My name is Lindsey Burke. I am the Will Skillman Fellow in Education Policy at The Heritage Foundation. The views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation.
Thank you, Ranking Member Scott, for the invitation to testify today at this listening session on pertinent issues surrounding reauthorization of the Higher Education Act (HEA).
Part of President Lyndon Johnson’s goal in signing the HEA into law was to keep “the doors to higher education open for all academically qualified students regardless of their financial circumstances.”
Unfortunately, the law’s outdated structure limits its ability to accomplish that goal.
The 432-page HEA touches nearly every aspect of federal higher education policy. Yet some of the law’s titles and programs have outlived their purpose; others make it difficult to reform higher education financing in a way that would increase access for students and drive down college costs.
A guiding principle for reauthorization should be to streamline the HEA in a way that more closely mirrors its primary purpose of allocating federal student loans and grants to ease the cost of college as President Johnson suggested when signing the HEA into law. That goal requires eliminating duplicative, unnecessary, or ineffective programs and titles that have accrued over the decades, and considering reforms to lending and accreditation that would ensure the HEA best serves students.
Limit Federal Subsidies—Title IV
Title IV of the HEA is the primary vehicle through which federal higher education subsidies are authorized. It encompasses federal student loans and grants including the Pell Grant program and the Direct Loan program. The federal student aid authorized in Title IV comprises the central purpose of the HEA. When tax credits and deductions are included, total federal higher education spending exceeded $238.5 billion during fiscal year 2013.
Pell Grants. The federal Pell Grant program provides financial aid to low-income students. The grants, which do not have to be repaid by recipients, are intended to ease the cost of college for eligible students. In 2014, the $33 billion Pell Grant program provided grants to nine million college students, making it the largest share of the federal education budget. Congress grew the Pell Grant program in 2007 by expanding eligibility and increasing funding, resulting in a doubling of the number of Pell recipients since 2008.
Direct Loans. The largest federal loan program authorized under the Higher Education Act is in Title IV, part D—the federal Direct Loan program. The Direct Loan program includes subsidized and unsubsidized Stafford loans for undergraduate and graduate students, Parent PLUS and Grad PLUS loans, and consolidation loans. PLUS loans are loans to graduate students and the parents of undergraduate students. A graduate student or the parents of an undergraduate student may borrow up to the cost of attendance at a given school, less any other aid received.
Federal higher education subsidies have increased substantially over the past decade, and now represent 71 percent of all student aid. The federal government now originates and manages 93 percent of all student loans. By extension, taxpayers now bear primary responsibility for paying for student loan defaults.
Continuing to increase federal higher education subsidies will not ease the college cost burden for students, instead likely exacerbating the problem of escalating tuition.
A recent evaluation by economists at the Federal Reserve Bank of New York found that for every additional dollar of Pell Grant funding, tuition increased by 40 cents. Moreover, for every dollar increase in federally subsidized student loans, tuition increased 63 cents. As economists David O. Lucca, Taylor Nadauld, and Karen Shen note, those effects are highly significant “and are consistent with the Bennett Hypothesis.” Although the benefits of Pell Grants and subsidized student loans are concentrated to those who qualify and receive the subsidy, the increased tuition costs are passed on to all students at a university.
Since 1980, tuition and fees at public and private universities have grown at least twice as fast as the rate of inflation. The result has been that 60 percent of bachelor’s degree holders leave school with more than $26,000 in student loan debt, with cumulative student loan debt now exceeding $1 trillion.
In order to limit increases in higher education costs, Congress should decrease loan burdens by eliminating the PLUS loan program. The availability of Parent PLUS loans, created in 1980, has resulted in families incurring substantial debt, while failing to ease the cost of college over time. The Parent PLUS loan should be terminated. Similarly, the Graduate PLUS loan program, open to graduate students who elect to take out loans to finance graduate school and to borrow up to the full cost of attendance, should also be eliminated.
At the same time, Title IV should be amended to require the Department of Education to use fair-value accounting. Fair-value estimates take market risk into account, and as a result, are a more accurate reflection of the cost of federal student loans. Any loan program should use a non-subsidizing interest rate—that is, the rate at which the program breaks even. Absent fair-value accounting, it is difficult to determine the extent to which the student loan programs are providing a subsidy to borrowers. Congress should require the Department of Education to use fair-value accounting estimates calculated by the CBO, and adjust loan rates accordingly going forward, on an annual basis. This would help determine whether the loan programs are costing money for taxpayers, and where to set interest rates to ensure the programs break even.
In order to truly drive down college costs and improve access for students, policymakers should undertake major reforms to accreditation.
The first modern college accreditors were established in the late 1800s to formalize a normative idea of what a bachelor’s degree should symbolize. These voluntary accreditation associations also shared best practices among institutions. It was not until 1952, with the introduction of the Veterans’ Readjustment Act, that accreditation became a requirement for access for federal aid. As Hank Brown, who heads the American Council of Trustees and Alumni Accreditation Reform Initiative explains, since the Veterans’ Readjustment Act stated that federal funding could only be used to attend accredited institutions, “the role of accrediting agencies began to expand to include acting as gatekeepers who would determine which institutions qualified to receive federal dollars.”
The Higher Education Act, passed in 1965, further strengthened this accreditor gatekeeper function by deeming institutions eligible for aid if they were accredited by and accrediting agency “determined by the Commissioner to be reliable authority as to the quality of training offered,” representing the first time the federal government began determining who could hold the keys to the gatekeeper function of accreditation. Those accreditors then deemed by the federal government to be a “reliable authority” of the quality of higher education institutions could then accredit colleges, and by extension, qualify them and their students as eligible for federal financial aid.
The six regional accrediting agencies that now exist are “regional monopolies that control access to federal funding for virtually every type of college and university in their geographic area – from private universities and community colleges to for-profit trade schools and non-profit liberal arts colleges.” Title I of the HEA establishes the National Advisory Committee on Institutional Quality and Integrity (NACIQI) to “assess the process of accreditation and the institutional eligibility and certification of institutions of higher education.” As spelled out in the HEA, the 18 committee members are appointed by the U.S. Secretary of Education and bipartisan congressional leadership.
Accreditation is a de facto federal enterprise, with federally sanctioned regional and national accrediting agencies being the sole purveyors of accreditation. The NACIQI wields significant power over college accreditation. The National Advisory Committee, along with the Department of Education, oversees an exhaustive review process for approving prospective accreditors. Applications to become an accrediting agency, for example, are reviewed by NACIQI and are placed on NACIQI’s twice-yearly meeting agenda, and the NACIQI then recommends to the Department of Education whether to approve, limit, or deny a request to become an accreditor.
The result has been a system that has created barriers to entry for innovative start-ups by insulating traditional brick-and-mortar schools from market forces that could reduce costs. The existing accreditation regime has also made it difficult for students to customize their higher education experience to fully reach their earnings and career potential. Moreover, because entire institutions are accredited instead of individual courses, accreditation is a poor measure of course quality and a poor indicator of the skills acquired by students.
Accreditation was significantly weakened when it no longer existed as a voluntary quality assurance for colleges. Accreditation does not guarantee academic quality. It is granted on the basis of the inputs such as the number of library books in the university library, the school’s disciplinary code, and its mission statement. As economists at the Center for College Affordability and Productivity explain:
Prior to the establishment of federal financial aid programs, accreditation was completely voluntary…. Because it was not universal, having accreditation meant something…. Once the federal financial aid programs became established fixtures of the educational landscape, however, accreditation’s performance deteriorated. The primary reason is that because accreditation is now so important to an institution’s financial survival, it has become near universal. In other words, “once a badge of distinction, accreditation has now become so commonplace as to be of negligible benefit to either educational consumers or the institutions themselves.”
For example, Harvard has the same accreditor as Central Connecticut State University, though one suspects that there is a large difference between those two schools (as suggested by the more prominent college rankings guides which consistently place Harvard near or at the top but do not even rank Central Connecticut State).
Congress should decouple federal financing from accreditation. Federal student aid would then be available to follow students to institutions and individual courses that are accredited or credentialed, enabling a student to have a more customized higher education experience.
Decoupling federal financing from accreditation could be achieved by amending Title IV of the HEA to restore the market of accreditation options, as was the case when the Veterans’ Readjustment Act passed. That would enable a variety of accrediting entities with different specializations and competing models to accredit colleges—meaning accreditation would still be a condition of access to federal aid, but would be closer to the meaningful professional nature of an academic check on institutions—without the federal government dictating who qualifies as an accreditor. At the same time, federal aid should be student-centered so that it is portable to to colleges as well as to individual programs and courses.
College costs are at an all-time high even as access to knowledge is cheaper than at any other point in human history. Online learning and competences-based options that favor knowledge and skill acquisition over seat time have laid the groundwork to significantly lower college costs and increase access for students. In order to harness the potential of new learning modes and begin to solve the college cost problem, policymakers need to free higher education from the ossified accreditation system.