To balance innovation with protecting students, focus on incentives

The normalization of online learning?

The two houses of Congress are taking different approaches to drafting legislation to reauthorize the HEA. The Senate is taking a slower approach and is leaving the door open to drafting a bill with bipartisan support by holding committee hearings every few weeks that focus on affordability and federal financial aid programs. In contrast, with little public debate, the House Committee on Education and the Workforce approved the PROSPER Act on a party line vote in December.

PROSPER eliminates the concept of distance education (and microwaves) from the law. Online learning is addressed throughout the law as a normal means of conducting education. PROSPER doesn’t create any new or different requirements for online programs. The law also eliminates Department of Education regulations that schools seek authorization in every state in which they serve students, and instead proposes that schools only be authorized in the state in which they are physically located. States had largely resolved this issue themselves through SARA, the State Authorization Reciprocity Agreement, but this workaround would no longer be necessary if PROSPER became law.

Innovation is guided by incentives

PROSPER removes a complex and burdensome layer of regulation from online programs and allows schools the freedom to design instructional models that take advantage of advances in technology. But for innovation to thrive in ways that benefit students, the workforce, and society, all colleges need to be incentivized to provide affordable, high quality programs that are aligned to workforce needs.

No one, on either side of the aisle, wants to see the federal government dump cash into low-quality programs that are more focused on revenues than on providing an education that helps students succeed. PROSPER’s authors aim to unleash innovation in higher education, but the guardrails the bill places on the industry are simply too weak. Measures in the bill touted as “risk-sharing” are likely to have adverse consequences, but are unlikely to change institutional behavior in ways that protect students. The bill also requires programs to demonstrate that their graduates maintain a 45% student loan repayment rate, or else be ineligible to continue receiving funds. This is an improvement on prior metrics, but is still a laughably low bar, and fails to take into account the outcomes of students who don’t graduate.

Incentives for student success

Organizations design their business models around incentives. In higher education, institutions are paid to enroll students—they have incentives to expand access, but not to achieve outcomes like completion or career success. As a result, money has flowed relatively freely, quality assurance has been a thorny problem, and affordability is an increasingly pressing issue.

Instead, Congress should adopt regulatory mechanisms that focus on outcomes. Changing the way colleges are funded by creating meaningful alignment with student outcomes could improve quality for the entire industry, not just online programs. This could take the form of meaningful risk-sharing, whereby colleges have to repay some financial aid dollars if students default. It could also include increasing the role of income-sharing agreements, whereby some revenues become contingent on a student’s future earnings. These funding models would incentivize colleges to ensure that their programs are adequately preparing students to succeed in today’s labor market.

Using outcomes to create guardrails against waste, fraud, and abuse is preferable to complex, clunky federal definitions of what is meant by online education. Higher education providers will continue to innovate; the authors of the next HEA reauthorization can’t reasonably be expected to create definitions that will remain relevant through the next decade of technological change and business model evolution. Relying on outcomes gives institutions the flexibility to innovate, while still protecting students and taxpayers.

The House bill drops the outdated distance education definition, but doesn’t sufficiently improve risk-sharing or other mechanisms to align institutional incentives with student outcomes. We hope the Senate bill truly modernizes higher education regulation, not just for online education, but for all programs.

This post was originally published on The Christensen Institute’s blog here.