Prospects for Federal Higher Education Reform? Little in Short Run

I spent some time recently chatting with some major players in federal higher education policy, including three members of the U.S. Senate, concluding that almost no important changes will happen before the 2020 elections. The Democrats are not eager to act, thinking they can gain complete control of government in the next elections and enact radical progressive reforms in 2021. The Republicans feel stymied by a Democratic House, a President preoccupied by other issues (mainly his own reelection), and some division within their own ranks. The Higher Education Act renewal is overdue, not surprising as Congress rarely finishes appropriating funds before a fiscal year starts, much less update the Higher Education Act.

Big changes will not happen in the short term. For the Democrats, that means things like free college or, minimally, vastly expanded Pell Grants, killing off for-profit colleges, and restoring Obama era centralized controls over colleges and universities, including highly controversial “guidance” on the handling of sexual harassment cases. For the Republicans, it includes fundamental reform of federal student financial aid, including starting to privatize some or all of it. It might also include legislation promoting intellectual and viewpoint diversity on campus.

There are three useful smaller reforms, however, that have at least some chance of adoption. First, dramatically simplifying the Free Application for Federal Student Aid (FAFSA) form is a no-brainer, one about which almost everyone except some government bureaucrats can unite. The over 100 question form has discouraged students to apply for aid and is frustratingly complicated. I sat in a meeting with the Secretary of Education more than a decade ago where dramatic FAFSA form simplification was the goal and yet, many years later, nothing has happened. The form should either disappear or be simplified to under 10 questions, with the IRS directed (with student authorization) to provide critical financial data needed by schools in determining need-based grants. The failure to even agree on this common sense, non-ideologically based matter is a good example of why Americans are increasingly dissatisfied with their central governing institutions.

A second reform that possibly could win majority support in Congress is “skin in the game” legislation that would make colleges liable for at least a small share of the liabilities they foist on the nation’s taxpayers when students default on student loans. Make the colleges into co-signers on loans as a condition for granting them. Some Democrats and many Republicans have agreed this should happen, and a bill, perhaps one offering added enticements for more liberal legislators (modest Pell Grant expansion perhaps partially financed from college “skin in the game” payments), would have a fair chance of passage. Honest accounting shows the student loan program is operating at a meaningful financial loss, one we can ill afford in an era of totally irresponsible trillion-dollar deficit spending endorsed by both parties. Appropriately packaged, college reform including simplifying the FAFSA and including “skin in the game” would have, I would think, a decent chance for passage and an opportunity for incumbents to vote for something moderately useful.

A third idea, one already being used at a few universities (Purdue, Clarkson, University of Utah) despite some possible legal ambiguities, is Income Share Agreements (ISAs), also used at many coding academies and other non-traditional post-secondary educational institutions. With an ISA, a prospective student signs a contract with an investor who provides financial support for a college education in return for some share of the student’s earnings after graduation for a specific length of time. Some legal experts believe some clarification in federal law is necessary before private investors will start offering this alternative form of financing college to students in large amounts. Democrats might like ISAs since they shift the risks associated with college financing from the student (who is liable for loan payments) to the investor (perhaps a large financial service company). Republicans should love ISAs because they provide a vehicle to partially privatize the dysfunctional federal student financial assistance programs. Merely clarifying that ISAs are enforceable contracts under federal law might lead to increased experimentation with them. Passing these three reforms would allow incumbent members of Congress to say “we did something about our poorly functioning system of financial assistance.”