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How states can lead on higher education reform
Plus: The Biden administration guts accountability for nonprofit colleges, and the big blind spot in college rankings.
Welcome to The Tassel, FREOPP’s newsletter on higher education policy, written by senior fellow Preston Cooper. Each month, The Tassel dives into our latest work on higher education, along with a handpicked selection of research and articles from around the web that we think are worth your time. To manage your subscription preferences, visit your Substack settings.
This newsletter devotes a fair amount of ink to higher education reform at the federal level. Student loans, accreditation reform, and many other issues are Washington’s responsibility. You’d be forgiven, however, for looking at the level of dysfunction on the Potomac and holding out little hope for comprehensive higher education reform anytime soon.
Fortunately, reform-minded state governments don’t need to wait for Congress to get its act together. In a new issue brief for FREOPP, visiting fellow Annie Bowers and I highlight three areas where state governments can take action to improve higher education for students, taxpayers, and society.
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Rising costs and declining value
College tuition has soared over the past thirty years (though it’s come down modestly since 2020). But as costs rise, the financial value of higher education is no longer as secure as it once was: the college earnings premium is starting to fall. My research at FREOPP shows a large proportion of college degrees do not justify their costs.
Unfortunately, incentives for most colleges and universities are structured such that few schools have an incentive to change this state of affairs. Federal and state funding streams are usually dependent on enrollment and operating costs, not performance. But states can realign the incentives for public colleges by restructuring funding to reward good outcomes.
One Texas community college has already adopted “outcomes based funding” (OBF). The school’s appropriation from the state government is based on how much alumni earn relative to a minimum-wage worker; when former students earn more, the college receives more funding. Since the school adopted OBF, graduates have enjoyed a 42 percent increase in earnings.
More states should consider tying public funding for higher education to metrics that students care about: return on investment and learning outcomes. States can also improve higher education through good old-fashioned competition, something the higher education system desperately lacks.
To start up a new college, entrepreneurs must first seek approval from the relevant state agency, known as a state authorizer. However, the requirements that state governments impose on new schools can be substantial, and are often not directly related to the quality of education on offer. Institutions complain that state authorizers are understaffed and it’s often impossible to decode the processes and rules around setting up a new college.
Since 1990, the number of students seeking degrees in public and private nonprofit institutions has increased by a third, yet the number of degree-granting nonprofit schools has remained essentially constant. In a well-functioning market, a surge in demand should lead to more entrants. But because of higher education’s significant barriers to entry, incumbent schools have exploited their protected position by hiking prices and allowing educational quality to stagnate.
State regulations fuel degree inflation
By linking colleges’ funding to outcomes and breaking down barriers to entry, state governments can create a more dynamic higher education marketplace within their borders. But states can also take steps to expand opportunity for people who don’t have a traditional four-year college degree.
State governments are far more likely than private firms to demand college degrees from job applicants, even for jobs paying similar salaries. In the private sector, 28 percent of workers earning between $40,000 and $60,000 have a bachelor’s degree or higher. Among workers earning the same salary but employed by state governments, the proportion is 63 percent.
Governors of both parties have dropped college degree requirements for thousands of state jobs, a welcome development. But states’ impact on degree inflation extends beyond the executive branch. In particular, the occupational licensing system imposes unnecessary and superfluous degree requirements on many licensed professions, even if the license already requires workers to demonstrate their capacity for the job in other ways.
For example, New York recently passed a law requiring registered nurses to earn a bachelor’s degree–even though, as a condition of licensure, nurses must already complete at least a two-year program of study, accrue clinical hours, and pass a standardized exam. The bachelor’s degree requirement on top of the others may be superfluous, and could lead to nursing shortages at a time of rising demand for healthcare.
States are the laboratories of democracy, and forward-thinking state leaders should seize the opportunity to pioneer market-based reforms to higher education. Our full issue brief offers some ideas for change.
What I’m writing
The Biden administration surrenders to the higher-education lobby on transparency. The Gainful Employment rule, finalized last month, originally required public and private nonprofit colleges to disclose when their undergraduate degree programs lead graduates to accumulate excessive student debt burdens relative to expected income. But after intense pushback from higher education trade associations, the Education Department quietly dropped that provision, claiming that high-debt-burden programs are “relatively rare” in the nonprofit sector. I take issue with the Department’s logic in an op-ed for the Chronicle of Higher Education. Such programs enroll nearly 250,000 students, including at prestigious institutions like Boston University and Oberlin College.
College-rankings outfits are focusing more on student outcomes, but they’re missing something big. Publications like US News and the Wall Street Journal are ditching traditional ranking metrics like endowments and alumni giving in favor of a greater emphasis on typical salaries after graduation. That’s a welcome change, but it’s still misleading to focus on “typical” salaries—because there is no typical graduate. Graduates’ salaries vary widely by field of study, even within the same college. At CUNY-Baruch College, a darling of the overhauled rankings, graduates’ typical salaries range from $41,000 in sociology to $88,000 in management sciences. In Forbes, I argue that journalists should consider ranking individual majors rather than entire colleges.
What I’m reading
The legal profession is heavily licensed, which raises the cost of legal services and keeps lower-income people from accessing justice. A team of scholars led by Shoshana Weissmann proposes some reforms. One that caught my attention for its relevance to higher ed: allow individuals who have apprenticed to a practicing lawyer to sit for the bar exam, even if they haven’t gone to law school.
As student loan payments restart, millions of borrowers are on hold with their servicers, reports Cory Turner at NPR. The end of the three-year pause means up to 40 million borrowers are entering repayment all at once. It’s too early to tell whether the crunch will meaningfully reduce loan repayment rates.
In the Washington Examiner, Sen. Bill Cassidy makes the case for transparency and accountability in higher education. Earlier this year, Cassidy and four colleagues introduced a middle-of-the-road overhaul of federal higher education policy, which emphasizes better data on student outcomes, requirements that colleges disclose this information to students, and sanctions for poorly-performing programs. (Read my analysis of Cassidy’s proposal here.)
After initial resistance, some college accreditors have begun to approve three-year bachelor’s degree programs, reports Josh Moody in Inside Higher Ed. Seven programs at two colleges in Idaho and Utah got the green light from their accreditor to grant degrees after three years of study. Three-year degrees are still the most promising idea to cut the cost of college by 25 percent.
What I’m doing
Over Columbus Day/Indigenous People’s Day weekend, I visited New Mexico for a quick family trip. In addition to completing the state highpoint (Wheeler Peak), I managed to take in the Albuquerque International Balloon Fiesta, which sees a “mass ascension” of hundreds of hot air balloons every morning for a week.
It’s something you have to see in person if you happen to be in New Mexico in mid-October; my iPhone photos can’t quite do justice to the panorama of colorful balloons gently floating into the sky as the first rays of sunlight streak over the mountains. The picture above captures just a narrow angle; imagine hundreds more balloons extending off either side of your computer screen.
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