The Need for Higher Education Reformeppc.s3.amazonaws.com/wp-content/uploads/2015/07/Kelly... ·...
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The Case for Higher Education Reform Andrew P. Kelly Center on Higher Education Reform American Enterprise Institute Bradley Symposium June 3, 2015
Transcript of The Need for Higher Education Reformeppc.s3.amazonaws.com/wp-content/uploads/2015/07/Kelly... ·...
The Case for Higher Education Reform
Andrew P. KellyCenter on Higher Education Reform
American Enterprise Institute
Bradley SymposiumJune 3, 2015
Outline
• Why higher ed reform? Three trends.
• How did we get here? Four problems.
• What can we do about it? Four solutions.
Trend 1: Tuition Growth Outpaces Family Incomes
(And most everything else)
50
100
150
200
250
300
350
400
1971
1972
1973
1974
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2011
Private Non-profit Public Four-year Median Income
Inflation-adjusted Growth in Four-year College Tuition Compared to Median Household Income, 1971-2011 (1971 = 100)
Source: College Board, Census Bureau
Trend 2: Absolute Returns to a Degree Are Stagnant…
Source: College Board, “College Pays 2013.”
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
1971
1972
1973
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2011
BA Degree AA Degree
Median Wages of Young Men Working Full-Time, By Education (Ages 25-34, in 2011 Dollars)
Trend 2: …And Drop-outs Earn Even Less
Source: College Board, “College Pays 2013.”
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
1971
1972
1973
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1981
1982
1983
1984
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2010
2011
BA Degree AA Degree Some College
Some College, No Degree
Median Wages of Young Men Working Full-Time, By Education (Ages 25-34, in 2011 Dollars)
Trend 2: …And Drop-outs Earn Even Less
Six-year Completion Rates by Starting Institution, 2008 Cohort
Source: National Student Clearinghouse, 2014.
39.1 38.4
62.8
73.6
0
10
20
30
40
50
60
70
80
90
100
Two-year Public Four-year For-profit Four-year Public Four-year Non-profit
First Institution
Trend 1 + Trend 2 =Struggling Borrowers
Actively Repaying Defaulted In Deferment/Forbearan
ce/Other60% 16.5% 23.5%
Source: Consumer Financial Protection Bureau, 2013.
Among borrowers repaying federal loans…
Trend 1 + Trend 2 =Struggling Borrowers
Actively Repaying Defaulted In Deferment/Forbearan
ce/Other60% 16.5% 23.5%
Source: Consumer Financial Protection Bureau, 2013.
Among borrowers repaying federal loans…
Trend 3: High School Graduates Have it Even Worse
$20,000
$25,000
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
$60,000
$65,000
$70,000
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
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1991
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1996
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1998
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2004
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2006
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2008
2009
2010
2011
BA or Higher AA Degree HS DiplomaSource: College Board, “College Pays 2013.”
Median Wages of Young Men Working Full-Time, By Education (Ages 25-34, in 2011 Dollars)
Trend 3: Wage PremiumIs Larger Than Ever
$12,635
$22,701
$8,093$9,505
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
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1987
1988
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2011
Premium, BA Premium, AA
Gap Between Median Wage of Recent College and HS Graduates
The “College Conundrum”Some education after high school is critical to economic
mobility, but it is more expensive than ever.
Trapped: Can’t afford to go and can’t afford not to.
Presenter
Presentation Notes
Defining middle and working class issue of the next decade at least. If you want to have something to say to the middle class and about mobility, you have to tackle higher education reform.
How did we get here? Four problems.
Problem 1: Third-party payer, easy credit.
Then: Federal student aid designed to solve under-provision problem.
Now: Large entitlement for all high school graduates.
Grants Loans (Stafford and PLUS)
Tax benefits
Problem 1: Third-party payer, easy credit.
Then: Federal student aid designed to solve under-provision problem.
Now: Large entitlement for all high school graduates.
Grants Loans (Stafford and PLUS)
Tax benefits
Presenter
Presentation Notes
Affects incentives of both students and institutions: Weakens incentive to contain costs because students will be able to afford it. Weakens incentive to invest responsibly because you can get money easily.
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14
Bill
ions
of 2
013
Dol
lars
Federal Student Aid Disbursements, 2003-2014(in Billions, 2013 Dollars)
Grants Loans Tax Benefits
2004 2008 20120
10
20
30
40
Net 34.3
20.719.9
25.7
31.6
38.5
Net price after grants as a percent of incomefor middle-income students by sector, 2004to 2012
Source: National Center for Education Statistics (NCES), Postsecondary Student Aid Study (NPSAS), Assorted Years. Reproduced from Kelly (2014).
Presenter
Presentation Notes
Spending kept net prices flat for a time, but always temporary. Always eaten up by further tuition increases.
Subsidize, Watch Tuition Rise, Subsidize Some More
Pouring more money into a system with misaligned incentives doesn’t fix problems, and likely makes them worse.
Presenter
Presentation Notes
At best you can stay just above water for a bit until you’re swamped. At worst you’ve wasted all that time and energy and can’t get back to Shore.
Problem 2: Inadequate Quality Assurance
• Almost no underwriting on federal loans.
• Regulatory “Triad” is ineffective gatekeeper: binary measures, conflicts of interest.
13%
24%
31%
25%
7%
0%
5%
10%
15%
20%
25%
30%
35%
20% orbelow
21-40% 41-60% 61-80% 81-100%
2012-2013 Federal Loan Disbursements For Undergrads
(By 2012 Six-Year Graduation Rate)
2012 Graduation Rate
Presenter
Presentation Notes
1,300 aid-eligible colleges have completion rates below 30 percent. 750 four-year colleges graduate fewer than 20 percent of students in four years.
• Cohort Default Rate: – Below the threshold, schools held harmless.– Just 8 institutions sanctioned in 2011. – 2014: ED revised ratings for subset of schools.
• Accreditation: – Peer review.– GAO: 8 percent of schools were sanctioned over
4 ½ year period. – Just 1 percent lost accreditation.
Presenter
Presentation Notes
So long as you are accredited and keep your default rates below.
• Cohort Default Rate: – Below the threshold, schools held harmless.– Just 8 institutions sanctioned in 2011. – 2014: ED revised ratings for subset of schools.
• Accreditation: – Peer review.– GAO: 8 percent of schools were sanctioned over
4 ½ year period. – Just 1 percent lost accreditation.
Bad colleges maintain access to federal aid.
Presenter
Presentation Notes
So long as you are accredited and keep your default rates below.
Problem 3: Imperfect Consumer Information
Source: Morgan, 2011.
Problem 3: Imperfect Consumer Information
Limited ability to judge cost and quality blunts market discipline. Source: Morgan, 2011.
Problem 4: Barriers to Entry
Right now: Movement from logic of scarcity to abundance
But accreditation keeps new entrants out and reifies traditional model
– Chicken or egg problem. – Input-based.– Cartel-like.
Progressive Response: Spend More
• Expanded income-based repayment and loan forgiveness.
• Loan refinancing.
• Increase state spending.
Progressive Response: Regulate more
• Gainful Employment.• College ratings.
• Free college.
Progressive Response: Regulate more
• Gainful Employment.• College ratings.
• Free college.
Premised on existing set of institutions and financial aid programs.But demands have changed, and our approach must change as well.
What can we do? Four solutions.
Reformers Must Transform the Market
1. Give colleges greater stake in student success. 2. Empower consumers to invest wisely.3. Lower barriers to entry.4. Create space for new financing tools.
Solution 1: Skin in the Game
• Colleges originate loans and should retain some of the risk.
• Put schools on the hook financially for portion of loan defaults, and give a bonus for Pell graduates.
• Sets basic standard, colleges have flexibility to meet it.
Solution 2: Empower Consumers
• Better data on costs, outcomes, and value are public goods.
• Feds should collect and make public so third-parties can create range of customized ratings.
• Prevent misuse by legislating prohibitions.
Presenter
Presentation Notes
All fine and good, but we need to think more creatively than assume current stock of institutions is adequate for the task at hand.
Solution 3: Lower Barriers to Entry
• Opportunity to redefine what postsecondary education looks like and who can offer it.
• Create parallel path to eligibility for new entrants to access public resources.
• Horse trade: Organizations get more flexibility in exchange for transparency and accountability.
Presenter
Presentation Notes
This should also be called “let’s use our imagination.” America has always been an innovator in Two things: Technology: not about online/WiFi; immersive, in-person, short, targeted. All of that is innovative. Liberal education: I think large reason you’ve seen people move away from liberal education is because costs have grown so enormous. Unbundled, customizable path that is less expensive may be one key to reinvigorating liberal education, and market will reward it.
Solution 4: Create Space for Private Financing
• Private financing could inject market discipline, but is largely absent.
• Income-share agreements: Investors finance students in return for percentage of future income for set period of time.
• Aligns incentives of financier and student and sends clear signals about value.
• Must resolve legal and regulatory uncertainty.
