Rethinking financial aid

Even most staunch conservatives tend to agree that some level of education is a right. We think of food and water as rights, presumably ones that ought to be guaranteed to everyone for the entirety of their lives. Education is a very different matter: Exactly how much education ought we guarantee?

Before I answer this question, I’m going to make what should be an obvious statement: Education does not make everyone better off. If you are unsure of the truth of this statement, consider the most miserable Ph.D. candidate you know.

This next statement is going to sound even more obvious, but it has never directly guided American education policy: We should stop funding education at the point when it doesn’t leave the person any better off.

Default rates for federal student loans are rising sharply—if a former student can’t pay back his or her debt, that’s pretty grim news. It means the education didn’t help the student find a job that would pay well enough to cover the cost of the schooling. It didn’t fulfill the student’s goal (to be economically better off), or the obvious social goal of broadening the future tax base.

In the 1990s, Congress took tepid steps to address this problem, passing legislation so that schools with the very highest rates of student loan default—many of which are for-profit colleges—lose eligibility for federal financial aid after three years. The Obama administration has made these criteria a bit stricter.

What if we went further, though? When banks decide to issue loans, they think carefully about whether the individual will be able to pay the loan back. If the government were similarly prudent, there would be fewer former students burdened by back-breaking debt. Instead of broadly funding all higher education as long as the student is sufficiently low-income—what if we thought more seriously about what loans students would actually be able to repay?

1. Funding only the programs that students are prepared for: A 2003 study found that students that don’t graduate have a seven times higher default rate than students who do. Students from disadvantaged backgrounds, from our nation’s underserved and sometimes crumbling public schools, often come to college without the basic competencies needed to succeed in university, and yet some colleges are happy to admit these students anyway. For students with the lowest test scores, GPAs or other indicators of academic preparation, federal financial aid should be contingent on attending a community college first. It is incredibly important that these students continue their education, but spending federal money to put them in an environment they are not yet prepared for is in no one’s best interest.

2. Funding only the universities and programs that are good values: If students have a right to higher education, it is hard to justify why they have a right to receive that education at any university they might choose. We guarantee a free K-12 education, but students generally have their choice of schools limited to nearby public schools. Why should college necessarily be different? I’m of course biased toward Duke, but there are also clear statistical indicators that demonstrate that Duke and its peer institutions offer an academic and intellectual “product” above-and-beyond what even flagship public universities provide. The vast majority of the nation’s 2,441 private colleges, though, aren’t as good as flagship publics in their states, and are considerably more expensive. Controlling for the academic quality of a university, the more expensive the tuition, the more likely it is that a student will default on their debt. By restricting the schools where students could spend federal financial aid, default rates would decrease, and in turn, the federal government could be more generous with the amount of aid offered—a virtuous cycle.