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Higher ed at the crossroads: new government regulations may radically change how IHEs are accredited and how federal student aid is administered.

FOR THE LAST TWO DECADES, MUCH OF THE PUBLIC and media attention has been focused on the problems in K-12 education. Higher ed coverage was concerned largely with stories on school rankings or sports scandals. Within the industry, of course, there are those who have raised warning flags about quality, about access, and about affordability, yet the mainstream media rarely delved into these complex issues.

But now, with a "perfect storm" of converging circumstances, the public is beginning to pay attention, and radical changes may be in the wind. Earlier this year, Congress cut over $12 billion in student aid as part of a budget reconciliation bill. Despite student aid accounting for less than 1 percent of federal spending, aid cuts amount to almost 32 percent of the reconciliation. This, coupled with a dramatic rise in loan interest rates, could put a tremendous financial burden on students who are, or will soon be, heading out into the working world. The new rates, which took effect July 1, raised Stafford Loan interest rates from 4.7 percent to 6.54 percent a year for those currently in school, in grace, or in deferment. Stafford Loans already in repayment jumped from 5.3 percent to 7.14 percent. PLUS loans jumped to 7.94 percent from 6.1 percent. Students who didn't take advantage of loan consolidation offers last month to lock in at a lower rate could end up paying thousands of dollars more in additional interest over the life of the loan.

Into this picture comes a government-commissioned panel to examine an "A list" of concerns--aid, affordability, accountability, accreditation--and develop a comprehensive national strategy for higher education that will meet the needs of a diverse population and address the economic and workforce needs of the future.

The Commission on the Future of Higher Education, formed last fall by U.S. Secretary of Education Margaret Spellings, comprises members from within higher education as well as business. Its recommendations, expected next month, could have a long-lasting impact on higher education. And, while many within the industry believe the wake-up call is long overdue, whether those changes will be for the good of the higher education community or not is a matter of debate.

"What the commission is doing is a good thing, even though I don't agree with all the proposals that I've heard about," says John Fry, president of Franklin & Marshall College (Pa.). "It gets people to stop and think about what they are doing. There has been a complacency, almost a smugness, in this industry among the people who are in it. Sure, we probably do [higher education] better than any another country in the world, but it doesn't mean we have it all together."

Fry says the disagreement among commission members and within the larger education community is healthy. "I like the fact that people are pushing, and I think that is a very good process. It sets up conversations now that we should be having--maybe we end up in different places, maybe some other recommendations will come up, but it will be good for this industry."


While the commission has had some heated debates, its members all agree that more resources must be directed to need-based student aid. However, they haven't yet determined how this should be done. Some argue that financial aid funding should be increased across the board, while others believe existing funds should be redirected to need-based aid. Several proposals call for replacing the large variety of grant, loan, and tax-credit programs with just one or two federal aid programs.

Although total aid spending has increased over the years, low-income students are receiving a smaller share of the pie. According to the National Association of State Student Grant and Aid Programs (, states distributed a total of $7.9 billion in financial aid over 2004-2005, 8 percent more than the previous year. However, need-based aid continued to slip, dropping from 81 percent of total aid awarded in 1999 to 73 percent last year.

Some observers question the motivation of commission members as they sort through the aid picture. "Education is under-funded, and funds at the federal level are being misdirected," says Anne O'Dell, a representative for EdFed, a student loan company. "Some of the commission members come from private sector business backgrounds--not really something that I think should be strongly involved in what happens to higher education."

The apparent desire to reduce total aid spending may reflect the current political climate more than anything, suggests Robert A. Scott, president of Adelphi University (N.Y.).

"In part it stems from a desire by members of Congress and other political bodies to cut back on any public spending, and they view higher education more as a private gain rather than a public good," says Scott. "That's why some of the members are connecting between accountability and the various federal student aid programs--consolidate and eliminate. They want to cut funding and I think they are using the desire for more accountability as the leverage to cut funding."


Closely tied to the question of aid is the cost of higher education and the ability of the public to afford it. According to some studies, two-thirds of students graduating from four-year colleges have student loans to pay off, and the average college graduate carries $17,000 in debt. For a new graduate in an entry-level job, the burden to repay student loans can be overwhelming.

"Interest rates are going up this year a lot, and I think that will make it obviously a lot less affordable for students to get financial aid," says O'Dell. "At that point it's not 'Can I get financial aid?' Instead it's, 'Can I pay it back?' You are going to have a whole lot of people in 20 years who are going to default on their student loans. Right now we're seeing the tip of the iceberg of what the crisis could become if we keep denying students affordable ways to get through college."

Steps can be taken to rectify the situation and, more importantly, they can be taken now, says financial aid expert Robert Shireman, executive director of the Institute on College Access and Success and director of the Project on Student Debt.

The project was launched last summer with support of the Pew Charitable Trusts, the William and Flora Hewlett Foundation, and other philanthropies to identify cost-effective solutions that expand educational opportunity and protect family financial security.

"While student loans are important to helping people afford college, they can also have a negative impact, particularly for someone from a low-income family to enroll in college," says Shireman. "It becomes something that can put their own financial futures at risk."

Higher debt levels can impact a student's ability to begin saving for retirement or for their childrens' education. It can also affect their ability to follow the career track that makes the most sense for them. For teachers, social workers, or other people in other professions that require a degree but may not be high paying, student loan debt can make that a much more difficult route to take. A report issued by the State Public Interest Research Groups' Higher Education Project ( concluded that 38 percent of private college graduates and 23 percent of all four-year. public college graduates would face unmanageable student loan payments if they pursued those careers.

"There were some important and useful protections for borrowers, but the safety net for students who take on student loans is far from complete," says Shireman. "In many cases earning a dollar more or less, or working an hour more or less, can throw someone into a situation where they suddenly have to pay 20 percent or more of their income in loan payments. Some borrowers can get relief, but that safety net needs to be improved."

Working with lenders, guarantee agencies, and student organizations, the Project on Student Debt developed a set of recommendations that were issued in a formal request to the Department of Education. "We're asking for an adjustment to the rules so that, at least for federal loans, there is a functional safety net for those who borrow to be relatively sure that their loans do not throw them into a perilous situation," says Shireman.

Among the recommendations is a payment cap protection on the percentage of income that can be taken for student loan payments. For low- to middle-income graduates, no more than 10 percent of their income would be required to go to student loan payments. For higher-income graduates, payments would never exceed 15 percent of their income.

Another is to make sure there is a way for borrowers to repay loans in 20 years if they choose, with manageable payments. These options would be available regardless of whether a loan is in the direct loan program or the guaranteed loan program. "If a borrower is paying according to that percentage of income formula for 20 years, and there is anything remaining to be paid at the end of that time, the remainder would be forgiven," says Shireman.

The Project on Student Debt also recommends streamlining the process for seeking relief for struggling borrowers. "Currently, getting available relief requires filling out exceedingly complex forms, and sending in copies of tax returns," he says, "when in fact the federal government already has this information about your income and all of this can be done electronically."

It is important to note that the project's recommendations constitute a regulatory request that can be done without Congress having to take action. "We felt that there wasn't a reason to have to Convince 535 people. Instead the Congressional authorization for these things exists in the law now, and we are asking the Secretary of Education to move forward," Shireman says. "It would be possible for someone in Congress to push some of these reforms along, but no one seems to know whether anything is going to move in Congress this year."

The Secretary of Education's office has made no commitment to anything, Shireman says, but at least they are paying attention. "Informally they have expressed interest. It's good timing because they are starting some regulatory processes, and this could fit in with their plans, but there is no guarantee of action."

Many people also believe higher education needs a stronger message about cost. They claim the public gets only one side of the story and doesn't understand that education can be affordable--and universities aren't doing a very good job explaining it.

"The headline writers will pick out Bennington [College] (Vt.) or the University of Pennsylvania and talk about $40,000 to $50,000 tuition," says Adelphi's Scott. "The average private college tuition and fees is a little over $20,000, yet the public--and I suspect the public members of the commission--don't know that. Likewise the average public college tuition is about $5,000, much less than people are led to believe. But since many colleges are discounting tuition at 35 to 40 percent, the actual price charged is considerably less than the sticker price."

The real issue is giving the people what they expect from a college at a reasonable cost. And to do that, says Scott, one must look at the organization and functioning of a university.

Faculty and staff, for example, represent more than 70 percent of the costs at a university. "The cost structure in higher education is such that it is very much labor intensive, with highly educated, highly skilled people, who make an average of 80 to 85 percentile of the national income," he says. "If we want to deliver high quality and a faculty that interacts with students--because that provides the best environment for learning--then we're going to have relatively smaller dames with full-time faculty. That's what people say they want. But that costs more than having a part-time person teaching a thousand students at once in a lecture."


Perhaps the issue with the most diverging viewpoints among the commissioners is accreditation. Does it work? Shoed it be replaced? And how does one judge quality? We've had a system of regional accreditation for institutions that has been working quite well and continues to improve," says Scott. "It's interesting to note that our system of accreditation--our assurance of institutional quality--is being adopted by other countries. At the very time when some are saying we ought to move to a centralized 'ministry of higher education" model, other countries are moving toward our current model. It's counter-intuitive."

Many states have a formal process in which, every five to seven years, degree programs are subject to external review. Professional schools of business, social work, education, nursing, medicine, law, architecture, engineering, and others have external accrediting bodies whose standards must be met.

"All colleges and universities have a stake in ensuring that we maintain high standards and expectations for our students and faculty and offer diverse academic programs," says Scott. "Ultimately the buyers--the students, the parents--understand that if a college isn't producing, why would a student go there?"

That's not to say that higher education doesn't have its share of problems, he says, but those problems can be addressed by presidents, trustees, and regional accreditors, without interference from a centralized government office.

But not everyone agrees. "The fundamental issue with accreditation is that you have a self-review process, so the purported responsibility of accreditors is to guarantee quality on behalf of the institutions, the public, employers, and students," contends Peter Stokes, executive vice president of Eduventures (, a research and consulting firm for the education market.

"Those outside the accrediting community believe that accreditation really only serves institutions. It's like the fox watching the henhouse: How can you expect an independent audit in a self-review or peer-review process?" he says. "If you really want to safeguard the institutions, shouldn't there be more independence in the accrediting review process? Should it be peopled exclusively with folks from within higher education, or should it include reviewers from outside higher education, such as corporations that have a vested interest in the outcomes of the graduates of these institutions? That way they could foster a stronger alignment between institutions and employers, and better align the curriculum with the real-world applied needs of the employer within the community."

The problem, Stokes says, is that there isn't a standardized set of criteria for measuring the multitude of education experiences available to students today. At one commission meeting, the chairman of Kaplan, Inc., said the online Concord Law School, which Kaplan operates, can't be accredited because it doesn't have a physical library. The American Bar Association, the accrediting body for law schools, requires them to have physical libraries.

"The question is, to what extent are the input measures--have a library--relevant to today's providers? And what does that have to do with the outcomes anyway?" Stokes asks.

While accreditation has some ancillary benefits, he says, higher ed has no uniform set of standards to govern quality.

"I heard a member of the Council for Higher Education Accreditation say you couldn't measure quality because quality means something different at every institution--and that's the purported function of that organization," he says. "But if you ask IBM, Microsoft, and Boeing, who are all members of the commission, I don't think they are going to tell you that there are 4,000 definitions of quality. I think they're going to say there are some pretty standard definitions of quality, so let's work to meet those standards."

Ultimately, Stokes believes, the commission will reach a consensus on common standards for quality, based on outputs and student learning, rather than on inputs. "There should be greater transparency in the review process, and those reviews should be accessible to the public," Stokes says. "They will become a tool for consumers to vet the relative attractiveness and productivity of varying institutions in which they are considering investing."


Whatever the commission ultimately recommends, it shouldn't take place without input from those to whom it matters most. Administrators should get politically involved and ask their students to do the same, says EdFed's O'Dell. "Young people are always the driving force behind social change and it is ultimately in students' best interest. The universities are going to get their tuition one way or another. But they should definitely encourage their students to stand up for it and protest it if need be."

Shireman says educators and the public should write to the Secretary of Education and encourage the Department of Education to adopt the reforms that are beneficial to students and families.

Scott hopes the commission will look at and appreciate higher education in a historical context as it makes its recommendations. "They have some wise and experienced people in that group," he says. "For more than 200 years, we've seen higher education as an instrument for social, economic, and community development and mobility. The connection between federal policy and higher education as an investment in human talent to solve major public problems has served us well in the past, and it still can. I hope the commission looks at that history and asks, 'What are the new challenges that a partnership between Congress and higher education can address?'"
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Author:Goral, Tim
Publication:University Business
Article Type:Cover story
Date:Jul 1, 2006
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