Executive Summary and Introduction:

• The federal government treats higher education as a surefire investment, but this isn’t always true. Many colleges leave their students worse off financially, contributing to the student debt crisis.
• A reform-minded president could hold low-quality colleges accountable by requiring colleges that receive federal funding to publish student outcomes data and meet certain performance benchmarks.
• Congress can restore rationality to the federal student loan system by limiting the amount students can borrow and holding colleges financially responsible for unpaid student loans.
• At the same time, both Congress and the executive branch should take steps to open federal funding streams to high-quality alternatives to traditional four-year college, such as apprenticeships.

For generations, society has told high school students that college is a great investment. The case is familiar: college graduates typically earn more money than their peers without degrees, and a college education is necessary for the 21st century labor market. For low-income students especially, college has been sold as a path to the middle class. As a result, the share of the population 25 and older with a four-year degree rose from 21 percent in 1990 to 38 percent today.

But the consensus that college is a “golden ticket” to a better life has fallen apart. In 2023, a Wall Street Journal poll showed that a majority of Americans no longer believe that college is worth the cost. Prior to the pandemic, 11 million student borrowers were behind on their federal loans. Many students, especially those who grew up in families below the median income, got a raw deal from higher education. Disillusionment with college has yielded a 12 percent drop in student enrollment since 2010.

Thought leaders debate whether college is still worth it. But that’s the wrong question. College is not a golden ticket to a prosperous life. But neither is college an outdated institution good for little but churning out woke baristas with useless degrees and six figures of debt. 

Instead of asking whether college is worth it, we should ask when college is worth it.

Higher education serves its intended purpose when the price is affordable, the coursework has labor market relevance, and the students who enroll are prepared to make the most of their education. But college leaves its students worse off when tuition is too high, the degrees have insufficient labor market value, and a high proportion of students fail to graduate.

A lot of college experiences fall into the first category. But far too many fall into the second, and that’s the direct result of federal policy mistakenly treating college as if it’s always a good investment.

The federal government lavishes $133 billion on higher education every year. Taxpayers pony up for subsidized student loans, Pell Grants, veterans’ benefits, and work-study, to say nothing of the massive tax exemption for university endowments. But those funding streams are largely agnostic to actual student outcomes.

Thousands of bad degree programs flourish because of federal money. Nearly 40 percent of students who begin college do not finish within six years, and at some schools the dropout rate is much higher. A lack of commonsense caps on federal loans to graduate students and parents of undergraduates means colleges can charge inflated prices. Moreover, the federal funding exclusion of nontraditional postsecondary options such as apprenticeships, workforce training, and industry certifications shelters traditional colleges from competition and leads to employer overreliance on four-year degrees as a signal of worker quality.

It is time for federal policy to stop treating higher education as if it always pays off. Instead, policymakers should leverage market forces to reward forms of higher education that serve students well, and penalize those that do not.

Colleges that choose to participate in federal funding streams should have “skin in the game,” meaning they should be financially responsible when their students are unable to repay their federal loans. The government should also take a step back in areas where the private sector could operate more effectively, such as lending to graduate students. Finally, policymakers should expose higher education to more competition by allowing new colleges and nontraditional education providers to access similar funding streams as traditional schools.

A reform-minded administration could take several steps towards these goals on its own. Given the scale of the problem, comprehensive reform demands congressional attention, as a look at the data on the uneven financial value of college reveals.

Read the full report here.