State and local governments disburse more than $103 billion yearly for higher education. The federal government, meantime, doles out more than $82 billion per year in student loans. The Biden administration then tries to “save” these deeply indebted, thinly educated borrowers from the consequences of owing hefty sums for frequently dubious degrees.
Before the government throws away more taxpayer money, it should ensure that schools start bearing some of the risk of student loans. In 2023, student loan debt totaled $1.7 trillion, and 7 million people defaulted on their loans. In the case of a secured loan, the lender has recourse: it can seize the underlying asset. When a borrower defaults on a mortgage, for example, the bank can appropriate the mortgaged property. With student loans, though, lenders—often the government, in this case—have no such recourse.
While some higher-education brands—say, MIT’s—remain strong, universities increasingly deliver unimpressive results, including low graduation rates, inflated grades, and degree holders unprepared for the workforce. How can we ensure that higher education provides good value?
Current ideas to reform higher ed run into obstacles. One is to boost graduation rates. But emphasizing student completion, absent other changes, likely would lead to even greater grade inflation. A second idea: implement a national test of students’ competency and work preparedness. This could prove a bureaucratic nightmare, however. How would such a test be administered? No one should want to entrust a national testing plan to the Department of Education.
A third idea is to focus on student-outcome metrics, such as postgraduation income and levels of student debt. But waiting until after students graduate to evaluate a school’s performance may be too late. And while employment data are relevant, they are not sufficient to hold schools accountable. For one thing, they could incentivize deadbeat borrowers to underachieve, hoping to get loan forgiveness (a motivation that the Biden administration has keenly sought to reward).
A more promising approach to ensuring higher-education value may lie in making student-debt indemnification a feature of school accreditation. At present, accreditors act as gatekeepers to federal student aid and otherwise seem to offer little of value. Accreditation is a corrupt and parasitical system with myriad flaws, as Andrew Gillen observes. Accreditors, as Margaret Spellings noted in a 2008 Politico article, are “insular, clubby and accountable to no one but themselves.”
The federal government should instead require that all universities guarantee the most recent ten years of student aid (loans and Pell Grants) received by the institutions. Institutions could do this by using their endowments and campuses as collateral or, when these are lacking or encumbered, by carrying insurance.
In addition, the accreditation system should approve only schools that show a value for students—as measured by a combination of industry certification of accreditation and graduate employment data. This fusion would ensure that students are consistently acquiring at least a field of expertise—as in the case of low-earning but high-skill degrees like studio art—or a meaningful earnings boost.
To create an industry-accountable accreditation system that can certify skill attainment, at least 50 percent of accreditors’ reviewers and boards should be composed of people from industry roles highly relevant to the programs being assessed. These industry experts would be charged with ensuring that programs effectively teach graduates industry-specific skills.
Graduate employment data would be used to assess the impact of programs on future earnings. Any program that fails to meet the relatively low bar of demonstrating that its median graduate enjoys a boost in pay equal to 150 percent of the total cost of financing that program should lose accreditation, making it ineligible for further federal loans or grants.
When programs lose accreditation, their recent graduates should be eligible for something like the current borrower-defense program. But instead of burdening the federal government with the cost of forgiving bad loans, the low-quality schools themselves should make the borrowers whole. This would both reduce the taxpayer burden of bailing out duped students and accelerate the demise of low-quality programs.
Higher education should remain a pathway to a middle-class life and a purposeful career. But it must stop being a windfall for institutions that convert student time, family savings, and taxpayer funds into jobs for progressive ideologues. Holding schools financially responsible for the loans issued to students is the quickest way to align incentives and drive broad improvement.
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