President Obama's new higher education plan

“Early Thursday, he released a plan that would:

Create a new rating system for colleges in which they would be evaluated based on various outcomes (such as graduation rates and graduate earnings), on affordability and on access (measures such as the percentage of students receiving Pell Grants).
Link student aid to these ratings, such that students who enroll at high performing colleges would receive larger Pell Grants and more favorable rates on student loans.
Create a new program that would give colleges a “bonus” if they enroll large numbers of students eligible for Pell Grants.
Toughen requirements on students receiving aid. For example, the president said that these rules might require completion of a certain percentage of classes to continue receiving aid.”

There is another summary here.

So far I don’t get it. There seems to be plenty of information about colleges, and I doubt if a federal rating system would improve on those ratings already privately available. To the extent that federal system became focal, the incentives to game and scheme it would become massive, and how or whether to punish the gamers, if and when they are caught, would be a political decision. I don’t see that as healthy.

Given that previous educational subsidies mostly are converted into higher rates of tuition and thus captured by the school, the second plank would simply boost the subsidy to high performing colleges. There are plenty of ways to do that and in any case it doesn’t seem to help today’s marginal students, who probably cannot do well in those environments in any case. Furthermore colleges with high graduate earnings are very often those located in or near high-paying cities. Should we be subsidizing on that basis? Should we be giving colleges an incentive to identify and deny admission to potential lower earners? Do we really want the federal government helping to crush humanities majors? And I don’t see that the kind of rating system under discussion here is measuring actual value added, ceteris paribus of course.

I am not opposed to tougher requirements for aid recipients, but again there is a danger of gaming. For instance the aid recipients might simply choose easier classes and majors and aid-hungry colleges might very well accommodate them and make things as easy as they need to.

On the third plank, I don’t think the problem is that Pell Grant recipients cannot get into a good enough college. The problem, insofar as there is one, relates to how well they do once they show up, given what is often inadequate preparation. Encouraging now-rejecting colleges to accept them will if anything lure them into environments they are not capable of handling.

I would find it helpful if this proposal would outline the core, underlying theory of market failure in higher education, and then how these ideas would fix it. It is difficult for me to put that argument together in my mind. I do get the intuitive reason why “aid should be tied to outcomes.” But presumably students, who already have by far the most at stake in choosing a college, already allocate their own dollars and aid dollars on the basis of outcomes. If that process isn’t broken, this plan seems to address a pseudo-problem. If that process is broken (misguided students?), we need to know whether this plan really will fix the kink in the system. For instance if students cannot right now choose the schools offering the best expected outcomes for them, this plan seems to work mighty hard to get the schools to do the choosing for them, but in reality only ends up putting the students into tougher and less appropriate institutions. Can you spell “remedial”? In any case, under these assumptions, it would seem to be the students who need the fixing, not the schools. And so on.

I do like this part:

Further, the administration is promising to issue “regulatory waivers” for “high-quality, low-cost innovations in higher education, such as making it possible for students to get financial aid based on how much they learn, rather than the amount of time they spend in class.”

Overall the ideas here strike me as underdeveloped in terms of logic. Perhaps the plan will have positive effects simply through the “bully pulpit” medium.