By Richard Vedder
The Higher Education Act (HEA) reauthorization is a big deal in higher education, and this year's bill, roughly 800 times longer than the Gettysburg Address (my model for public policy clarity), is filled with good things, bad things, and some so-so things --too many to even comment about. Like most persons, I have not actually read the whole thing, having better things to do, like watching great Super Bowl contests, playing with my new grandson Corey, etc.
But first my friend Charles Miller, and then the press, alerted me to a couple of changes in this year's iteration of the HEA in the House of Representatives. First, just when we were thinking to ourselves we probably would get through the year without a big battle over an endowment spending rule, an amendment appears in the House bill that has a real chance of passage that is even wilder (dumber?) than what Chuck Grassley was proposing (and which, I predict, he is backing off from as his aide Dean Zerbe departs, Harvard and Yale respond, people consider the remarks made at the recent CCAP conference aired on CSPAN, and endowment returns plummet). Rep. Welch of Vermont is on the Rules Committee, and his amendment probably will advance to the floor. It would mandate a 5 percent spending rule --for all schools, even Last Resort U. a mythical but typical small school with a $20 million annual budget, with a $2 million endowment that spends $96,000 a year from endowment funds but now will have to spend $100,000 (5 percent) annually --and $10,000 a year complying with the law. Dumb. I haven't read the full text of the bill --but a cursory glance suggests other problems as well. Even the Grassley-Zerbe bill applied only to $500 million or larger endowments. This is a form of legislative harassment that the colleges don't need.
Dumb gets dumber. I love for-profit education. CCAP is dedicated to letting it flourish. But I am angry that the for-profits (or some of them) are trying to prevent honest, accurate reporting on student loan default rates. Default rates should be based on a fairly long period --say, four years -- after a student's graduation. Currently, the Ed Department reports two year default rates, missing a large portion of defaults and hugely understating the problem. The proposed law would require three year default rates --an improvement, but not perfect. The for-profits have successfully lobbied against early implementation of such laws. This explains why we often have financial crises in areas under federal regulation --the regulators are often captured by the regulatees. In this case, Congress is saying, "We don't want accurate information provided." In other words, let us continue to encourage a student loan debt meltdown and, in the long run, a removal of private investors from this market (that the Feds have no business in). If an endowment payoff rule is dumb, this is dumber.