Students need better information

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Article Highlights

  • How can the federal government address crippling mixture of student loan debt & labor market uncertainty?

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  • Did you know the median borrower owes nearly $14,000?

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  • Policy entrepreneurs like @RonWyden @MarcoRubio and @GOPleader have put #highered transparency on agenda.

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  • At nearly $160 billion, federal student aid is the largest federal investment in education.

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On May 1, millions of Americans made the second-largest investment decision of their lives: they chose a college. After years of late-night homework, weekends spent in test prep and complex application forms, these prospective students get to punch what we’ve told them is a sure-fire ticket to the middle class.

For many, it will be. College graduates still enjoy sizable advantages in the labor market. A recent Georgetown study found that workers with a bachelor’s degree gained 2.2 million jobs during the recession and recovery, while those with a high-school diploma or less lost 5.8 million.

For others, though, this decision will lead to a crippling mixture of student loan debt and labor market uncertainty. First off, just half of the students who start a degree or certificate finish one within six years. And even those who graduate face mounting costs and stagnant returns. According to the College Board, tuition and fees at public, four-year colleges grew 66 percent over the past decade, more quickly than in either of the prior two decades. Pell Grants and tuition discounts help to defray these sticker prices for many students, though they have been hard-pressed to keep up with tuition increases.

To close the gap, students and families have taken on $1 trillion in student loans, with the median borrower owing nearly $14,000. But while college degrees cost much more than they used to, they seem to be delivering less: data from the Current Population Survey show that the inflation-adjusted wages of recent college graduates actually declined between 2000 and 2011.

These trends mean that for too many students, deciding whether and where to go to college has become more like a spin of the roulette wheel than a sure thing. Some of this is simply a product of the vagaries of the economy and the cost structure of traditional higher education. But some of the blame also lies in Washington. Put simply, federal policymakers have failed to capitalize on opportunities to help students — and the federal government itself — think more strategically about where to invest limited higher education dollars. Two particular opportunities stand out.

First, reforms could help prospective students become better informed about their options. Though we’ve always told students that a bachelor’s degree is worth an additional $1 million, the truth is that not all college degrees are created equal. For one thing, studies have shown that similarly qualified students stand a much better chance of graduating if they attend a more selective college than a less selective one. And research on the economic returns of college reveal that wages can vary significantly across disciplines, colleges and credentials. Graduates from science, technology and math majors tend to out-earn others. It’s even true that some occupational certificate programs boast a higher return on investment, at least in the near term, than some bachelor’s degrees.

In other words, the likely return on investment depends — a lot — on student choice, and these choices depend on what students know about their options. But federal data don’t tell prospective students enough: graduation rates only cover first-time, full-time students — a shrinking portion of the population — and the feds do not collect any information on student outcomes after graduation. Want to know which programs will lead to a middle-class wage? Good luck.

The federal government is uniquely positioned to collect data that could help students make better choices. The feds have already invested $500 million in state longitudinal data systems that could provide more comprehensive student success measures. And the Social Security Administration already collects wage data on all workers; a simple match could link labor market information to post-secondary experience.

Unfortunately, in 2008 Congress went in the opposite direction, explicitly banning the federal government from collecting individual-level data on college students. Some higher education interests argued that the ban on a student-unit record system was critical to protect student privacy. It coincidentally helps to protect colleges and universities from the wrath of better-informed consumers. This is not an argument to plug new data into ham-handed accountability measures, but to empower consumers to vote with their tuition dollars.

Second, policymakers must also work to inform themselves: about the cost-effectiveness of federal student aid programs and the potential for new approaches to improve outcomes. At nearly $160 billion, federal student aid is the largest federal investment in education. But unlike other social programs where Congress has called for rigorous evaluation of outcomes — such as Head Start — lawmakers have never called for such an evaluation of Pell Grants or student loans. Nor have they done enough to leverage federal demonstration projects that could test new ideas in the design and delivery of student aid.

Instead, politicians spend their days arguing for more spending on student aid (or cuts to aid programs) without knowing even the most basic information about program outcomes. What proportion of Pell Grant students graduate? Do lower interest rates or bigger Pell Grants affect student persistence? Do our investments reap a return, and could it be improved? Your guess is as good as theirs.

This isn’t a coherent human capital strategy: it’s a failure to look out for American students and taxpayers. Luckily, policy entrepreneurs like Sens. Ron Wyden (D-Ore.) and Marco Rubio (R-Fla.) and House Majority Leader Eric Cantor (R-Va.) have put higher education transparency on the agenda. The question now is whether other leaders have the political will to answer the challenge.

Kelly is a resident scholar and Jacobs Associate at the American Enterprise Institute.

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