To Reform Higher Education, 10 Principles Should Guide

Published March 24, 2011

American higher education suffers from rapidly escalating costs and poor student learning outcomes. Collectively, the United States spends $430 billion on higher education, the equivalent of 3 percent of total gross domestic product (GDP), an amount that exceeds the entire GDPs of several midsize European countries.

Yet, there is growing evidence that students at campuses across America are not succeeding. Nearly 40 percent of students fail to graduate with a bachelor’s degree within six years of first enrolling in college, and data suggest even those who do graduate often have trouble finding college-level employment.

With high costs and frightening outcomes, it is clear American higher education needs serious reform.

To guide this reform, The Heartland Institute has published a booklet we authored outlining “Ten Principles of Higher Education Reform.” This list is not exhaustive, but it does target several of higher education’s most pressing areas. Each of the principles is discussed below.

Reduce Third Party Payments.
When someone other than the customer is paying the bills, a producer has little incentive to cut costs or improve the quality of its product. With large government subsidies footing a significant part of the bill, this happens in both health care and in higher education. Ending government subsidies to higher education and removing tax breaks for third-party subsidization would more directly align the costs of higher education to the benefits of those who attend.

Fund Students, Not Institutions.
Most third-party support for higher education assumes funds will be used to enhance the quality or reduce the cost of the undergraduate experience. Yet that assumption is often wrong. If subsidies were given directly to students, not schools, the balance of power would change. Students would gain the power to direct the subsidies to the schools that best serve their needs. Instead of going begging to state legislators, university presidents would have to pay more attention to the students themselves.

Increase Transparency.
For a competitive higher education market to flourish, students, taxpayers, and policymakers need information about the quality and costs of the nation’s colleges and universities. Unfortunately, little information exists, and even less is made public, to show how colleges spend students’ tuition, how alumni fare in the job market, or even what students learn in college. State governments have a responsibility to collect and report the data needed to hold higher education’s leaders accountable for results.

Don’t Push College on Everyone.
President Obama’s goal of having the United States lead the world in college degree attainment by 2020 would require many more Americans to go to college. Yet, projections indicate the jobs forecast to have the greatest growth in the next decade do not require college-level training. Clearly, traditional four-year degrees are not the best option for everyone. Alternative postsecondary training programs may be more suitable for many.

Promote Lower-Cost Alternatives.
Traditional four-year institutions are expensive, and government subsidies do not encourage students to pursue cheaper options. Altering financial aid policy to provide fixed-sum amounts that do not vary by tuition price would make students more sensitive to price and create the proper incentive to enroll at less-costly institutions.

Emphasize Instruction.
Universities do many things that deviate from their twin missions of teaching students and conducting research. For example, they operate restaurant and lodging operations, conference centers, hospitals, entertainment enterprises (notably intercollegiate athletics), and recreational facilities such as golf courses and weight/conditioning operations.

Restructure University Ownership and Governance.
Most U.S. universities are organized on a management model developed in the Middle Ages and essentially unchanged for more than a century. Committees often make decisions, with various interest groups possessing some limited sort of veto power forcing costly and illogical compromises. University management structures need to be simplified, which can be encouraged through student-centered aid and the consequent emphasis on delivering real educational value.

Raise Academic Standards.
Low standards and grade inflation are damaging the educational quality of U.S. higher education institutions and creating a culture of mediocrity. Frightening evidence shows declining literacy among college graduates and suggests today’s students study for only 14 hours per week, down from 24 hours in 1961.

Value-added measures of academic performance are needed, and third-party financial support should be dependent on colleges demonstrating they are positively adding to the learning, critical thinking skills, or other qualities expected in a college graduate.

Measure Institutional Success by Student Performance.
Market forces drive companies to be evaluated by customers based on the cost and quality of their product. However, little information exists for customers to determine the quality of education a college provides, and a complicated financial aid system makes cost determination difficult. Introducing market principles into higher education will provide the necessary incentives to concentrate on making students’ financial investment pay off, which will encourage institutions to cut costs and operate more efficiently.

Reduce Barriers to Entry and Encourage Accreditation Reform.

The cost of meeting accreditation standards is often very high, measured in millions of dollars. Yet, accreditation tends to be based on inputs—spending money—instead of outputs, the demonstrated proof that students are actually receiving a beneficial education. Reforming the accreditation system would allow more competitors to enter the higher education market and encourage institutions to compete based on cost and the value-added of their degrees.

Richard Vedder ([email protected]) is director of the Center for College Affordability and Productivity and distinguished professor of economics at Ohio University. Matthew Denhart ([email protected]) is administrative director of the Center for College Affordability and Productivity.