Dept of Ed Turns a Good Idea into a Bad One

by Andrew Gillen

Jennifer Epstein has a piece in today’s IHE about proposals to reign in colleges and majors that don’t lead to gainful employment.

the department’s first draft of revised rules to guard against the abuse of federal financial aid funds, the proposal suggests two possible methods aimed at ensuring that students and taxpayers aren’t paying for programs that don’t lead to “gainful employment”…

The first option suggested by the department would seek to define the value added by a program -- the difference in annual earnings between a high school graduate and an entry-level worker with a degree or certificate in the same field -- and determine an appropriate price for it…

The other option set forth would be to look at whether the starting annual income in the field was sufficient to repay the average debt obligation of a student with a degree or certificate in that field while still being able to pay living expenses…

The college lobbying groups are meeting these proposals with their usual cries of inappropriate government interference. As much as it pains me to say it, this time they are absolutely correct - the Dept. of Education has taken a good idea and gotten carried away, overstepping its bounds in the process.

At the heart of the matter: Why should the government be the one to determine an appropriate price, or determine if income is sufficient to repay debt?

They shouldn't. To be sure, determining an appropriate price, and knowing if your expected income is sufficient to repay your debt are certainly things that students need to know – but they are just as unequivocally things that government should not be the ones to determine.

Moreover, to the extent that they would set prices, they seem to want to do so based only on factors, such as the expected additional earnings, that affect demand. They would entirely ignore the supply side of the equation - how much it costs to provide the education. Perhaps my economics background biases me here, but I'm pretty sure you need to take both supply and demand into account to find the correct price.

There is a role for government in mandating the disclosure of information, which colleges will always resist. The worst part about this is the fact that part of the first proposal is on the right track in this regard:

seek to define the value added by a program -- the difference in annual earnings between a high school graduate and an entry-level worker with a degree or certificate in the same field

Students and legislatures need to know employment outcomes so they can properly evaluate the effectiveness of the billions of dollars we funnel to colleges. But requiring the disclosure of employment outcomes is where the government should stop. This will allow individuals to make their own determinations. Colleges are too diverse, and their students even more so, for any government generated one size fits all answer to these questions to be helpful.

So, to sum up

1. Requiring the disclosure of employment outcomes is a good idea.
2. The Dept of Ed went way beyond that and tried to actually determine what the price should be based on number 1. This is a bad idea and should not be done.
   
3. The college lobby will resist both of these. They are right when it comes to number 2. I will mock them mercilessly when they resist number 1.