Obama’s Plan for US Higher Education Reform

Jane Playdon, QS education writer

In August, President Obama proposed a plan for US higher education reform to combat the ever-rising cost of tuition fees, which have increased by an average of 250% over the last three decades as state funding has declined. With the stated aims of increasing affordability for students and accountability for colleges, Obama’s proposals would also involve awarding federal student aid in smaller chunks instead of one lump sum.

These plans won’t be fully implemented until 2018, which allows time first for a new college rating system to be introduced before the 2015 academic year, and tested to determine its effectiveness. In a speech at the University of Buffalo, President Obama said: “[The ratings] will help parents and students figure out how much value a college truly offers.”

The rating system will also provide the basis of decisions made by Congress about which students get the most federal student aid, dependant on which institution they attend.

As usual, the proposals have prompted significant debate and disagreement. But how new are Obama’s ideas for US higher education reform, and what changes would really be involved?

College rating systems and federal student aid

The idea of tying public funding to a college rating system is not exactly new. Since 1979, 26 US states have experimented with competency-based funding for higher education, to the point where the most recent adaptations to this idea are being dubbed “performance-based funding 2.0″.

For example, the Pennsylvania State System of Higher Education developed eight performance measures in 2000. Institutions were required to meet these in order to secure funding, and institutions that performed better got more funding.

The state has since made several improvements to its college rating system, to account for differences between institutions. So as from last year, 10 separate performance indicators are used, half of which are unique to each institution, while the other half apply across all. The shared ones are: number of degrees awarded, graduation rates, reduction in achievement gaps, diversity of the faculty and private donations.

Obama’s higher education reform proposals do not yet spell out exactly how the college rating system will be implemented. However, the plan would compare colleges “with similar missions” rather than across the board. The results would become part of the information included in the College Scorecard system (see below).

One element that is newer is the idea of linking federal student aid to institutional quality. Students at better-performing institutions could receive larger Pell Grants (which are allocated dependent on financial circumstance and require no repayment), and more affordable loans. There are also plans to pay out federal student aid in smaller chunks, as students complete each part of their course, rather than in one large payment.

Pay as You Earn and Race to the Top

Obama’s plan also places emphasis on continuing to grow and promote several existing schemes, including Pay as You Earn and Race to the Top.

The Pay as You Earn scheme caps student loan repayments at 10% of income. Not all of those with student loans are currently eligible for this, but Obama has proposed that they should be. The Whitehouse fact sheet outlines plans to boost awareness of the scheme through a “datapalooza” of new private-sector tools, services and apps. Additionally, the Department of Education has pledged to step up support for borrowers to ensure they have enough information about repayment options.

The White House is also continuing to promote the Race to the Top initiative, an annual competition in which states compete to win funding for their education systems, based on a set of performance indicators. The States of Tennessee and Delaware won the first phase of the competition in 2010, receiving $500 million and $100 million respectively. This has helped Tennessee to implement a system whereby 100% of its higher education funding is based on performance indicators.

Extending the College Scorecard system

Central to Obama’s plans for US higher education reform is the College Scorecard system. Unveiled earlier this year, this aims to help students choose between colleges by comparing data on costs, graduation rate, loan default rate, average amount borrowed and employment.

Starting this fall, earnings by institution will also be published on the College Scorecard. Ultimately, the information collected as part of the new college rating system will also be incorporated in college scorecards. This would mean adding information on access, affordability and outcomes, measured using data such as the percentage of students receiving Pell Grants; tuition fees, student debt and default rates; graduation and transfer rates, graduate earnings and advanced degrees.

What are the arguments for and against?

On the positive side, it’s hoped that the publication of more detailed information about college performance will empower students and their families, and stimulate greater innovation and accountability within the US higher education system. The proposals should also mean federal student aid is better targeted, and student loan repayments less daunting.

However, there’s been criticism of the proposed college rating system, on the grounds that it could give an over-simplified picture. The proposed Student Right to Know Before You Go Act, for example, would make even more detailed information available.

It’s also been pointed out that there’s a risk of circularity in using Pell Grant allocations to rate colleges, and then awarding even more Pell Grant funding to the highest rated. As this Washington Post article says: “If the percentage of students getting Pell Grants is a data point in the rankings, and those with higher rankings get more Pell Grants, then a spiral effect could ensue with schools that – through fair or unfair practices – have racked up a large amount of Pell money just getting more and more.”

Finally, there are some concerns that the expansion of the Pay as You Earn student loan repayment scheme could end up expanding public debt in the long term. Under the plan, graduates pay 10% of their income towards their debt, but after a specified period, loans are forgiven.

What do you think about Obama’s plans for higher education reform? Share your opinion in the comments below.