David P. Lewis
We mentioned below that now would be a good time – as the reauthorization of the Higher Education Act approaches – to begin thinking about how the system of education regulation could be improved if one were to shed the vestiges of the current system that began in the 1960s and re-build the system within the context of the current higher education market. Without going into the weeds on what specific legislation or regulations might say, we thought we would offer up from time to time some thoughts on the principles that should underly a fair and balanced approach to regulation.
In my opinion, one of the foundational principles of a good regulatory system is disclosure. Many people have made the case that education is a product/service that students must buy upfront with insufficient knowledge to make an informed cost/benefit analysis. On this point, in the Clifford-Shireman discussion, Mr. Shireman states:
The student can’t judge whether a curriculum and standards meets the expectations of employers, of a discipline, or of society, and they can’t know whether it will meet the grander goal of tapping their full potential. To the extent students are able to judge their college educations it occurs when it is far too late to get a refund.
Many students find that their interests change over time and, in that respect, they can’t necessarily know when entering a school whether that school will “tap their full potential.” But I personally don’t find this argument compelling on the issue of whether a school’s curriculum and standards meet the expectations of employers or whether enrolling at a particular school will lead to future employability. There are many businesses and services available to prospective students – from U.S. News rankings, to the hundreds of education-focused websites, to college counseling services (both private or in school) etc. – that are devoted to answering questions and providing data about the strengths and weaknesses of particular schools. But whether a prospective student has access to these types of services or not, all prospective students do have the ability (and the obligation) to perform a minimum level of independent due diligence when investigating potential schools and programs. This due diligence could include, for example, asking a targeted employer in a proposed field of employment whether it actually hires graduates from a particular school or program, asking a graduate of a particular school or program what his or her employment prospects, debt levels, etc. were upon graduation, and seeking similar types of information from different schools so that comparisons could be made. This type of information, which is freely available, when combined with information provided by schools themselves, would allow a student to answer key questions before he or she ever gets close to making a decision or taking out a loan. With the social media sources available to anyone these days, this type of research is easier than ever and it is simply incumbent on individual prospective students to conduct at least as much background research on a potential school as they would in buying a computer, a television, or a car.
So, I don’t believe that the education sector is a black hole where one is required to take out loans and pay tuition in advance without any ability or, more importantly, personal responsibility for finding out key information in advance. I do believe, however, that there is an important role for regulators to play in policing the form and quality of the information that institutions produce, i.e. their disclosure.
In the capital markets context, companies are regulated by the Securities and Exchange Commission. On its website, the SEC describes its mission as follows:
The laws and rules that govern the securities industry in the United States derive from a simple and straightforward concept: all investors, whether large institutions or private individuals, should have access to certain basic facts about an investment prior to buying it, and so long as they hold it. To achieve this, the SEC requires public companies to disclose meaningful financial and other information to the public. This provides a common pool of knowledge for all investors to use to judge for themselves whether to buy, sell, or hold a particular security. Only through the steady flow of timely, comprehensive, and accurate information can people make sound investment decisions.
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The SEC oversees the key participants in the securities world, including securities exchanges, securities brokers and dealers, investment advisors, and mutual funds. Here the SEC is concerned primarily with promoting the disclosure of important market-related information, maintaining fair dealing, and protecting against fraud.
It goes on to say that it is not the SEC’s role to “evaluate the merits of any transaction or determine whether an investment is appropriate for any investor.” Thus, even a poor business can get through SEC review, so long as the disclosure accurately portrays that business in a way that is understandable to potential investors. Provided that a company does not misstate (or omit to state) material facts, then it is up to investors to make the informed decision whether to invest or not. If a company does misstate or omit material information, then the full power of the SEC (and the plaintiff’s bar) can and will come down on it.
The education regulatory regime should adopt as one of its foundational principles the SEC’s model of adopting (and enforcing) rules that focus on full and fair disclosure. Similar to an SEC registration statement or periodic report, and building on the recently proposed College Scorecard, the Department of Education could mandate disclosure documents in a standardized format that focus on the key information that students need to make an informed decision – including information not only about the typical metrics (costs, debt, placement rates) that have been in the forefront recently, but also information about leadership of the school, its finances, its five-year plan, etc.. These disclosures would be available and accessible to potential students and could be scaled, and allow for comparability, among schools operating within different segments of the overall education sector. Schools, whether proprietary or traditional, would be able to use this type of apples-to-apples disclosure to market themselves to prospective students, while prospective students would have the needed access to relevant, timely and important information that they can then use, together with the results of their independent due diligence, to make decisions about the costs and benefits of attending particular schools.
In this regard, this article from Inside Higher Ed by Mark S. Schneider, vice president for new educational initiatives at the American Institutes for Research, is on point. In the article, Mr. Schneider highlights a bill introduced on February 9 in the Senate by Senator Ron Wyden, Democrat of Oregon, and in the House by Rep. Duncan Hunter, a Republican from California and chairman of the House Subcommittee on Early Childhood, Elementary, and Secondary Education. The bill, entitled the “Student Right to Know Before You Go Act,” includes provisions that would ”support states in expanding or creating postsecondary student level data systems that include measures of student success in the labor market (including average individual annual earnings by educational program, degree received and educational institution) from all institutions within the state, public and private (nonprofit and for-profit).” According to Schneider:
Wyden’s approach gives everyone the opportunity to probe, poke and prod the data to develop a better sense of their limits and their strengths. Regulations can come later, but in the meantime, the availability of these data will allow students and their families to make more informed choices about the likely outcome of their investment of time and money in a given program in a given school. The data will also allow state policy makers to judge the rate of return on their state’s investment of taxpayer monies in different programs.