Yes, the explanation gets a bit technical. But the point – although changes in the current system are needed, getting a valid set of measures in place is not going to be easy — is valid in this Brookings analysis of President Obama's announced college ratings plan. Current data gaps are only one part of the challenge.
The President’s plan, which he is touting on a two-day bus tour through New York and Pennsylvania, proposes that the Department of Education develop a new rating system that will judge colleges based on accessibility for low-income students, affordability, and outcomes, including employment and earnings. The ratings will be developed over the next year and will ultimately be made available to students shopping for college on the White House’s College Scorecard.
There is clearly a need for more and better information on college quality. The current lack of transparency has created a highly dysfunctional market for higher education in which students can choose from a wide variety of institutions but often have access to better information about the amenities colleges offer than the quality of their academic programs. Consequently, colleges compete on measures that factor into popular rankings such as average SAT scores and student-faculty ratios rather than quality and price.
Expanding the College Scorecard is a worthy strategy on its own, but President Obama has proposed to go a giant step further and eventually tie the availability of financial aid to the new ratings. Students attending highly rated institutions would receive larger Pell grants and more generous terms for federal student loans. Institutions would receive a bonus grant based on the number of Pell-eligible students they enroll and graduate. As a result, institutions would have an incentive to recruit and graduate more low-income students, and low-income students would have an incentive to attend higher quality institutions.
If the problem in the market for higher education is a lack of information, why does more information need to be accompanied by top-down accountability from Washington rather than the bottom-up, market-based accountability produced by the information itself? Congressional Republicans have reacted to the president’s plan with fears of “price controls” and “standards set by Washington bureaucrats.” But these objections miss an important point about higher education: because taxpayers are footing the bill for a significant fraction of the nation’s investment in higher education, we cannot rely entirely on consumers to incentivize institutions to operate efficiently, innovate, and generate good student outcomes.
But getting from a laudable set of principles to a workable set of policies is going to be hard work. The first task is for the Obama administration to develop a set of measures of college quality that will ultimately be accurate enough to use for accountability purposes. This is not possible with existing data, with notable shortcomings including the fact that graduation rates are only calculated for first-time, full-time freshmen (who comprise a small share of students at many institutions) and a federal law banning the government from connecting education and earnings data in order to examine graduates’ success in the labor market. These problems are fixable, but will take significant effort and, absent a back door to earnings data, Congressional action.