While President Barack Obama is pushing a multi-faceted plan aimed at making college more affordable, many policy experts fear the proposals do not address core problems in higher education: tuition prices are soaring and many graduates are unable to repay their debt.
While the majority of college administrators and education officials agree that there is a need for innovation to make higher education more accessible and affordable, especially for low-income students, they differ on what measures should be used and how they should be implemented.
U.S. News and World Report identified a handful of flaws in the President’s affordability plan.
1. Linking financial aid to measures like graduation rates is a bad idea.
Perhaps the most controversial aspect of Obama’s plan is the ideaof tying colleges’ federal financial aid eligibility to their performance in ratings. But giving too much weight to graduation rates may cause institutions to either push out a large number of unprepared graduates, or to become more selective in terms of the students they admit, so they can ensure they will have high graduation rates.
That happened in K-12 education with No Child Left Behind. In order to meet tough requirements for upping graduation rates, some states lowered the rigor of their assessments to push more volume, says Mike Cagney, co-founder and CEO of the student loan refinancing company SoFi.
And on the flip side, some colleges may feel pressure to become more selective in terms of which students they admit in order to ensure high graduation rates, and thus, federal financial aid, says John Ebersole, president of Excelsior College in Albany, N.Y.
“The Ivy League takes the cream of the crop, they don’t have this problem. You can predict that 80 to 90 percent of the people who come into those programs are going to graduate, but that’s not true for [all institutions],” Ebersole says. Being more selective, he says, “gives them the graduation rates they want to brag about, and it helps them on the prestige search that so many institutions are on.”
2. Even if all the proposed ratings data were available, they would not be specific enough.
The majority of the data Obama wants to use in his college rating system (such as earnings after graduation, debt-to-income ratios and graduation rates for nontraditional students) are either currently very limited or are prohibited under current law.
The president has plans to have colleges report the average earnings of their graduates, but that data would not be extremely helpful unless they were reported by major, rather than as a school average, Cagney says.
“That’s why we have, or a big part of why we have, the debt crisis that we’re in right now on student loans,” Cagney says. “There’s still a pretty large dichotomy between what I’m going to get paid being a computer science major versus a psychology major … They translate into different amounts of money that you can borrow and affordably be able to pay back.”
3. A lack of specific data increases financial illiteracy and over-borrowing.
The president’s proposal does include plans to address financial literacy by launching an awareness campaign to get more students to enroll in income-based repayment programs.
Although students may become more aware of their repayment options, they often don’t know what they’re getting into when they take out loans, and see them as “funny money” because it often times goes directly to the institutionfor tuition, without reaching the students’ hands.
Cagney says this lack of education has lead to chronic student over-borrowing – students pay the same amount in tuition for degrees that lead to different earnings outcomes, and schools have no incentive to lower tuition rates because the fees get paid, regardless of whether students can repay their debt or not.
“If you borrow less than the value of the education, you’re going to be able to pay that debt off,” Cagney says. “If you’re borrowing more than the value of the education, you won’t.”
Implementing measures that ensure colleges have “more skin in the game,” such as having them pay the interest on loans a graduate is unable to pay, will “force the schools to align their costs of education with value, Cagney says.”
Similarly, Pauline Abernathy, vice president of the Institute for College Access and Success, said in a statement that schools need to be incentivized to not only serve low-income students, but to serve them well, rather than graduating them “with degrees they cannot use and debts they cannot repay.”
4. Repayment and forgiveness options target the wrong professions, and leave debts unpaid.
The Consumer Financial Protection Bureau reported on August 5 that more than half of outstanding student loan debt isn’t being repaid, but that only 10 percent of borrowers are enrolled in an income-based repayment plan.
The federal “Pay As You Earn” plan caps borrowers’ monthly payments at 10 percent of their income, and after 20 years any leftover debt is forgiven.
Andrew Kelly, director of the American Enterprise Institute’s Center on Higher Education Reform, said Obama’s plan to extend this repayment option to all borrowers was “troubling,” and that the system “creates perverse incentives for students and institutions and leaves taxpayers footing the bill.”
“Expanding this program even further will only add to the college-cost problem,” Kelly writes, because institutions could find loopholes to exploit the system and keep their tuitions high by encouraging students to enroll in these types of loan forgiveness programs.
Another debt repayment plan, the Public Service Loan Forgiveness program, wipes away remaining debt for public service employees (such as teachers, nonprofit health care workers, social workers and police officers) after only 10 years, if they make monthly payments on time.
But Cagney says that type of program is backward, and should also be targeted toward professions the government acknowledges there is a need for, such as engineers or computer scientists.
“Why would we incent someone to go into government service more than incent them to become a computer scientist, start a company and hire people?” Cagney says. “It just doesn’t seem to make sense.”
5. There are problems with defining college “quality” and “value.”
In his speech announcing the college affordability plan, Obama frequently used the terms “quality” and “value.” But Ebersole says the administration still needs to more clearly define what that means.
“Quality in whose eyes? Students’ eyes? Faculty’s eyes? Parents’ eyes?” Ebersole says.
There is a need for more information about what could be considered valuable in a college, according to Beth Akers and Matthew Chingos of the Brookings Institution, as the current lack of information has “created a highly dysfunctional market for higher education.”
“Consequently, colleges compete on measures that factor into popular rankings such as average SAT scores and student-faculty ratios rather than quality and price,” Akers and Chingos write.
Because such college rankings (including those of U.S. News) and ratings have been around for several years and still meet with criticism, “to think the Department of Education is going to come up with a ranking system that is going to be welcomed by everybody, I think is naive,” Ebersole says.
“I think the biggest problem overall is that we do not have a government system that deals all that well with complexity,” Ebersole added. “Our search for simplistic answers is going to do somebody a disservice. I’m not sure who it will be, but I guarantee you somebody is going to be discriminated against, or disadvantaged as a result of our attempt to just simplify everything.”