The John William Pope Center for Higher Education Policy (logo)
RSS feeds

Commentaries
Sorry, But We Should Just Start Over

The Gates Foundation commissions 15 papers on “reimagining” federal student aid.

By George Leef

Comments

March 27, 2013

Last September, the Bill & Melinda Gates Foundation awarded $3.3 million in grants for papers on the subject of federal student aid programs—specifically, how we should “reimagine” student aid. The papers were recently released, but there wasn’t anything very imaginative in them. (You will find links to all of the papers in this Inside Higher Ed story.)

Actually, it would have been amazing if there had been any revolutionary ideas. That’s because the Gates Foundation only approached organizations that accept the conventional wisdom that it is both essential for the country to put more people through college and that government must play the key role in making that happen. Naturally, no one colored outside those lines.

The papers advanced an array of suggestions regarding Pell grants, loans, campus-based funding, higher education tax credits, institutional eligibility for funds, simplifying FAFSA, and providing more consumer information about higher ed. Suppose that fifteen groups of mechanics were invited to tinker with an ill-conceived machine (such as East Germany’s infamous Trabant car); some would marginally improve it, while others would accomplish nothing. That’s what the fifteen papers are like.

Some suggest increasing Pell grants, or turning that system into block grants for the states to administer, or changing the length of time a student can be eligible. Some favor adopting a universal income-based repayment mechanism for loans. Some want to try to get more students to enroll full time. Some suggest tying school eligibility to metrics on enrollment or graduation rates or cost reduction. (A good overview of the various themes has been prepared by the National Association of Student Financial Aid Administrators—NASFAA.)

Only two papers dared to suggest changes that get at the fundamental problem, namely that federal aid encourages weak and disengaged students to enroll in college programs that are unlikely to do them any good. The U.S. Chamber of Commerce’s paper, submitted by its Institute for a Competitive Workforce, suggested that institutions that accept student aid money should have some “skin in the game” by assuming some of a student’s debt burden if that student fails to pay. The NASFAA paper also broached that idea.

That proposal is useful because it at least recognizes the crucial defect in our federal financing system. When government officials lend money to students for college, they stand to lose nothing if they make bad decisions. That is, if a student blows the money and accomplishes nothing in school, his or her eventual financial distress and even loan default is immaterial to the bureaucrats who run the system.

If a banker is considering a car loan to an 18 year-old, he’s going to think hard about the would-be borrower’s reliability and the possibility that the driver won’t be able to pay back the loan. But when government officials get an application for a student loan, parallel concerns never materialize because they have nothing to lose. When you’re risking other people’s money, your incentives are different than when you’re risking your own.

The Chamber and the NASFAA gingerly suggest that colleges and universities should have “skin in the game,” so that they, at least, would be concerned about the student’s true prospects. Then, however, they hasten to add that we must be careful not to create incentives that would lead to limiting access for weaker students, especially from “underrepresented” groups.

And that is why this useful idea is unlikely to work so long as we retain a government-run student aid system. Most politicians just can’t take the heat for denying people anything that has come to be regarded as essential, including college degrees. Even if we instituted rules for separating the wheat from the chaff among students wanting federal money, those rules would come under heavy pressure to be more “generous” and allow more students “access.”

In sum, tinkering with a Trabant could not accomplish much and neither does the tinkering suggested in the fifteen papers. It’s too bad that the Gates Foundation didn’t ask for papers exploring the radical (i.e., getting at the root) question: Should we go to a non-governmental system for financing higher education?

Federal subsidies for students to attend college have led to steadily rising costs, steadily declining educational results, and a severe case of credential inflation. If our goal is maximizing human capital rather than maximizing the amount of seat time for young people in approved educational institutions, we should completely rethink our approach, not merely “reimagine” the status quo.

The United States has not always had federal student aid. Prior to the Higher Education Act of 1965, only military veterans received any government assistance for postsecondary education. College was regarded as necessary for very few careers and yet America was known for its professional and technical excellence.

Moreover, K-12 education used to be taken very seriously. There is reason to believe that the high school graduate of the 1950s typically knew more than today’s college graduate.

Most importantly, neither students nor business expected anything from the federal government.

Young people (and their parents) understood that developing knowledge and skills was their responsibility and would not occur just from sitting in classrooms. Those who thought that a college education would be worthwhile knew they had to strive for it. College didn’t cost a lot (Harvard’s tuition in 1960 was only $1,250) but an array of scholarship organizations existed to help promising students who couldn’t afford to attend. Companies trained employees as they needed to, or paid for them to take courses that would be beneficial.

In short, we used to have a higher education system that was a “bottom-up” phenomenon; it worked on Adam Smithian “invisible hand” principles.

Everyone’s incentives were aligned toward educational efficiency. Students didn’t think themselves entitled to education (much less high grades), so they had to work hard. Colleges did not have a guaranteed stream of customers, so they kept costs down and quality high. Scholarship organizations had limited resources and thus searched for needy students with high ability to assist. Companies bore their own training costs and therefore tried to get good results without spending too much.

Federal intervention, based on the idea that government should operate a “top-down” system to raise our human capital level by subsidizing college attendance, demolished the old system. Abundant federal money has altered everyone’s incentives for the worse.

By trying to “reimagine” federal student aid, the Gates Foundation helps to shore up a woefully inefficient system that has numerous bad side effects: rising college costs, declining academic standards and student effort, huge debt loads, and the notion that it’s up to the government to give the country a competitive workforce. The current system showers money on accredited colleges, thereby hindering the emergence of innovative, lower-cost alternatives.

What if instead, the Gates Foundation (and other foundations with a mission of improving education) took the lead by reinvigorating private scholarships for students who cannot afford the cost of most colleges and universities? That would be a far better use of their resources than buying papers arguing that the feds should fix up their inefficient and fraud-ridden system.

Yes, I’m suggesting that we abandon the foolish idea that we can raise the educational level of the nation by subsidizing almost everyone to go to college. We should return to the older, vastly more sensible idea of assisting those students who have academic aptitude and interest through non-governmental institutions that can be selective.

Maybe some scholarships will be for excellent students from poor families to attend “elite” schools. More often, I would expect, foundations would help such students find lower-cost but effective alternatives. After all, even very wealthy foundations have limited funds and officers will have to stretch their resources. Fortunately, good education does not have to be very expensive.

In the era of the Internet, finding students who would benefit from post-secondary education and discovering which of the many educational options is best for them, is growing easier day by day. Private foundations and businesses can and would do that if only we could break our national addiction to that debilitating “the government must do it” drug.

 


Please observe the Pope Center's commenting policy.


blog comments powered by Disqus

Return to the Commentaries Archive

Copyright © 2014 The John William Pope Center for Higher Education Policy | Site Map

Website design and development by DesignHammer Media Group, LLC. Building Smarter Websites.