Last month, President Obama stood before a crowd at the University at Buffalo to propose a new higher education affordability initiative. The plan calls for the U.S. Department of Education to rate colleges prior to the 2014-15 academic year. Then the Department would tie financial aid to those ratings by 2018 – a carrot-and-stick approach to college quality. But we wonder if the Department’s version will really have the teeth to penalize bad actors, and how feasible it really is.
So far, there’s not much information on the White House’s plan. For the most part, all we have to go off of is a White House fact sheet that summarizes the plan. According to the fact sheet,
“Over the next four years, the Department of Education will refine [the ratings], while colleges have an opportunity to improve their performance and ratings. The Administration will seek legislation using this new rating system to transform the way federal aid is awarded to colleges once the ratings are well developed. Students attending high-performing colleges could receive larger Pell Grants and more affordable student loans." [emphasis added]
There are a few items of note here. First, the White House acknowledges that any such effort will require congressional approval. That means that, at least without a sea change in the political environment, this may never come to fruition. But second, and more interestingly, the White House’s examples look at only the “carrot” side of the carrot-and-stick – more available aid for high-performing schools, without any clear punitive measures for poor-performing ones.
Of course, it’s far too early to say what implementation would look like. But it closely resembles an idea that the New America Foundation first published in Rebalancing Resources and Incentives in Federal Student Aid, and which Senior Policy Analyst Stephen Burd dug into deeper in Undermining Pell. Our proposal included both the “carrot” and the “stick” – a Pell bonus for high-performing schools that enroll a larger share of low-income students, and a Pell matching requirement for wealthy schools that divert aid away from low-income students.
The New America Pell Grant bonus differs somewhat from the administration’s. The administration plans to use a ratings system that will likely include a broad range of quality metrics; we would give the bonuses to public and private four-year schools that enrolled large shares of low-income students or to community colleges with strong student outcomes. Our Pell Grant bonus would be double the size of the maximum grant (currently $5,550).
We used data from the Federal Education Budget Project to calculate the costs and estimated the Pell bonuses alone (without the baseline costs of the Pell Grant program at these eligible schools) at $23.6 billion over 10 years for public and private four-year schools and $34.9 billion for community colleges. Those figures include schools that qualified for the proposed bonus based on 2010 data, as well as schools on the cusp of qualifying, which we assume would be willing to work a little harder for a substantial payoff.
At four-year schools, we found that the federal government already disburses $1.2 billion in Pell grant funding to already-qualifying schools, and another $344 million to the 86 near-qualifiers. That made the math pretty easy – for the additional costs of the program over the baseline, we simply rounded up to provide a conservative estimate, and then counted up 10 years with built-in inflationary increases.
At community colleges, the math was a little trickier. We wanted to use quality metrics, a more simplistic version of those the Department of Education might use under a new rating system. It’s tough to see how community colleges are performing, though, because of limitations in the data. For example, the Department collects graduation rates only for first-time, full-time students, but public two-year colleges serve largely nontraditional students who don’t meet those qualifications. And students who transfer from a two-year to a four-year college without an associate’s degree are only marked as transfers, with no way to track them through the rest of their educational experiences.
Recognizing the data were so prohibitively absent as to keep us from finding a great measure, we calculated a combined graduation-and-transfer rate as a proxy. If the schools had a combined rate of at least 50 percent, they were eligible for a bonus. Many of the schools didn’t have good enough data for us to even arrive at a figure, but of the remaining schools, 262 were eligible, with Pell disbursements totaling $1.5 billion. We found another 120 who were close enough to qualify if they stretched a little further, and added their $1.2 billion in existing Pell money. We rounded up to $3.0 billion to account for missing and not-yet-successful institutions, baked in an inflationary increase, and added up the five- and 10-year costs. Again, those costs are in addition to, not including, the amount of Pell money that already goes to those schools.
Obviously, the New America proposal is not identical – or even similarly oriented – to the White House’s proposal. Ours focused on the needs of low-income students, not the quality of institutions (though with better data on colleges, a stronger focus on quality could be a rising tide that lifts all students).
But our proposal is instructive in a few ways. For one thing, the plan is going to be expensive. New America’s proposal, taken in total, is deficit-neutral, and we made up for the costs of the plan with savings from other proposals. Congress won’t be so lucky, and given the ongoing fiscal debates lawmakers are having, a plan that has one-year costs of upwards of $5 billion won’t be the most popular one. For another, the careful wording in the White House fact sheet means there’s no clear protection against bad behavior, at least in this part of the plan – just an incentive for good behavior. That may arguably be less effective than having both.
Any plan to tie financial aid to ratings is a long way off, and even the ratings system is a few years down the line. By 2018, we’ll have a different president, many different members of Congress, and undoubtedly new approaches to reforming higher education. It remains to be seen whether the plan will be strong enough to survive all that, or whether the 2018 political climate will actually be more amenable to these types of proposals. In the meantime, the New America Foundation will be watching for signs of life with this proposal, as well as the president’s other ideas.