Wednesday, October 08, 2014

The Case of the Missing Carrots

Sometimes, ideas come from unlikely corners.  Today I saw pieces in the National Review (!) and the Detroit News that bounced off each other in productive ways.  Hey, it happens.

Andrew Kelly argues in the National Review that we’ll never get college costs under control as long as colleges aren’t meaningfully accountable for the unpayable debt of their graduates.  He uses the “skin in the game” metaphor to argue that if colleges bore some cost of failure, they’d have the incentive they currently lack to do a better job.

Kelly notes, rightly, that the current higher ed system resembles popular conservative prescriptions for K-12: Pell grants are essentially vouchers, and students can take aid anywhere they want, including religiously affiliated institutions.  It’s possible to read regional accreditation as the “voluntary guidelines” that conservatives often extol in other contexts.  The failure of the current higher ed system to contain costs, one might think, should therefore call into question many conservative articles of faith, though he doesn’t follow through on the insight.  One might also point out that what looks like runaway spending is actually sustained cost-shifting; several studies have shown that community college spending nationally has been flat or declining for over a decade.  Rising tuition is a function of state disinvestment.   

But never mind that.  Kelly rightly notes that institutional self-interest is not confined to the for-profit sector, although many analyses seem content to condemn the for-profits and call it a day.  And he’s certainly right on the “binary variable” relationship of accreditation to financial aid eligibility.  Put simply, if the only weapon you have is nuclear, you’re effectively unarmed.  The cost of actually using the weapon is so high that everyone knows you won’t.  

Okay, I thought.  Standard “skin in the game” argument, if with greater elegance and candor.  

Then I saw this piece in the Detroit News -- historically, a conservative paper -- and I found the missing link.  Apparently, the Michigan Senate just passed an extension and expansion of the Michigan New Jobs Training Program.  The program provides funding for community colleges to offer training in employable skills for people who are looking for work.  (The article doesn’t mention whether it also applies to incumbent workers who are looking to upgrade.  I hope it does.)  The genius of the program, though, is its funding source.  As the article puts it,

Under the program, the community college training is paid for by capturing the state income tax associated with the new employees’ wages and redirecting it to the college, instead of to the state. These jobs are required to pay at least 175 percent of the state minimum wage.

In other words, the idea of “skin in the game” (honestly, isn’t there a better phrase for this?) cuts two ways.  If colleges do a poor job of preparing their students for the economy, Kelly argues, they should pay a price.  Michigan’s bill addresses the other side: if colleges do a notably good job of preparing their students, they should be rewarded.  And the reward should be as structured, and as guaranteed, as Kelly suggests penalties would be.

The educator in me sees a lot of merit in this idea.  

Colleges don’t capture a set percentage of the value they create.  They get what they’re given.  If you want to talk seriously about incentives, that’s the disconnect you have to fix.  Kelly’s version -- and most of the versions currently being discussed nationally -- only look at incentives in one direction.  Fixing the disconnect on the negative side, while leaving it unaddressed on the positive side, will inevitably lead to greater disinvestment and underprovision.  If you want to increase success and decrease failure, you can’t only punish failure; you also have to reward success.  Michigan’s bill does exactly that.

Admittedly, Michigan’s bill is limited in scope.  It applies only to certain training programs for which it’s relatively easy to determine the economic value-add for a given student.  It doesn’t apply to all degrees, or to transfer-focused programs, or to any of the bevy of other flavors of education that colleges offer.  It doesn’t speak to the non-economic goals of education, the quality of student experience, or even to students who get jobs out of state.  (Kelly rightly notes that only the Feds can track that kind of data across state lines.  That’s a big deal in geographically small states.  HCC is only about a half-hour north of Hartford, Connecticut.  Crossing the state line for work is relatively common.)  It focuses on the lowest-hanging fruit, in terms of measurable outcomes.  And it does nothing to address the simple fact that recessions are independent variables.

Still, even with those caveats, it gets an essential piece right.  If colleges will be expected to provide quality education and training at low cost to students, they need steady, reliable, and significant income to do it.  Short-term grants are great, but if you’re serious, you need to talk about long-term operating income.  If successful education leads to broad economic gains, then taxing back some of that gain to keep the training going is simply responsible stewardship.  Failing to recapture some of it amounts to eating the economy’s seed corn.

Michigan’s solution is much more elegant than, say, Oregon’s proposed Pay It Forward plan.  Oregon’s plan builds in decades of delay between when classes are taught and when students pay for them.  (How, exactly, colleges would cover the multi-decade gap is not entirely clear.)  In Michigan’s case, the delay is much shorter, so colleges would live to see the payoff from improved performance.  The market signals, if you want to call them that, would be fast enough to mean something.  Basing performance funding on performance from two decades ago is not going to work.

So, well done, Michigan.  Here’s hoping that other states, and maybe even the Feds, will learn something.  Carrots and sticks don’t work if you leave out the carrots.