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Changes needed to stop misallocation to higher education

Concerning mid-year budget reductions, higher education (because of a lack of political courage) in Louisiana once again will bear the brunt of these. And while structural changes to Louisiana’s rigid fiscal structure would provide a better matching of funds to priorities, changes in higher education policy also can provide for more efficiency in delivery, both in Louisiana and for the country as a whole, while sensitizing its consumers and governments to make better choices as well.

Within existing policy parameters, Gov. Bobby Jindal and the Legislature have improved the condition of higher education by laws that entice more efficient delivery. The permutations of the GRAD Act have assisted that tie present resources in to future performance, so long as the concept gets enforced. However, these policy-makers whiffed on structural questions, such as failing to merge next-door lagging institutions and duplicative governing boards,  as well as on more procedural matters such as continued wasteful tuition subsidization.

Desirable are these changes, but they still only would have a limited impact of inducing better resource use and allocation because of the nature of higher education policy in America, governed largely by national law.
Current financing policy causes perhaps the single most pernicious problem that prevents optimal resource use, disconnecting the incentive for wise stewardship of funds received by removing financial responsibility from both accepter of funds, higher education, and lender of it, ultimately the federal government.

Of the lending that occurs for students to pay for college, most either comes directly from the federal government, or through private lenders with the money lent out guaranteed by the federal government. This means neither party has any natural cost-control incentives applying. For universities, this tuition money comes risk-free (with one exception, in that an institution may get yanked from participation if the subsequent default rate is too high, but the requirements are such that this becomes a disincentive only for proprietary schools) so they have no incentive to graduate students from programs that lead to employment adequate to cover the loans, or even for them to graduate at all. For the federal government, it simply issues more debt or hits up taxpayers to cover defaults.

Louisiana compounds the problem through its Taylor Opportunity Program for Scholars, which pays tuition weighed to public universities’ charges if a student performs at a mediocre level in high school studies, for families that can claim a Louisiana residence. It ends up having the same effect of risk-free money banked immediately by the university with the perverse incentives of steering enrollees to less demanding curricula and engaging in less rigorous instruction in order to keep as many in school as possible to collect, and with state government there to pick up the slack. At least the state could reduce these problems by making TOPS a true scholarship program by raising its standards considerably, encouraging only the likelier achievers to attend and not providing incentives for marginal performers that are less likely to use that education to gain commensurate employment, if they even earn a degree. Another approach, having failed to make it into law in the past, would convert TOPS into a loan forgiveness program instead, but that then brings up the same disconnection problem as in federal lending because of the minimal standards.

The problem, then, is to provide incentives for schools to provide instruction and programs rigorous enough to provide candidates for gainful employment upon graduation. That means not just emphasis on degrees where there is a real market for those graduates, but also for the more general kinds of majors a commitment to quality; you can have that political science major, but structured and taught in a way that demands a high degree of critical thinking and comprehensive knowledge in the subject area. If done that way, then maybe entities other than government, law schools (they producing too many lawyers for market demand, also assisted by the loan disconnection), and political organizations might be interested in these liberal arts graduates, such as financial institutions hiring them to analyze foreign investment risks.

One excellent suggestion argues for making institutions responsible, after a certain number of years from a borrower attending school full-time, for unpaid loan balances. This would cause  schools to respond more nimbly to promoting programs demanded in the market, increase rigor in studies (no matter how gaudy a transcript, employers will not hire or retain people who do not seem able or prove capable in doing the job), and make them more selective in admissions. All increase the chances of successful payback and avoidance of schools picking up the tab.

Another points out that higher education spends too many resources on peripheral, if at all needed, functions relative to its education mission. For example, significant resources go to enhancing “diversity” because college degrees have developed into certificates of competency for employers, since legally hiring cannot depend upon a test of intelligence, and a degree substitutes. But since standardized testing tends to produce distributions short in some ethnic groups and long in others, universities legally may try to compensate through spending on achieving “diversity,” artificially boosting expenses. Making taking ethnicity illegal or unconstitutional in admissions decision would reduce pressure to retain such efforts when times of fiscal stress demand better use of money.

There’s not much Louisiana alone can do except through TOPS reform explained above and other marginal things, such as bumping up the cap on tuition at 12 hours to 15 and moving up drop dates in order to discourage students from overloading on classes with the intention of paring their weakest performance, wasting instructor resources and blocking other higher-achieving students from taking classes that if unable to might delay degree completion. The real reforms would have to come at the federal level, meaning while state policy-makers tackle what they can, Louisiana’s congressional delegation needs to get to work in changing the requisite federal laws.

The higher education establishment can be expected to oppose all of these because they will reduce the number of students in the system, especially at the baccalaureate-and-above level, wreaking havoc in a system already overbuilt, as these upset structures and attitudes incongruent with producing rigor and quality. But taxpayers deserve to have what is confiscated from them spent most wisely, and the citizenry needs not to have resources sucked into unproductive uses. Regardless of the inferior fiscal structure of the state, such changes would improve higher education delivery and the state’s ability to fund properly genuine priorities.

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