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Race to the Top Goes to College

August 23, 2013
URL: http://www.entrepreneur.com/article/229113

In a series of speeches at schools across New York and Pennsylvania yesterday and today, President Obama is outlining an ambitious plan to revamp how federal aid is divvied out to colleges and universities across the U.S.

The proposals -- which, among other things, involve measuring institutions based on value and performance, as well as capping student-loan payments at 10 percent of income for all borrowers -- could help quell the rapid rise of college costs and make higher education for all students more affordable. Certain measures within the President's plan could also further marginalize vulnerable groups like low-income students, as well as penalize students who attend schools that don't measure up on the value scale or show improvement.

And that's if the measures get passed. "Key parts of the President's proposal, such as tying federal aid to institutional performance, will require an act of Congress. That may not happen in the current, divided Congress," says Mark Kantrowitz, the publisher of Edvisors.com, a group of more than a dozen web sites about planning and paying for college.

Still, the President can improve the disclosures required of higher-education institutions without Congress' help. Per his proposal, Obama would instruct the Department of Education to develop a new ratings system that would go into effect before the 2015 school year. Among other things, the ratings system would measure the percentage of students receiving Pell grants, overall affordability (including tuition, scholarships and debt levels) and graduation rates. The "College Scorecard," on which the ratings would be published, would compare colleges with similar missions and identify schools that are improving performance and do the most to help students from disadvantaged backgrounds.

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This transparency could be a boon for students and families seeking value, as the average cost of tuition at a four-year public college has climbed more than 250 percent in the past three decades, while an average family's income rose only 16 percent over the period, noted President Obama, in a speech he delivered yesterday before students at State University of New York Buffalo.

"At some point, families are having to make up some of the difference, or students are having to make up some of the difference with debt," Obama added. On average, students graduate college with roughly $26,000 in student-loan debt.

It's the next piece of the puzzle -- which would go into effect by 2018, per the President's plan -- that could prove problematic, says Kantrowitz. "Tying institutional aid eligibility to a new scorecard measure might hurt access to postsecondary education while failing to improve quality," he says.

To illustrate this point, he cites a 2012 student-aid policy analysis paper "The College Completion Agenda May Sacrifice College Access for Low-Income, Minority and Other At-Risk Students," he wrote for FinAid.org, which demonstrates that tying aid to graduation rates could have counter-intuitive results.

Establishing, for example, a 20 percent minimum-graduation rate for Pell grant eligibility would, Kantrowitz claims, shift $5 billion in funding away from community colleges -- reducing the number of students obtaining college degrees. His argument? Colleges would simply become more selective in the students they admit if federal aid was dependent on graduation rates. He adds that "shifting funding from low-performing schools to high-performing schools might improve graduation rates at the elite institutions by a little, but this will be more than offset by the reduction in the number of students graduating from the colleges that serve at-risk students."

Related: The Changing Economics of Student-Loan Debt: How to Pay It Off and Startup

Other college-cost-reduction measures within the President's education proposal include allowing high-school students to receive college credit and creating incentives for students to finish college on time. There's also potential to increase support for three-year accelerated degrees and use of Massive Open Online Courses, or MOOCs, like those offered by Massachusetts Institute of Technology and Harvard's edX and Coursera.

The plan would further open up to all students receiving federal aid the government's "Pay As You Earn" program, which caps borrowers' federal-student loan payments at 10 percent of their monthly discretionary income. The program currently bars access to students who first borrowed before 2008 or haven't borrowed since 2011.

What do you think about the President's plan to trim college costs? Let us know in the comments below.