Faculty Perspectives: Reimagining Higher Education Finance Policy

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Reimagining Higher Education Finance Policy

By Frank Pasquale, Professor of Law, University of Maryland Francis King Carey School of Law

Photo courtesy of University of Maryland Francis King Carey School of Lawfrank-pasquale

The Obama Administration made at least two major contributions to policy related to the financing of higher education: It cracked down on some for-profit colleges, taking on a consumer protection role largely missing from the Bush years. The Obama White House also encouraged income-based repayment (IBR) for student loans. The Trump Administration is now attacking both legacies.

As Vox has reported, Betsy DeVos “assigned the foxes to guard the henhouse when she hired multiple former employees of for-profit colleges to the Department of Education.”1 These appointees have slowed or stopped certain regulations of for-profit colleges, and have tried to delay implementation of the Obama Administration’s borrower-defense rule. Though labyrinthine, the Obama-era rule would be far more favorable to students cheated by fly-by-night programs than DeVos’s proposed replacement of it.

Meanwhile, parts of the already-ramshackle IBR program have almost entirely failed students—about the Public Service Loan Forgiveness (PSLF) program, for example, it was reported that just 96 of 30,000 people who applied for public service loan forgiveness actually got it.2 Expect matters to deteriorate as DeVos moves to preempt states’ efforts to regulate servicers and shifts debt collection work to private loan servicers,3 who make more in profit the longer they can keep borrowers on the hook for payments.

Many popular accounts of higher education policy blame the Trump administration for wrecking the Obama administration’s carefully calibrated, meticulously developed higher education policy of means-tested aid and human capital optimization. However, the foundation for policy failure was laid well before 2017.

On education policy, the Democratic Party is a “house divided:” there are those who care deeply about maintaining and improving existing educational institutions, and those who would happily watch them swept away in a tidal wave of “disruption;” those who see financialization as a necessary evil in an era of declining public support for higher education, and those who wish to base education policy on icily objective spreadsheets of “degree premiums” and salary boosts.4

The disruptive neoliberal vision offers little support for research, community service, or any non-economic purpose of higher education. It was dominant in Arne Duncan’s Department of Education, and it is ultimately continuous with both DeVos’s efforts and GOP leaders’ promotion of the PROSPER Act, which would devastate higher education funding.5 The task now for higher education advocates, and especially law schools, is to develop a robust account of the value of higher education and its place in society in order to ensure that the next reauthorization of the Higher Education Act does not unduly burden students or distort the mission of higher education institutions.

Policy Complexity Leads to Political Unsustainability

Republicans in Congress have been planning to cut student aid for years, but there is little to no indication that students or indebted graduates are making this a major campaign issue in midterms, either via protest or changed voting behavior. This is likely because the way that IBR is structured is highly contingent on personal and economic factors that are difficult to predict with accuracy. Will you be able to keep a qualifying job for 10 years to obtain public service-based debt forgiveness? Will servicers actually count your payments accurately? In the case of some IBR programs, forgiveness (if it arrives at all) happens 20 years out. Given contemporary political upheavals, who can plan based on such long-term promises of help? Extreme complexity and baroque targeting of aid make it hard to sustain political support. Just as private insurers have undermined the implementation of the ACA, servicers at the core of the Department of Education’s student loan management have serially failed the students they are supposed to help.

Even if the administration of IBR were perfect, other problems remain.

Pursuant to neoliberal principles of financialization and responsibilization, IBR is means-tested. This is meant to ensure that as little aid as possible goes to graduates who do not “need” it. But it also means that students are merely probabilistic beneficiaries of the program. Many aspire to become financially comfortable enough never to need the aid, so they never form a constituency capable of sustaining support for it. Thus the concept of “need” can be indefinitely shrunken. Student interests are diverse and organized, while concentrated private lenders advocate shrinking government subsidies so they can market their own, often overpriced, loans as a substitute for worsening government offerings.

Even worse, selective private refinancing schemes for the “best risks” means that the graduates with the best financial prospects will be rewarded with lower interest rates than those who need help more. In that way, IBR looks a lot like the Home Affordable Mortgage Program (HAMP) instituted after the financial crisis: well poised to deliver profits to financial institutions, but not at all well targeted to meet its ostensible aims. Even worse, in the case of IBR, the government loan repayment program is stuck with the worst risks, while private refinancers take on the best prospects. If IBR ever does become very costly to government, we should remember that defaults would be a lower percentage of overall loans if the system were not set up to shed its best repayment prospects to the private sector.

Unfortunately, these simple truths about the perverse incentives of the current interplay between private and public lenders tend to get almost no play in even the specialized media focused on education policy. As I observed in 2015, Washington think tanks indirectly funded by money from private lenders have repeatedly used lawyers, engineers, and nurses as examples of rich professionals who do not “need” government subsidy.6 It is ironic that other anti-university lobbyists were simultaneously sounding an alarm that the long-established degree premium from higher education was about to end, and that professions like law were about to be automated out of existence, leaving law graduates impoverished. The anti-university lobby cannot seem to decide whether graduate school is a gold mine or a gigantic waste of money; it simply takes up whatever cudgel is best suited to bash the program it wants to undermine.

This advocacy has been politically effective. A stealth campaign of think tank “research,” along with a louder and more insistent lobbying effort, has convinced policy makers to effectively reverse many “subsidies” once given to education and has ensured that the education sector itself subsidizes the government. For example, the U.S. government has made tens of billions of dollars in profit from student loans. Its tax policy also disfavors education relative to other investments.7

Students are not the only ones to be failed by technocrats in the Department of Education and their Congressional enablers. All too often, top officials have treated educators as legacy ballast rather than allies in the fight for a more educated and productive society. A managerial and disciplinary ethos pervades the Department of Education, combining skepticism about traditional institutions with fervent hopes for cheap online courses. True, the Obama Administration’s bitter disappointment at the grift of extant disrupters like Corinthians has been replaced with officials wholly comfortable with the comportment of Trump University. But the former helped pave the way for the latter with a constant drumbeat of concern about cutting college costs that almost never acknowledged the exploitation of adjuncts—just as the Obama administration’s technocratic obsession with cutting health care costs fit uneasily, if at all, with the reality of underpaid home health aides, overstressed nurses, and burnt-out doctors.

Leading Democratic and Republican approaches to policy have also embraced an empty model of “education as salary booster,” based on crude economic theories of human capital. No wonder one leading fixer proposed replacing the Department of Education with a “Department of Talent.” Leaders treat education as a black box: whatever works to boost GDP ought to be encouraged. Such measures are flawed, and miss what is most important about teaching, research, and exposure to the values that make democracy and vibrant culture possible.8 It is very easy to manipulate figures relating to utilitarian aggregates like GDP, consumer welfare, or income.9 There is little appreciation of the long-term value of college.

What is Education For?

Without a sense of “education” existing for its own sake as an intrinsic good, federal loans effectively invite a mob of pretenders to set themselves up as “colleges” or “law schools.”10 In health care, robust state licensing laws and state and federal fraud and abuse laws can check opportunism. In education, such laws are weak and underenforced. The “human capital” theory has distorted the broader mission of real, nonprofit universities, while opening the door to predatory for-profits.

Those who care about the future of education in general, and legal education in particular, should work to see that both are fairly funded, and maintain their traditional missions. Complex societies need a sophisticated, expanding education system. Education pays off, in social, cultural, and economic dimensions, over a lifetime. Markets, focused, as they are, on short term exchange and profit, will never optimize its production. The state must be deeply involved. Policy makers must hear about the value of education, research, and clinical contributions of law schools.

Such advocacy is especially important now, as private lenders’ “investments in lobbying may be about to pay huge dividends…to the detriment of millions of students, and hundreds of millions of Americans who depend on the long term fiscal health of the United States.”11 We should be looking to more humane models of higher education finance at both the state and federal level, rather than doubling down on privatized financialization and the blinkered theories of human capital that support it.12

For too long, think tanks have promoted a neoliberal ideal of education “innovation,” which created opportunities for fly-by-night operators to take advantage of unsuspecting students.13 It is not enough to belatedly pursue the worst of these institutions with borrower-defense rulemakings or gainful employment guidelines (both now in jeopardy under DeVos). Rather, post-neoliberal education policy should value universities just as much for the intrinsic value of their research and service, as for their role in preparing a workforce. Without that foundational commitment, the center of education policy cannot hold.


1 Emily Stewart, Betsy DeVos Is Lifting Regulatory Scrutiny of Predatory For-Profit Colleges, VOX (May 14, 2018), https://www.vox.com/ policy-and-politics/2018/5/14/17353234/betsy-devos-devry-for-profit-college-education.

2 Annie Nova, Just 96 of 30,000 People Who Applied for Public Service Loan Forgiveness Actually Got It, CNBC (Sept. 21, 2018), https://www.cnbc.com/2018/09/21/ the-education-department-data-shows-how-rare-loan-forgiveness-is.html.

3 Andrew Kreighbaum, DeVos: States Don’t Have Authority to Regulate Loan Servicers, Inside Higher Ed (Mar. 12, 2018), https://www.insidehighered.com/quicktakes/2018/03/12/devos-states-dont-have-authority-regulate-loan-servicers; Danielle Douglas-Gabriel, Trump Administration to Hand Student Debt Collection to LoanServicers, Ending Use of Collectors, Wash. Post (May 25, 2018), https://www.washingtonpost.com/news/grade-point/wp/2018/05/25/trump-administration-to-hand-student-debt-collection-to-loan-servicers-ending-use-of-collectors/?utm_term=.8928ad2ffa46.

4 Luke Herrine, Neoliberalism and Higher Education Finance: Breaking Out of the Ideology, LPE Blog (Oct. 17, 2018), https://lpeblog.org/2018/10/17/neoliberalismandhighereducation/.

5 Mildred Garcia & Peter McPherson, Opinion, Why the PROSPER Act Creates Big Problems for Students and Their Families, The Hill (May 21, 2018), https://thehill.com/blogs/congress-blog/388569-why-the-prosper-act-creates-big-problems-for-students-and-their-families.

6 See my description of the work of the New America Foundation. Frank Pasquale, Democratizing Higher Education: Defending & Extending Income Based Repayment Programs, 28 Loy. Consumer L. Rev. 1 (2015). See also Michael Simkovic, Think Tanks, CBO Dramatically Overestimated the Direct Budgetary Costs of Public Service Loan Forgiveness, Brian Leiter’s Law School Reports (Sept. 23, 2018), http://leiterlawschool.typepad.com/leiter/2018/09/think-tanks-cbo-dramatically-overestimated-the-direct-budgetary-costs-of-public-service-loan-forgive.html.

7 Michael Simkovic, The Knowledge Tax, 82 U. Chi. L. Rev. 1981 (2015).

8 Danielle Allen, What is Education For?, Boston Rev. (May 9, 2016), http://bostonreview.net/forum/danielle-allen-what-education.

9 Jerry Z. Muller, The Tyranny of Ethics (2018).

10 Frank Pasquale, Synergy and Tradition: The Unity of Research, Service, and Teaching in Legal Education, 40 J. Legal Prof.. 1 (2016).

11 Michael Simkovic, Dangerous New Bill Could Hurt Taxpayers and Make Financing More Expensive, Brian Leiter’s Law School Reports (Mar. 27, 2018), http://leiterlawschool.typepad.com/leiter/2018/03/dangerous-new-bill-could-hurt-taxpayers-and-make-financing-education-more-expensive-michael-simkovic.html.

12 Frank Pasquale, How to Make Higher Education More Affordable, The Atlantic (Dec. 17, 2015), https://www.theatlantic.com/business/archive/2015/12/how-to-make-higher-education-more-affordable/421062/.

13 See, e.g., Clayton Christensen et al., Disrupting College: How Disruptive Innovation Can Deliver Quality and Affordability to Postsecondary Education (2011), http://cdn.americanprogress.org/wp-content/uploads/issues/2011/02/pdf/disrupting_college.pdf. For a critique of Christensen, see Frank Pasquale, The University of Nowhere, L.A. Rev. Books (Nov. 12, 2015), https://lareviewofbooks.org/article/the-university-of-nowhere-the-false-promise-of-disruption/.