Three Bipartisan Higher Education Reform Ideas For The New Congress

Prospects for major legislation in the closely divided 118th Congress appear dim. This is especially true for the Higher Education Act, the main law governing the federal role in higher education, which has not seen a comprehensive reauthorization since 2008. To boot, the parties are far apart ideologically on policy: Democrats would prefer to forgive student loans, while Republicans want a reduction in the size and scope of the federal loan program.

Despite these challenges, there are a handful of reforms which may align with both sides’ vision for higher education. Potential areas for cooperation include student loan risk-sharing, federal work-study, and accreditation reform.

Enact student loan risk-sharing

Republicans and Democrats disagree about how involved the federal government should be in higher education. But both sides should be able to agree that where government funding is involved, it should support high-value programs that launch graduates into the middle class. Unfortunately, this is not always the case. Because of dismal graduation rates and credentials with little labor market value, 28% of bachelor’s degree programs typically leave their graduates worse off financially.

The lack of an economic return for many higher education programs contributes to the student loan crisis. Graduates stuck with worthless degrees (or no degrees at all) make smaller payments on their loans or stop paying entirely. Taxpayer losses balloon. Frustrated borrowers see balances rise. All this generates political pressure for loan forgiveness, leading to higher costs. Meanwhile, colleges grow rich on government cash.

Much of this problem could be solved if the federal government ceased lending to low-value programs in the first place. However, it is difficult for the government to determine ahead of time which programs are valuable and which are setting students up for failure.

The solution: require colleges to share the risk of student loan nonpayment. As a condition of accessing federal student loan funding, colleges should be required to compensate taxpayers when federal loans are not repaid in full.

This policy does not require government to pick winners and losers. Instead, colleges bear the responsibility of identifying which degree programs will generate a financial return for their students. If they are forced to bear some financial risk, colleges will close down their worst-performing programs and work to improve mediocre ones to ensure graduates have the capacity to repay their loans.

Student loan risk-sharing means lower taxpayer losses, more students finding jobs in high-return fields, and less political pressure for future loan forgiveness. The concept has already attracted bipartisan interest. Senators Jeanne Shaheen (D-NH) and Todd Young (R-IN) have introduced a bipartisan risk-sharing bill, and other senators as ideologically opposed as Josh Hawley (R-MO) and Elizabeth Warren (D-MA) have written their own plans. The prospect of a bargain that could attract support across the political spectrum is not remote.

Fund work-study with an endowment tax

The endowments of wealthy colleges and universities, which totaled $821 billion in 2021, go lightly taxed. Republicans introduced a 1.4% tax on the net income of university endowments worth more than $500,000 per student, at schools with at least 500 students. However, the tax affects only 33 schools and raised a paltry $68 million in 2021. Despite the new tax, wealthy universities still enjoy a significant tax break.

It is unclear what that tax break buys society. Research shows that endowment wealth tends to boost university spending but has little effect on financial aid or the enrollment of low-income students. Representative David Joyce (R-OH) has introduced a bill to increase the endowment income tax rate and apply it to more schools. Democrats have shown less interest in the concept, but perhaps a few members of their soak-the-rich wing could be persuaded to include wealthy colleges in their definition of “rich.”

Endowment taxes won’t balance the federal budget, but the money they raise can still do some good. Congress can stretch endowment tax revenue the farthest by allocating it to federal work-study, a program which subsidizes the wages of students who work while they are studying to fund college costs. Given that employers tend to value work experience and internships in job applications, work-study may also boost the financial return to college.

Federal work-study is a small program: it represents just $1.1 billion out of more than $130 billion in annual federal spending on higher education. Revenue from an expanded endowment tax can boost that amount.

But before the program receives more funding, its allocation formula needs an overhaul. Currently, the formula primarily rewards schools that have received work-study funding before—namely, elite private colleges. Congress should rewrite the formula to advantage schools which enroll more low-income students. There is bipartisan interest in such an overhaul: both the Republicans’ PROSPER Act and the Democrats’ Aim Higher Act, the parties’ respective higher education reform proposals, included a comprehensive revamp of the work-study formula.

Work-study reformers should also change the program to reward off-campus work which might be more relevant to students’ future careers (currently, over 90% of work-study funding goes to on-campus jobs). Advocates of expanding apprenticeships—another concept with bipartisan support—should explore using the work-study program as a vehicle to support work-based learning opportunities.

Reform accreditation

The primary gatekeepers who determine which colleges can access hundreds of billions of dollars in federal financial aid are private nonprofit agencies called accreditors. But accreditors have long been a poor fit for the job assigned them: traditionally, they have not focused on the economic outcomes of students at the colleges they oversee, even though poll after poll shows that most students attend college to land a good job and increase their earnings.

Less than three percent of accreditor actions have anything to do with “inadequate student outcomes or low-quality academic programming,” according to one study. Moreover, accreditation is a barrier to entry for new institutions of postsecondary education that might produce better outcomes than accredited incumbents.

While the best solution is to remove accreditors as gatekeepers of taxpayer money and return them to the purely private role they held prior to federal involvement in higher education, their presence in the system may be too entrenched. But even if accreditors are destined to remain gatekeepers, Congress can take steps to improve their performance.

The law requires accreditors to consider factors like curricula, faculty, fiscal capacity, and many other “inputs” at the colleges they oversee. By contrast, there are few specific requirements around student outcomes. Reformers in Congress could change that. For instance, Congress could require accreditors to create minimum defined standards for student economic outcomes at their colleges and enforce them.

Congress need not create the standards itself. Rather, it should give accreditors the flexibility to determine what sorts of standards work best: perhaps a minimum threshold for graduate earnings, or a minimum loan repayment rate, or something else entirely. This would not preclude the government from setting its own outcomes standards in addition to accreditors’ standards, if Congress wishes to fund only schools that meet a specific performance benchmark.

Accreditation alternatives are also a concept with bipartisan support. For instance, Senators Michael Bennet (D-CO) and Marco Rubio (R-FL) have developed a pilot framework to allow new postsecondary institutions to bypass the traditional accreditation system if they can prove strong student outcomes. Another possibility is to allow new schools to skip accreditation, but defer payment of federal student aid funding until they demonstrate good outcomes. All these policies refocus access to federal money on the simple question of how well institutions serve their students.

Charting a path forward on higher education policy

A comprehensive overhaul of the federal role in higher education is still likely several years away. But reform-minded members of Congress need not wait; they can start improving parts of the system right now. Student loan risk-sharing, work-study expansion, and accreditation reform are all ideas with bipartisan appeal. In a polarized age, Congress shouldn’t let those areas of alignment go to waste.