Obama’s higher-ed plan can work without Congress

August 22, 2013

The core of President Obama's plan to cut higher-ed costs is "pay-for-performance." The idea is to use federal financial aid to move colleges away from the current pay-for-enrollment model and toward a model in which they make more money if they graduate more students, hold tuition costs down, etc. (This is, in a sense, bringing the cost-control theories of Obamacare to the higher-ed sector.)


These guys are tired of Congress. (Jason Reed/Reuters)

The problem with this plan is the problem that bedevils all pay-for-performance schemes: How do you define "performance"? Is it raw graduation rates? If so, how do you account for colleges that sign up more disadvantaged kids? Is it post-college salaries? Then how do you account for colleges that send kids into teaching rather than Wall Street? So far, the White House is only offering the broad outlines:

The ratings will be based upon such measures as:

-  Access, such as percentage of students receiving Pell grants;

-  Affordability, such as average tuition, scholarships and loan debt; and

-  Outcomes, such as graduation and transfer rates, graduate earnings and advanced degrees of college graduates.

So a pay-for-performance proposal has two elements: The first is figuring out how to reliably measure performance. The second is figuring out how to link those measurements to payments.

The easy thing to do here is dismiss the whole effort because the Obama administration can't get anything through the divided Congress. That's more or less the approach NBC's First Read took. "Few believe his push will make any difference to the gridlock in Washington," they wrote. "Here was Tuesday’s Buffalo News headline ahead of the president’s trip: 'Obama’s road trip unlikely to change D.C. stalemate.' "

What's interesting about this plan, though, is that only half of it needs congressional approval — and it's the half that comes later, and that can be done quicker. The Obama administration doesn't need congressional approval to build the performance measures. That's something the Department of Education can do on its own.

The fact sheet is pretty clear on this: "Before the 2015 school year, the Department of Education will develop a new ratings system to help students compare the value offered by colleges and encourage colleges to improve." Look ma! No Congress!

Linking the new ratings system to financial aid does require congressional action. But it doesn't come till much later. "The President will seek legislation allocating financial aid based upon these college ratings by 2018, once the ratings system is well established," the fact sheet continues. That's two years after the end of Obama's second term. That means that even if Obama did get legislation passed to link aid to performance, the law could be altered or undone by the next president before it even went into effect.

So what Obama is really promising to get done in his second term is to create the infrastructure necessary for a pay-for-performance system: the definition of performance and the routine collection of the underlying data. He doesn't need Congress for that. When that's are done, Obama can try to get legislation passed through Congress to tie them to financial aid by 2018. But even if he fails, he will have set the next president up to finish the job, as the technically hardest and most time-consuming task will be complete.

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Lydia DePillis · August 22, 2013