Untapped Potential: Making the Higher Education Market Work for Students and Taxpayers

By Betsy Prueter

A recent paper published by the American Enterprise Institute (AEI) argues for greater accountability for colleges and universities that receive federal funds. The report also pushes for a more “transparent higher education market” where consumers (students and their families) “reward good schools” and “punish bad ones” by acting on information such as graduation rates and future earnings.

The report details a number of ways to improve quality assurance at Title IV institutions:

  • Hold colleges accountable for former students’ progress on loan repayment rather than focusing on default rates (which, due to forbearances and income based repayment plans may not tell a complete story).
    • If repayment information were made available, it could help students and families make decisions about where to attend college.
  • Establish a risk-sharing system that ensures colleges have “skin in the game:” Hold institutions financially responsible for a share of their former students’ loan defaults.
    • Balance risk-sharing by providing incentives (monetary bonuses) to schools for every Pell student they graduate.
  • Reshape the accreditation system to improve access to consumer information. This would entail:
    • Allowing new entities, such as professional associations or employers, to accredit institutions and programs as an alternative to the current accreditors.
    • Allowing new authorizers to grant different tiers of access to federal student aid.
    • Implementing a risk-sharing mechanism for new accreditors so they have a more direct stake in student outcomes (e.g. the new accreditors would be held financially responsible for a share of the delinquent loans at the institutions they monitor).
  • Improve the federal government’s data collecting and publishing efforts so that consumers can more readily use information in their decisions on where to go to college.
    • Data should include graduates’ earnings (disaggregated by field), enrollment rates of students who have received financial aid and graduation rates.