States: Beware of Education Policy Dangers

June, 2023

Lincoln — States like Nebraska are taking up ideas that have superficial appeal as good education policy but are fraught with dangers the states haven't thought through.

One such idea is completion of the federal FAFSA college financial aid application as a requirement for high school graduation, as described in a recent article in the higher education trade press.

I would not recommend it.  Do states understand that FAFSA data are often shared by colleges with enrollment management consultants to determine family price sensitivity?  Here is how Josh Mitchell in his book The Debt Trap describes what one such typical consulting company does with FAFSA family income and other data.  

Firms like Ruffalo Noel Levitz help schools determine how much to discount for each student to make as much money as possible overall. The firms use hundreds of variables – including race, home address, SAT scores, parental education level and wealth, and even how many times the student visited campus during recruiting – to gauge each student’s “price sensitivity.” That phrase refers to how much his or her family might be willing and able to pay. The firms study the behavior of the past three years of freshman classes and then suggest, down to the dollar, what the school should charge students of different characteristics.

More than requiring students to fill out the FAFSA, states should first be pressing the federal government to crack down on colleges and their enrollment management consultants who use data collection against the interests of students, families, and, ironically, federal financial aid programs themselves.  The secretary of education already has the necessary authority, under current law, to prohibit practices that undermine higher education access.  

Another suspect idea is providing generous state tax credits for contributions to private and parochial elementary and secondary schools, on the theory that this will provide more opportunity for  disadvantaged students, including minorities.  But the money may not wind up being applied to that purpose, in practice.  Money is fungible. 

States should look at the experience of U.S. higher education when federal grants, loans, and tax credits were made widely available to financially needy students and families.  Tuition-charging institutions soon adjusted tuition levels, tuition discounts ("scholarships"), and loan offerings to maximize income, employing sophisticated enrollment management consultants to shape admissions and financial aid policies.  The end result, in the case of higher education, has been more opportunity for the non-needy and increasingly large debt burdens for minorities, as documented in many analyses of the distribution of student and parent debt, by race

States would be wise to prohibit those K-12 schools benefiting from state tax credits from offering loans to pay tuition as part of dubious and downright unconscionable enrollment management plans, to head off a repeat of the nation's backfired higher education experience.*  At a minimum, states should require such schools to meet standards for admissions and pricing that regulate discredited scholarship displacement, lead generation, and recruiting practices.    

I do not express these cautions from any particular political, ideological, or religious standpoint.  Rather, the concerns are based on a career in public budgeting and finance during which I have seen many education policies result in opposite effects from those intended, and in diminished government fiscal capacity to address real educational challenges as they arise. 


*  Loans are already a common means for families to pay private K-12 tuition.  The formidable enrollment management company EAB is positioning itself to move into K-12 education with the same techniques it employs in higher education, to maximize institutional revenues and enhance brand identification.  One prominent K-12 lender that was a U.S. Department of Education postsecondary contractor is no longer, due to many successful lawsuits including one from the federal Consumer Financial Protection Bureau.