New higher ed regulations leave everyone empty Posted on June 16th, 2011 by Michael B. Horn

News flash. No one is happy with the new higher education regulations that the Department of Education released a couple weeks ago (and I wrote about last week here).

The career colleges industry—made up of many for-profit universities—didn’t want them. Those seeking to crack down on these institutions say they aren’t harsh enough and don’t have teeth.

Should we be surprised? The Department of Education ultimately had to work out a compromise between two groups with radically different positions. That the new regulations will only disqualify a college from funding its operations through Title IV federal dollars if it fails to meet the new benchmarks in three out of four years means it probably will not be too difficult to game the system—although the Department did craft other restrictions that will curb some egregious behavior.

But ultimately, the Department didn’t change the fundamental and historical value proposition—access—for which it is paying. As I wrote in a paper titled Beyond Good and Evil for the American Enterprise Institute, it’s not all that surprising that that didn’t happen. The reason is because organizations cannot prioritize those things that do not naturally sustain and fit their business models, they will fight vigorously anything that changes that order with a mountain of resources to aid them. If there isn’t a disruptive entrant arising along the new value proposition and the basic service being provided is arguably still important, the government—the customer in this case—doesn’t have much of a leg on which to stand.

Setting this aside, the question should also be could the Department of Education have done something that was meaningful—continued to extend access and raise up quality and affordability? The answer is yes. And a harsher interpretation of the gainful employment—perhaps barring any institution from using federal financial aid if they missed the boat any year—would not have accomplished it.

For those familiar with our work, they know that on several occasions that we’ve recommended the Department apportion federal dollars based on an institution’s “Quality-Value Index”—a measure that would reward schools that delivered students quality at a lower cost and simultaneously encourage students to choose schools that are likely to deliver a lot of value at low cost because that’s where the money is.

QV Index = 90-Day Hire Rate + (Change in Salary/Revenue per conferral) + Retrospective Student Satisfaction + Cohort Repayment Rate Adjusted for Credit Risk

Even if you don’t buy the exact formula, one of the most significant points here is this: The better a school performed on this index compared to its peers, the higher percentage of its educational operation it could finance with federal aid—a significant departure from the old and new system of all-or-nothing access to federal dollars.

In the past and under the new regulations, an institution either clears the government’s bar or it doesn’t. And as a political matter, this bar cannot be too high, lest the government cut off lots of institutions from receiving its dollars, thereby significantly rolling back access for many, many students. In other words, all-or-nothing access necessitates a low bar. So because of the way the Department of Education framed and approached the regulatory possibilities, it was boxed in and had few choices beyond what it did. But framing the question in this way does not compel students to make rational quality-cost trade-offs because after colleges clear the minimum, it is no easier for students to get loans to colleges that offer a stellar return on investment than it is to get them for colleges that offer a poor one. And the new policies only perpetuate this.

Rather than craft a test with a dictated and absolute minimum score, creating a relative measure that allows institutions to compete against each other on a level playing field for funds would have been much smarter and aligned to market realities. And it would have set in motion a transition period that pushed immediately toward higher quality in a natural, not a forced, way—even allowing for a reasonable and graduated transition period of a few years. Both sides of this debate should have preferred it.

But the Department missed its chance. Instead of answering the question around how do we make a quality postsecondary education affordable, the government will keep going down the road of merely enabling students to afford a higher education regardless of the total cost or the return.

Filed under: Education Blog

One Response to “New higher ed regulations leave everyone empty”
Higher Education Bar « tringger.wordpress.com, on July 10th, 2011 at 8:46 pm Said:
[…] Innosight has done in the field of higher education. The most interesting aspect of the blog post (link) was the idea of an equation which could be used to evaluate the effectiveness of all schools. […]


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