This analysis was prepared by Venable, LLP, on behalf of AACOM.

Memorandum

Committee: House Education and the Workforce Subcommittee on Higher Education and Workforce Development

Subject: “Lowering Costs and Increasing Value for Students Institutions, and Taxpayers”

Date: July 27, 2023

Summary

The House of Representatives Education and the Workforce Subcommittee on Higher Education and Workforce Development held a hearing on Thursday, July 27th to discuss “Lowering Costs and Increasing Value for Students, Institutions, and Taxpayers.” The conversation was centered around finding the best strategies to reduce the cost of attending college without reducing accessibility to higher education. The Subcommittee heard from the following witnesses:

• Mr. Michael B. Horn – Author; Co-Founder of the Clayton Christensen Institute for Disruptive Innovation
• Mr. Stig Leschly – President and Founder of the Postsecondary Commission
• Dr. Stephanie Cellini – Professor of Public Policy and Public Administration, and of Economics, George Washington University 
• Dr. Andrew Gillen – Senior Policy Analyst, Texas Public Policy Foundation

Value of a College Education

• Chairman of the Subcommittee on Higher Education and Workforce Development Burgess Owens (R, UT-04) explained in his opening statement that past college students were “all but guaranteed a return on investment” from their college education, but that is no longer the case. He said that colleges are providing less value to students and said that a four-year degree is no longer viewed as being the key to the American Dream. He also stated that the perceived success of colleges – and the funding they receive – should be based on student outcomes rather than inputs. 
• Mr. Brian Horn noted that because the federal government plays such a large role in funding higher education, taxpayers, in addition to students, are customers in the education market. He stated that subsidization has only served to make colleges more expensive and said that higher education is currently on an “unsustainable cost trajectory” because the focus is on inputs rather than outcomes. Mr. Horn called for more price transparency on the part of colleges so that students know the real cost they will have to pay to attend and recommended that colleges share in the risk if borrowers are unable to repay their student loans. He also said that taxpaying customers “should not tolerate bad college programs that offer miserable returns on investment for students.” Dr. Andrew Gillen reiterated several of Mr. Horn’s points, speaking out in support of price transparency and risk sharing by universities. He also explained that there is a need to combat the “Bennett Hypothesis,” which states that providing federal aid incentivizes colleges to raise their tuition. With risk sharing and a focus on return on investment, Dr. Gillen explained, schools would be incentivized to use federal funding to provide students with the tools they need to find a quality job after graduating and would disincentivize schools from offering programs that would leave students in heavy debt with little ability to pay off that debt. 
• Dr. Gillen said in his opening statement that the value of a college education has not necessarily decreased, but rather the cost of attending college has increased so drastically that students are not seeing a return on their investment. He referred to the current system as “reputation-based competition,” a system in which colleges are rewarded for having large endowments, high-quality facilities, and highly regarded staff. He suggested instead that the competition system for colleges should be based on value for students. The reputation-based system, he explained, causes costs to increase because colleges must compete with the richest schools to have high-end facilities. On the other hand, a value-based competition system would drive costs down because the cost of attendance would be factored into the equation. 
• Dr. Stephanie Cellini argued that the benefits of a college education “typically far exceed” the costs to students and taxpayers, but she noted that this depends on whether students complete their college education and study a subject that teaches them “desirable skills.” She spoke in favor of the recent Department of Education “Gainful Employment” rule that would require career training programs to show that they lead to gainful employment for enrollees. She also pointed out that the for-profit sector of education has higher debt and lower earnings than nonprofit institutions. 
• Ranking Member of the House Education and the Workforce Committee Bobby Scott (R, VA-03) stated that liberal arts colleges have inherent value that cannot be monetized. He asked the panelists whether federal financial aid should be available for programs such as history and English that are more difficult to monetize than other degree programs. Dr. Cellini responded that while students with liberal arts degrees may not see the immediate payoff that other degrees may see, their earnings increase over time and their four-year college program will “usually” pay off. Ranking Member Scott was careful to note that “we must be careful about monetizing specific degrees.” 

Ensuring Accessibility to Higher Education

• Ranking Member of the Subcommittee on Higher Education and Workforce Development Frederica Wilson (D, FL-24) stated that college costs put a degree out of reach for many young people. She asked Mr. Horn how one would go about promoting a policy of loan risk sharing by colleges without limiting disadvantaged students’ access to higher education. Mr. Horn stated that the focus must be on socioeconomic gains, which is the reason why many disadvantaged students pursue a college degree in the first place. He added that an outcome-focused system would ensure that disadvantaged students are not left worse off than before they pursued a degree. 
• Representative Glenn Grothman (R, WI-06) asked Dr. Gillen to identify the “culprit” in tuition inflation. Dr. Gillen cited Bowen’s Law as the reason for rising costs; the Law states that colleges will raise and spend as much money as they are able to raise and spend because they have a “never-ending” goal to improve the quality of the education they provide, so they will always try to maximize their revenue because there is no limit to what they can, and will, spend. Dr. Gillen also cited “administrative bloat” as another reason for rising costs. He explained that some colleges now have more non-teaching staff than teaching staff, which adds to costs. Representative Grothman then asked whether universities are taking a role in discouraging students from going into debt. Mr. Horn answered that students are taking out far more debt than colleges would like, but the colleges themselves do not take an active role in helping students make those decisions. 
• Representative Pramila Jayapal (R, WA-07) stated that a college degree is often the key to economic mobility. She stated that for profit colleges “aggressively” advertise to low-income students and spend far more on advertising than nonprofit institutions. She asked what Congress can do to protect against predatory recruitment by for profit institutions. Dr. Cellini suggested requiring colleges to disclose advertising and lobbying expenditures as well as restricting what colleges can do with federally distributed funding. 

Student Loan Program Reforms

• Representative Joe Courtney (D, CT-02) suggested eliminating interest on federal student loans because interest has distorted the nature and purpose of federal student loans. He explained that interest paid by students is a windfall for the government, which was never Senator Stafford’s intention. Instead, he suggested the establishment of a trust fund that would be invested in low interest, low risk securities to offset the cost of eliminating interest payments on student loans. Representative Courtney cited his bill, the “Student Loan Interest Elimination Act,” which would establish a trust fund like the model used in the railroad pension fund. He emphasized the need to “get off the train of interest.”
• Representative Erin Houchin (R, IN-09) pointed out that the plus loan program allows students’ parents or graduate students to take out uncapped loans, with the only restriction on the amount being the cost of the college itself. She asked whether there is “justification” to continue the plus loan program. Dr. Gillen said that he does not believe there is a need for the plus loan program because it is duplicative of the Stafford loan program. He suggested raising the borrowing limit in the Stafford loan program for certain programs that are more expensive, such as medical school, because it would tailor loan amounts to the expected outcome for the students. He added that only about one sixth of graduate students take out plus loans, so the elimination of the program should have little effect on access to education.