How Not To Do Higher Education Budgeting (Part III: Federal Budgeting)

Washington -- President Obama shook up the higher education community with some suggested reforms to how the federal government goes about supporting America's diverse higher education system. The proposals announced in Buffalo were long overdue. They might even work, although reformers must be careful not to replace one set of bad incentives with another. This is a real danger.

Many of the President's reforms require legislation, most likely through the upcoming reauthorization of the Higher Education Act. As a veteran of several reauthorizations, however, I can attest that this process is unlikely to be a good reform vehicle. A reauthorization is an exercise in strangulation by lobbyists, campaign donors, narrow interests, and favor seekers.

The President and his Secretary of Education should not wait to begin their reforms. Much legislation is already on the books giving the Secretary powers he has seldom if ever used.

• If student confusion over prices and financial aid is a problem (and it is), the Secretary can enforce the Student Right to Know Act to prevent colleges from manipulating aid behind closed doors.

• If state and institutional disinvestment in lower income students is a problem (and it is), the President can immediately instruct his Secretary and OMB to prepare their next federal budget proposal to emphasize existing federal programs that require state and institutional commitment.

• If student loan borrowers are abused and misinformed as to their repayment options (and they are), the Secretary can crack down on the servicers and collectors with Limitation, Suspension, or Termination (LS&T) orders.

• If colleges countervail the purposes of federal aid by using the aid in a plan to adopt a high-tuition-high-merit-aid model of institutional finance (and hundreds of colleges do), the Secretary can send out program review teams to determine the extent of waste, fraud, or abuse of federal funds.

• If false and misleading advertising lure students into bad choices that result in dropping out and being burdened with overwhelming debt (as is too often the case), the President and the Secretary can use the bully pulpit, including public service announcements, to advise prospective students as to where they and their families can get reliable information.

• If college ranking organizations (U.S. News for example) create incentives for colleges to cheat, and reward colleges for countervailing federal programs (and they do), the Secretary can work with alternative rankings organizations that do not; he can make grants to responsible ranking organizations to identify issues in preparation for the Department's own proposed rating system.

• If the old, moribund higher education establishment in Washington will not constuctively cooperate in ending abuses and reforming federal incentives (and most likely it won't), the Secretary can encourage and start working with the many college presidents and faculty around the country who will. Many colleges are rightly concerned that the status quo will lead them to extinction. The President, the Secretary of Education, and the Attorney General must assure college administrators that they will not be investigated for anti-trust activities when cooperating in needed higher education reforms.

From time to time I discuss policy questions with my former colleagues in state and federal government and in the institutions; on occasion I am invited to consult on the Hill. My advice for several years has been for the Secretary to get a stiffer backbone and take action using the powers he already has. I'm pleased to see that the Department of Education will now be contacting borrowers directly to tell them about their repayment options, an action I have long advocated.

Colleges, states, loan servicers and all connected to the huge higher education enterprise react to incentives. For years, many federal incentives have been wrong; the President and the Secretary have until now turned a clouded eye to how the federal government itself has contributed, by its actions and inactions, to the current sorry state of affairs. Here's hoping the Buffalo speech represents a watershed event.