Fresh Perspectives on Higher Learning

Insights & Outlooks

Taxpayers should demand a return on their investment in higher education

Quality & Outcomes
Taxpayers should demand a return on their investment in higher education

Another April 15th has come and gone, which means hundreds of millions of Americans have filed their income taxes. Well, what if I told you the federal government is spending your tax dollars every year on higher education institutions that graduate only one out of 10 students?  $108 million annually to be exact. Would you agree that’s a risky bet?

With few checks and balances in place, the US Department of Education funnels billions of dollars to institutions that persistently leave most students degreeless, with minimal job prospects, and with student debt that may not ever be repaid. To determine just how much in federal subsidies low-performing institutions receive, I dug into US Department of Education data to determine whether our taxpayer investment is actually paying off for students and taxpayers alike.

One of the most important measures of success at colleges across the United States is whether most students complete the award or degree they initially sought. If students leave with debt and no degree, they’ll earn substantially less over the course of their life and will also be three times more likely to default on their student loans.

Even so, the lack of strong accountability in higher education allowed $3.6 billion in federal student aid to flow to 178 institutions that left more than three-quarters of their students with no credential whatsoever, nor did they transfer to another school. More than $100 million went to institutions that graduated fewer than one out of every 10 students who entered its doors.

While prospective students may not always be focused on completion rates, the number one reason why students enroll in a postsecondary institution today is to increase their chances of obtaining meaningful employment. One way to determine whether an institution is delivering on this promise is to look at the percentage of student borrowers and grant recipients who earn at least as much as a high school graduate after attending, measured by the Department of Education to be $28,000 per year. If most students earn less than this after attending, enrollment alone may be a financial coinflip, at best.

Even with this low bar for post-college economic success, over 400 institutions across the country leave more than three out of every four students earning below this benchmark. That’s right, hundreds of institutions leave more than 75% of the students they enroll earning even less than they would have by not attending at all. And, while this information is publicly available and known to Congress and Department of Education appointees, the weak laws in place still allowed $808 million to flow to these schools, even though most former students will not earn enough to be financially stable after they attend.

More than 70% of students now take out loans to afford their postsecondary endeavors, averaging around $30,000 for those who obtain a bachelor’s degree. There’s no doubt that earning a postsecondary credential is a critical steppingstone to entering the middle class; but is this taxpayer and student investment paying off?

At 223 institutions, the answer is a resounding “no,” as they show fewer than one in four students successfully paying down any of their educational debt within five years of leaving. In fact, out of the 359,009 borrowers who entered these institutions in 2011-2012, only 75,365 had made large enough payments to make any sort of dent in their loan principal after five years, meaning they owe even more now than the amount they initially took out. Even with debt struggles apparent for former students, these institutions still received $1.9 billion in federal student aid just last year.

Funding these institutions is a risky bet, but it doesn’t have to be. As Congress works toward a reauthorization of the Higher Education Act, it can put laws in place to better ensure that all institutions are worth the taxpayer subsidies they receive. But if policymakers fail to enact sufficient safeguards, it’s likely that outcomes at federally funded institutions will remain stagnant, and billions of dollars will continue to flow to institutions that leave students worse off.