A $150 Billion Higher Education Experiment?

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Next week the President will give his annual State of the Union. A few weeks after that, he will present his FY2013 Budget Proposal. Given the President’s long-standing interest in increasing college completion and his more recent focus on college costs, I imagine that the budget will call for resources to increase student outcomes and/or reduce costs.  The bad news is that existing higher education investments (with existing constituencies) are on the chopping block, meaning that significant new federal investments face an uphill battle. The good news is that the US Department of Education has the authority to experiment without new money and without additional Congressional approval—and it is doing just that.

Last month, higher ed institutions applied to participate in the The Department’s Experimental Sites Initiative (ESI). Authorized by Congress in the Higher Education Act, the ESI essentially creates a laboratory in which The Department waives certain financial aid requirements for selected institutions to reduce burden, improve delivery of aid, or “otherwise benefit” students. While past efforts have largely focused on reducing institutional burden, this round is focused on creating 8 honest-to-goodness experiments (with treatment groups and everything!) in order to inform policy that will (hopefully) benefit students.

One of the experiments seeks to address an issue for which institutions have been clamoring for years—preventing students from taking out unsubsidized loans they don’t need or can’t afford. Over borrowing can lead to default, which can result in an institution losing the ability to provide any federal aid—including Pell. To mitigate these risks, some community colleges have simply opted out of the loan program. While this solution might help the institution, it hurts students who actually need the money. These students may turn to riskier, more expensive, options like credit cards and private loans to finance their education.  So, what’s a school to do?

Enter the Experimental Site Initiative, which would allow participating institutions to reduce the amount of unsubsidized loans to groups of students they identify as not needing as much (or any) unsubsidized debt. One could imagine differential debt limits for those living at home, those who already have significant debt, or part-time students—and would allow institutions and federal policy makers to see how limiting unsubsidized loans amounts for different types of students would affect student academic and repayment outcomes. This and more (including whether limiting loan amounts would result in lower tuition) will be tested in just this one experiment.

We need experiments like this to figure out what works—and what doesn’t. Although a magical pot of R&D money is unlikely to appear any time soon, we already have over $150 billion in annual federal student aid—ESI can be used to figure out how to better deliver, use, and leverage these dollars to improve student outcomes. It’s great to see Department take this authority and opportunity seriously. It’ll be interesting to see what comes out of this round—and where the Department plans to go next.  (Stay tuned to The Quick and the Ed for our suggestions on next steps)