Thursday, May 6, 2010

Lost in the news coverage since President Obama signed the health care bill has

been a part of the same bill that touches a sector where costs have been rising even faster than those in health care.

That sector is higher education. Congress tacked onto the health care bill a section dealing with student loans in higher education, an area where President Obama has some lofty goals, including that “no one should go broke because they chose to go to college.”

Although the administration’s desired student-loan provisions were watered down, neither they nor the law that passed would meaningfully advance the president’s important goals. Forgiving student loans after 20 years, increasing Pell Grants, limiting allowable debt to certain income measures and the like are not much different from the efforts of federal administrations for more than half a century, as they all answer the wrong question.

Rather than ask how we can enable more students to afford higher education, we must shift the question to ask how we can make quality postsecondary education affordable.

Historically, student-loan policies have had remarkable success in answering the first question, as they have tripled the number of students enrolled in higher education since 1965. However, they also are partially responsible for higher education’s soaring costs. Over the past 20 years, tuition rates grew at a whopping 275 percent. Continuing along this path now would cascade the country deeper into debt with only a questionable return on investment.

A significant problem with current federal policies is that the all-or-nothing access to federal funds for institutions does not compel students to make rational quality-cost trade-offs. It is no easier for students to get loans to colleges that offer a stellar return on investment than it is to get them for colleges that offer a poor one.

Assuming it’s politically unlikely that the government will give up its chief tool of influence over higher education - its dollars - federal policy should shift and seek to transform higher education by promoting more affordable, high-quality options by influencing both the supply and demand sides. After all, demand drives innovation.

One possible way the government could influence the demand side would be to establish a new track for institutions to access its money based on measures of quality and student satisfaction relative to cost. The better a school performed on these measure compared to its peers, the higher percentage of its educational operation it could finance with federal aid - thereby eliminating the all-or-nothing access to federal dollars and encouraging students to make decisions based on quality and cost, which would drive institutions to innovate.

To create this metric - an institution’s Quality-Value Index - the government could add together four measures: First, does the institution help a student get where she wants to go - or what is its job-placement rate? Second, upon leaving the institution, how much do the student’s earnings increase - over some amount of time to account for growth in salaries in a given profession - relative to the total revenue the institution received? Third, would alumni choose to repeat the experience? Fourth, are the students able to repay their loans - or what is the institution’s cohort default rate (CDR)? If this measure is used, CDRs should be indexed to credit scores or a similar measure upon matriculation, or else institutions would retreat from serving students who are the least well-off and need education the most.

Undoubtedly, this idea needs further work. The devil would be in the details, and we must consider the unintended consequences.

Nevertheless, changing the funding dynamic in this way would accomplish several things. It would move the focus away from judging schools on inputs such as student-teacher ratios and arbitrary outputs such as degree attainment to more tangible student-centered outcomes based around how well the experience improves students’ lives relative to the cost. It avoids discriminating between for-profit and nonprofit providers, as the administration seems bent on doing, even though the for-profit providers statistically have been more likely to serve lower-income students and have expanded access through their innovative online, convenient and market-tailored degrees. And given that providers will continue to follow the dollars and innovate aggressively, now that innovation would focus on lowering costs, increasing speed and aligning offerings with the evolving niches of employers needs.

Getting this right ultimately would accomplish goals on which everyone can agree: allowing many more students to receive a high-quality education without breaking their banks or the nation’s.

Michael B. Horn is executive director of Innosight Institute, a nonprofit think tank focused on education and innovation. He also is co-author of “Disrupting Class” (McGraw-Hill, 2008).

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