Rating Colleges

03/30/2015 11:52 am ET | Updated May 30, 2015

Along with baseball and romance, spring means it's time for parents and students to get serious about college search. College is a big investment and the financial and personal payoff to making the right choice is huge. However, choosing among the literally thousands of universities that vary in size, academics, social cultures, cost, teaching philosophies, facilities, athletic opportunities, and more, is complicated. Wouldn't it be nice if a third party could simplify this high-stakes decision, and protect students from making the wrong choice?

That's basically the idea behind the Department of Education's proposed Post-Secondary Institutional Ratings (PIRS). PIRS would provide a rating of every institution based on about a dozen criteria -- for example, graduation rates, job market success, net price, percentage of students eligible for Pell grants, and graduates' debt. The DOE has not yet announced the final criteria, but it appears certain that some rating system will be introduced this year.

The justification for this new regulation rests on two arguments. The first is that federal ratings will give prospective students more information so that they can make better choices. Many regulations (e.g. warning labels on tobacco) are justified on this premise that consumers are poorly informed and getting information is too costly.

DOE's second rationale, accountability, is more problematic. Presumably institutions with low ratings would be penalized through withholding aid to their students. Thus the rankings would go beyond merely providing information to setting a standard of minimum quality, as defined by the DOE's criteria. Now I have no issue with the government's responsibility to ensure that its support of higher education through loans and grants is not wasted. As a young economist at the Senate Finance Committee, I often was surprised at how special interests felt entitled to federal aid or tax subsidies but resented being questioned about outcomes. A general political axiom: more money = more controls.

Unfortunately, PIRS is a poor tool both for providing information or establishing accountability. It's a bad idea in concept and is likely to be a train-wreck in implementation.

That consumers do not have sufficient access to information is debatable, given the enormous amount of information about colleges that is easily available from private ratings and rapidly growing social media sites. Further, independent colleges and universities have worked hard with this and the previous administration to deliver more comparative information to families. But there is a big difference between the government providing information, and evaluating that information. PIRS attempts to do the latter.

A rating system that allows comparison of universities that differ greatly in size and mission in effect assumes that every prospective student has the same preferences. An even greater conceit is that the DOE knows what those preferences are! A simple example: suppose ratings are based on just two criteria, graduation rates and earnings of graduates. These are important outcomes, to be sure, but assume that a prospective student is comparing College X, a large, highly selective public university that specializes in engineering and technology with College Z a small liberal arts campus that has a reputation for success with students with learning disabilities, and whose largest programs are in elementary education and community service. College X will have a higher rating, but that will mislead a student with special needs and who aspires to become a teacher. College Z would be his or her better choice, but the formula underweights, or doesn't measure at all, attributes that are more important to this particular student. Of course, the counter-argument is that any student who is not "average" should ignore the ratings and do her own search. Exactly. By itself, the rating provides almost no information.

More damaging, ratings that are used for accountability likely will create incentives that work against the administration's goal of expanding access, will limit choice, and will discourage innovation. As Andrew Kelley of the American Enterprise Institute points out, colleges will find it easier to change the characteristics of students they admit than to improve the quality of their education. Universities will have an incentive to become more selective in admissions, and will be less likely to offer academic programs that don't lead to high-paying careers.

In short, a rating system will make all universities and colleges more alike.

That is a familiar story to economists who study government regulation. Regulation requires standardization, which allows regulators to define what constitutes acceptable quality. Rules that began to inform consumer choices, eventually evolve to prohibiting "wrong" choices. It is not enough to provide information that drinking soda can lead to obesity -- let's just ban sodas larger than 16 oz. Even well-intentioned rules usually end up restricting competition and retarding innovation.

The latter would be a particularly unfortunate consequence of PIRS. Higher education, which used to be seen as impervious to change, is entering an exciting time of innovation and experimentation. Competency-based approaches, in which students are evaluated based upon what they have learned and progress at their own pace, are becoming feasible, thanks to advances in technology. Educators and employers are tackling the challenge of how to signal and compare what students can do, rather than just show diplomas or certificates of completion. I believe that this regulation will discourage risk-taking and innovation in higher education, as it has in health care, communications and transportation.

The breadth of choices that makes college search complex is in fact one of the great strengths of American higher education. It is a good thing that students can choose between small faith-based colleges, huge public universities, technical institutes, professional studies and liberal arts, small seminars, huge lectures, on-line learning, residential and commuter campuses, highly selective, open admission and more. PIRS is a step toward restricting this diversity in return for very little in benefits.