There is a lot of talk right now about the future of higher education, and particularly about how student financing should be redesigned within that new future. The main driver of this interest is the nation's dramatically increasing need for talent. With two-thirds of all new jobs requiring a postsecondary degree or other credential, but only about 40 percent of Americans holding such a credential, the talent gap is wide.
As we work to close that gap, we've already learned a few things that work to support students financially in their pursuit of postsecondary education. There are also some intriguing ideas emerging about what could work better.
We know that students, particularly low-income students, are price-sensitive, and that lowering the price of education generally increases access for underserved populations. However, we also know that students must first be aware of price inducements (i.e., grants, loans, tax credits or flexible repayment schemes) to benefit from them. Programs designed to make college more affordable won't work if students don't know about them or can't figure out how to navigate them. That's why college-financing programs must be simple to use -- and information about them must be clear and readily available.
We know that going to college still pays off in enormous ways. Four out of five jobs lost during the recent recession required a high school degree or less -- indeed, the numbers of jobs requiring a bachelors degree or above actually grew during the recession and account for most of the job growth today. However, the outcomes of higher education are not linear or uniform; indeed, new data suggest that outcomes by institution and program vary widely. So, given the increased use of loans to finance college, the benefits of borrowing may vary based on choices students make about where to attend and which program to pursue.
Given what we know about the ideal ways in which student aid might improve access and completion, we can say with some confidence that the current student financing model is broken. Our tuition and student aid systems were designed decades ago to meet student needs and social and economic conditions that are dramatically different from those we face today. Fewer than one in five of today's college freshmen graduated from high school in the prior year and immediately enrolled in a residential four-year institution. And yet, a student financing system designed largely to serve that student of the past remains intact. We need a system in which resources are used to support the success of a much larger -- and infinitely more diverse -- population of students.
To that end, the Bill and Melinda Gates Foundation has done admirable work in seeding new ideas about how to confront some of these challenges in designing a new system at the federal level, and in jump-starting a much-needed conversation about reforming federal financial aid. However, building this newly designed student financing system will not, and should not, happen in the vacuum of federal policy. There are several interrelated issues that federal policymakers, states and institutions must confront for fundamental change to occur.
As we begin the next phase of our national dialogue about college affordability and student financial support, we must focus on the basic criteria that a 21st century system of student financial support should meet. This new system should be based on building blocks that:
- Ensure that college is affordable for low-income students. Family income should not be a barrier to enrolling in or completing college. We must prioritize subsidies on needy students -- those who, for financial reasons, would not otherwise attend college. Responsible student loan debt shouldn't be a deterrent to enrollment or completion -- student loans should be easy to repay, and default should not be common. And aid should be flexible enough to meet unique needs that may come up throughout a student's term.
- Make the cost of college more predictable and transparent. Students and families should be given clear information that can aid their decisions about enrolling in college. Information should be structured in such a way that students are encouraged to choose a college where they are likely to complete in a timely manner and earn a high-quality credential. And students and families should be informed about financial aid early and often.
- Provide incentives to students and institutions to increase completion and reduce prices. Incentives should build on the base subsidy provided by need-based aid, and be clearly communicated to students and institutions. And when it comes to financial aid incentives, they should be included in as many aid programs as are practicable, not only on those targeted to low-income students.
- Align federal, state and institutional policies and programs. States and institutions should be encouraged to offer low-tuition options for students so that price increases don't dwarf available aid. Federal investments should supplement, not supplant, state and institutional investment. And states and institutions should be held accountable for completion.
Each of these design imperatives comes with a bit of nuance. For instance, many of the terms used here lack a standard definition. What is considered "affordable" to one person may be patently unreasonable to another. How do we determine who is truly "needy"? Too often, this lack of common understanding has prevented consensus on the policy details. That's why, as the national conversation continues, we will need to better define these terms in the context of what is needed to reach our nation's attainment goals.
Likewise, many people are concerned that a focus on incentives will mean creaming -- rewarding high-achieving students disproportionately -- thereby putting the most needy students at a disadvantage. This is a wise concern; however, incentives can be constructed that are need-based as a first principle, while including signals that guide students to take the steps that are most likely to lead to completion. Incentives must not misdirect aid from the poor to the wealthy, or simply redistribute aid toward students already likely to complete.
Some evidence suggests that well-constructed incentives can genuinely encourage students to complete without being punitive. We could certainly use more research on how best to construct these incentives -- both for students and institutions.
However let's not be fooled into thinking that the current system lacks incentives. Right now, we basically "incent" colleges to maximize enrollment rather than completion. We require students to maintain satisfactory academic progress for continued receipt of federal financial aid, though each institution defines it differently. Still most colleges don't offer incentives to complete or to move as quickly as possible through a well-planned program of study.
So, our task is to create better incentives, ones that more appropriately align with our true goals: to have more students with high-quality credentials who can power our economy and our democracy.
The challenge of designing a new system of student financing is a formidable one. And yet, finding the solutions that will meet the criteria outlined here is an urgent task. The nation's future well-being rests on ensuring that affordable postsecondary education is available to many more Americans, and that those individuals gain the skills, knowledge and abilities that are essential to individual and societal success. The time to begin this important work of system redesign is now.