Don’t Bail Out Colleges. Help Students Instead.

Andrew Gillen

Editor’s note: This article was originally published by the Minding the Campus on June 26, 2020.

The COVID-19 pandemic is causing devastating financial damage throughout the economy, and higher education is no exception. Colleges worry about a decline in enrollments from students newly wary of gathering in close quarters, cuts in state funding that historically accompany recessions, and declines in the value of endowments.

These dangers are real, but they don’t distinguish higher education from the rest of the country, much of which faces even more severe and immediate financial hits. For example, at least 44 million Americans have filed for unemployment since the beginning of the crisis.

Rather than bailing out higher education, any virus response should focus on two things.

First, funding should be given to students, not colleges. The main advantage of funding students is that it ensures flexibility by avoiding a top-down, predetermined solution in the face of a rapidly evolving crisis. A college bailout would put all our eggs in one basket, namely, hoping that things either return to normal by the fall or that existing colleges are equipped to evolve rapidly into the new educational institutions of a “new normal.” American higher education does many things well, but rapid evolution is not one of them.

In contrast, supporting students directly preserves the flexibility to either reestablish the status quo if the virus is brought under control soon and students return to existing colleges, or sends the necessary price signals to spur the closing of newly obsolete colleges and the creation of new educational institutions. If the new normal demands significant changes to the higher education landscape, then bailouts of existing providers will just soak up resources that would be better used to lay the foundation for new educational institutions and/or rapidly scale up providers better suited to the new normal.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act largely took the wrong approach. On the bright side, for students, the act provided a reasonable form of assistance by waiving interest for most student loans until October and allowing students to postpone payments until then. Students still must repay their loans, but they can postpone making payments during the crisis.

But rather than follow a similar approach for schools, the CARES act provided $14 billion in direct grants to colleges and universities. About $9.375 billion was provided based on enrollment of Pell grant students, meaning colleges will receive between $1,400 and $2,000 for each (full-time equivalent) Pell grant student. Another $3.125 billion was given based on non-Pell enrollment, which likely works out to between $200 and $350 per student. Another $1 billion went to minority-serving institutions, and $349 million in grants will be available through the Fund for the Improvement of Postsecondary Education Program (FIPSE).

In other words, the college that a Pell grant student attends may receive $2,000, while the student only gets to postpone his or her student loan payments for a few months. Colleges are required to spend at least half of these grant funds on emergency aid to students—why not give the money directly to students?

The second focus of the virus response for higher education should be removing barriers to entry for new educational providers. For example, if drastically different educational patterns are needed in the wake of the pandemic, then the accreditation system will impair the transition to a new normal. Accreditation currently focuses primarily on inputs and processes, essentially mandating a recipe that colleges must follow. Since accreditation is mandatory for colleges participating in federal financial aid programs, they must all include the same ingredients.

But if we see drastic shifts in educational patterns due to the pandemic, a fixed recipe with predetermined inputs and processes will inhibit the innovation needed to discover the new normal.

Ensuring that accreditation does not function as a roadblock to new innovations in education is essential. In a new report, published by the Texas Policy Foundation, we argue that escape hatches from the accreditation system should be introduced. These escape hatches would provide educational institutions that meet high learning and/or labor market outcomes with exemptions from accreditation requirements, giving them access to the federal financial aid programs without dictating what combination of inputs and processes they must follow.

If policymakers focus on these two things—funding students rather than colleges and removing barriers to entry for new educational ventures—then they will maintain the flexibility to either rapidly rebuild the existing higher education system if the crisis and its effects are transitory, or discover and scale up a new normal for higher education if the crisis persists or recurs.

Andrew Gillen is a Senior Policy Analyst at The Texas Public Policy Foundation.

Image: Colin Watts, Public Domain

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