August, 2023
Washington — Now is a propitious time to fix much of what's wrong in U.S. higher education pricing, admissions, and financial aid. Three recent developments make such action more plausible than previously, and a looming student loan repayment crisis makes it a necessity.
Affirmation action based on race is out, per the U.S. Supreme Court. Legacy admissions are perhaps the next preferences to fall, partly in response to the affirmative action decision. And then there is Henry et al. v. Brown, a lawsuit striking at the way institutions surreptitiously manipulate enrollment management to favor the wealthy over the financially needy, which has contributed to the debilitating student loan crisis. This case is not going away until there are many large settlements in favor of borrowers. All eyes are on the Secretary of Education to see what he will do in response to these three developments.
Now, as to the necessity of a sweeping fix, consider the following.
All this is happening at a time when millions of student and parent borrowers are going back into loan repayment in October, after the Covid pandemic pause gave them three years of temporary relief. The Biden administration is trying to effect a smooth transition to repayment but is hampered by a lack of resources from Congress to do the job. The administration's earlier attempt to cancel up to $20,000 of debt for borrowers with annual incomes under $125,000, which would have cut the number of accounts to service by nearly half, was blocked in June by the Supreme Court.
The Biden cancellation plan was not only blocked by the Supreme Court, it was also unpopular with many because it did not address the underlying causes of the huge debt build-up, which would be all too likely to repeat themselves quickly. This viewpoint was widely distributed across the political spectrum, but the lack of attention to the future has been pounced upon by congressional Republicans especially, who continue to hold up funding to provide servicers what they need to get people back into repayment accurately and efficiently. (This is ironic in that most servicers are located in red states, and are being impaired by their own congressional delegations.)
So what should the Secretary do? There is a ready solution to address all of the above: begin to enforce laws already on the books.
The Secretary should send department program review teams to selected institutions with instructions to review whether their pricing, admissions, and financial aid processes are complementing or conflicting with the statutory purposes of federal student financial aid programs under the Higher Education Act. If they are complementing federal programs, they are not in trouble. But if institutions are undermining federal programs by favoring the wealthy, in such a way that it results in higher debt for the financially needy, whether by legacy admissions or secretive algorithms, their future participation in HEA Title IV should be reviewed.* Transparency in financial aid, and therefore in setting net price, is required by federal law.** Serious misrepresentations by institutions in matters of admissions and financial aid are punishable under law by limitation, suspension, or termination from federal programs.***
This reform action by the Secretary is urgently needed to convince skeptics that immediate help for servicers and borrowers (many of whom are the victims of unfair institutional practices) will not lead to even greater borrowing in the future. Putting institutions on notice that they can and will lose their eligibility for federal student aid if they try to game the system, against the purposes of the HEA, will change institutional behavior.**** Reducing bias toward the wealthy (as well-documented by Raj Chetty and others) will also redound to the benefit of the lower income and its disproportionately large minority component. This will counterbalance the loss of race-based affirmative action, which over the past three decades unfortunately acquired its own bias toward wealth.
Such action by the Secretary is also necessary to restore the faith of Americans in the promise of higher education, which badly needs it.
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* Legacy admissions are often dwarfed by wealth biased algorithms. Chetty et al. estimate them at 46% of bias toward wealth in their sample. Doing away with the former may only be cosmetic if it leads to increased reliance on the latter.
** 34 CFR § 668.42 Financial assistance information
*** 34 CFR § 668.71 Scope and special definitions
**** Many institutions would welcome relief from the destructive merit-based aid arms race.
