. Colleges that currently charge low tuition—mostly low-cost community colleges and regional public universities—also tend to get less state financial support. These institutions have been shortchanged for decades by political neglect. They serve large numbers of working adults, students of color, first-generation collegians, and students with academic challenges. 

This plan would provide those colleges with a huge boost in new resources that could be used to improve facilities and laboratories, increase the number of course sections, reduce class sizes, improve faculty pay, and increase the number of full-time tenured professors. We know that less-selective colleges can make impressive gains in helping students learn and graduate—if they have the resources to do the job (see Jamaal Abdul-Alim, “Higher Ed’s Most Successful Failure,” for one example of a successful program). “Free college” would make college cheaper, but not better. For many students, better is what they most need.

For colleges closer to the break-even point between existing revenues and what they would receive under the new plan, there would still be many good reasons to participate. Transparent lower prices would make them more attractive in the market. Competition with neighboring states would give local legislatures incentives to provide their colleges and universities with enough money to participate. But because the plan allows individual colleges to opt in, no institution would be forced into a financial and regulatory arrangement not to its liking, preserving the long and worthwhile tradition of college autonomy. This plan would also avoid the Obamacare problem of putting governors in the position of saying yes or no to funding for the entire state. 

“Free college” is essentially a bailout for tax-cutting, government-hating right-wingers.

In a stroke, the plan would eliminate uncertainty, anxiety, and confusion for millions of students and parents struggling to pay for college. College would be cheaper or free for many, and it would be far easier to compare prices, since colleges would use the same tuition fee schedule and be required to use an identical format when describing other expenses like room and board. 

Including private nonprofit colleges in the plan would broaden the political coalition for reform and help preserve the distinct character and economic diversity of cities and towns that rely on local colleges, many with long faith traditions and expertise in serving Black, Hispanic, and other groups. For-profit colleges would not be eligible.

The plan would be expensive, in the tens of billions of dollars annually, depending on how many colleges opted in. But because students would have less need to borrow, the cost would be partly offset by less money spent on subsidized loan interest rates, fewer defaulted loans, and fewer loans forgiven at taxpayer expense. 

Colleges receiving the subsidy would be held accountable for baseline measures of quality and success. While the federal government can’t and shouldn’t judge how well a university teaches particular subjects like linguistics, anthropology, or chemical engineering, it can prevent abject failure. There’s no such thing as a good college where the vast majority of students drop out, can’t find jobs, or default on their loans. Colleges that consistently fail by these measures would be ineligible for government grants. 

The second major pillar of the plan would be a set of research investments and policy changes designed to connect all of the participating colleges into a network of learning- and student-focused institutions. It would begin with a simple but profound change in the way colleges relate to one another: credit transfer. Every college in the network would be required to accept credits from every other college in the network.

The existing college credit system is a disastrous remnant of the time when most students could only take classes from the single college they were admitted to. Today, assembling a degree from credits earned at multiple colleges is a nightmare of bureaucratic uncertainty. Millions of hours and dollars are lost every year when colleges routinely refuse to accept grades earned by students who earn credits from multiple institutions, a common occurrence for adult, part-time, and other “non-traditional” students who now make up the majority of undergraduates. Countless students end up borrowing and paying to take the same classes twice. Under this system, that wouldn’t be a problem. 

Individual institutions would retain the discretion to set standards for what courses count for academic majors, including, if they chose, a mandate that all courses that count to the student’s major be taken at the college granting the degree. Colleges and academic departments have different approaches to disciplinary learning, and that autonomy and diversity should be respected. The same would be true for colleges that maintain an authentic core curriculum—not a vague set of “Pick two from Column C” distribution requirements, but actual courses that all students are required to take. That said, most undergraduate credits are not earned in pursuit of majors or core curricula. For all other degree requirements, students in the network would enjoy complete credit reciprocity. 

The current system presupposed that state governments will continue to sustain and expand public colleges and universities. That turns out to be deeply mistaken.

Because nearly all colleges now offer online courses, this would give students the best of traditional in-person and online learning—the kind of intense socialization, peer and faculty relationships, and mentoring that in-person education provides, with the freedom to choose from among the best online courses offered by thousands of course catalogs nationwide. It would inspire colleges to improve their online technological tools and pedagogical skills. Since everyone in the network would use the uniform fee schedule, the cost would be the same. 

Over time, this would give colleges powerful incentives to cooperate and specialize. In the current cut-throat, status-driven market system, every college is an island. Even in the face of an existential threat in the form of global pandemic disaster, colleges are not working together. (If you won’t do something even though not doing it might literally kill you, you’re never going to do it.) This culture of extreme educational individuality is replicated at the course and instructor levels. A typical full-time professor may have dozens of colleagues at institutions around the world with whom she is in constant, ongoing communication and collaboration on scholarship and research. These powerful networks are stable even as scholars move among institutions. Yet when it comes to teaching, there is nothing similar. Every lecturer stands alone.

The combination of scaled-up credit reciprocity across a huge network serving millions of students would create strong incentives for colleges to pool their resources and offer outstanding versions of the high-volume courses commonly taken by many students. The price tag for a single luxury campus fitness center that has become table stakes for competing in the market for upper-middle-class students is far more than colleges currently spend on developing, say, a world-class sequence of undergraduate courses that could be used and adapted by many different colleges, in person and online.

The new system would also fundamentally change the terms of college competition. Instead of being trapped in a price-discounting and high-end-amenities arms race, colleges would have good reasons to create great courses that attract some of the millions of potential students within the network. College accreditors would serve as watchdogs to prevent unscrupulous schools from lowering standards to sell easy credits. 

Cooperation across the network would be bolstered by a large new investment in research and development. The federal government gives higher education $30 billion annually to conduct research in nearly every field of inquiry one can imagine, but very little on higher education itself. Every year, millions of students take hundreds of thousands of courses, almost none of which are subject to the kind of careful scientific inquiry that universities themselves specialize in conducting. This new research effort would take advantage of the size of the new college network to conduct ongoing research on best educational practices and promising innovations. 

The system would create its own kinds of competitive pressures—more centered on academic quality than the current market, but still intense enough that colleges would need to work hard to sustain enrollment. Some might choose to specialize in the academic disciplines where they have the most strength and depth. They would also build reputations for expertise in particular approaches to pedagogy. Students would choose to live in communities that fit their needs, faiths, backgrounds, and ideological affinities, while enjoying access to courses and peers nationwide. 

The end result would be a new network of affordable, well-resourced, deeply interconnected colleges and universities that combine the virtues of traditional higher education diversity and autonomy with consumer protection, information technology, and cutting-edge education practice. Instead of letting some colleges collapse into bankruptcy while the rest struggle and claw in a failed system of free market chaos and declining public support, some of the most vital and distinctly American institutions in our nation’s history would be repositioned for even greater success. 

Not all colleges would join the network. Some might prefer autonomy, as is their right. For others, the numbers simply wouldn’t add up. The annual subsidy and uniform price schedule would yield much less revenue than they receive in tuition today. For the most part, these are extremely wealthy universities that enroll mostly wealthy students—the Ivy-plus universities, fancy liberal arts colleges, and a relatively small number of elite public research universities. The winners who took all over the past 50 years. 

This plan would not, in other words, tear down the system of elite colleges and universities that currently serves to acculturate and accelerate the children of the ruling class. As long as people are allowed to be very rich, there will be places like this, just like there will always be mansions and expensive cars. And in fairness to Stanford, Yale, Duke, and other universities that sell status to the highest bidder through a thinly veiled system of bribes and legacy admissions preferences, these universities truly are some of the greatest centers of research and scholarship on the planet. They should keep being excellent at that, which helps all people, not just the privileged. 

Every college in this new network would be required to accept credits from every other college in the network. This would inspire colleges to improve their online technological tools and pedagogical skills, and to cooperate and specialize.

This does not mean, however, that the public should continue subsidizing them in the same way. 

The “nonprofit” institutions most likely to opt out of the new network are the same universities that hold the lion’s share of all university endowment assets, totaling hundreds of billions of dollars. In 2017, Congress passed a small 1.4 percent excise tax on endowments larger than $500,000 per student. The higher education lobby, incensed, has been fighting to repeal it ever since.

But the real money isn’t in the taxes colleges don’t pay on their endowment earnings. It’s in the income taxes individuals don’t pay on their donations to colleges, which are effectively subsidized at nearly 40 percent for the wealthiest donors, and thus provide an incentive to donate much more. 

The cost of the new plan would be partly offset by eliminating the tax deductibility of any donations to colleges with an endowment greater than $200,000 per student. If colleges want to avoid the penalty, they can spend down their assets by making tuition cheaper for more students. There is no reason taxpayers should heavily subsidize millionaires who give money to billion-dollar institutions. 

The U.S. Department of Education should also impose much stricter borrowing standards on colleges for loans used for education outside of the network, including at for-profit colleges. The current loan system runs on autopilot—anyone can borrow to enroll in any program at any accredited college. The new system would put the burden of proof on colleges, and require them to share in the risk. Eligibility for federal loans would be restricted to individual college programs that consistently graduate students who are able to get good jobs and pay their loans back. If students default, the college would have to reimburse taxpayers for 50 percent of the loss. 

The existing higher education policy architecture has been in place for so long, it can be hard to imagine something fundamentally different. But while the ideals of learning and scholarship are eternal, the means by which we organize and pay for higher education have changed many times in the past. It’s time to change them again. 

Relying on state governments to ensure that colleges have enough money and on the free market to ensure that colleges are well run, while the federal government stands in the background passively lending students enormous sums of money that many will never pay back, has failed. That approach would have kept failing in the best of times and will be an unmitigated catastrophe in these, the worst of times. 

The moment has come to finally give all students, not just the elite few, a great, affordable college education, without life-shattering financial stress and anxiety. And it’s time for colleges to work together, rather than standing and dying alone.

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