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Taking On the College Cartel

Law & Liberty

March 11, 2024

The venerable economist Milton Friedman once said, “Only a crisis—actual or perceived—produces real change.” That’s the impulse behind Winston Churchill’s admonition (later famously echoed by Obama’s chief of staff Rahm Emanuel): “Never let a good crisis go to waste.” Well, welcome to the world of American higher education. Crippling tuition, bloated bureaucracies, huge rates of noncompletion, campus groupthink, DEI loyalty oaths, grade inflation, enrollment cliffs, and stretched institutional budgets have all added up to a crisis of confidence—inside higher education and among the broader public. 

Trust in the nation’s colleges has been crumbling for the better part of a decade. In 2023, Gallup reported that just 36 percent of American adults said they had a “great deal” or “quite a lot” of trust in higher education. Among Republicans, the share of adults who trust colleges plummeted from 56 percent in 2015 to 19 percent in 2023. But it wasn’t just a right-wing thing. Among independents, the numbers plunged by a third, from 48 percent to 32 percent, and among Democrats, trust declined from 68 percent to 59 percent.

There is a challenge here—and an opportunity. 

Policymakers who are troubled by this state of affairs but unsure how to respond may be inclined to look to the K–12 playbook, thinking that what’s needed is a strong dose of “school choice for college.” But the truth is that American higher education already features an extraordinary degree of choice. Pell Grants, the GI Bill, and many state scholarships essentially operate as vouchers for low-income students to attend the school, public or private, of their choice. Heavily subsidized federal student loans can also be used at nearly every institution of higher education. And yet, for all this, the higher education landscape is a mess.

It would be a profound mistake to read this as an indictment of educational choice. Rather, the problem is that anti-competitive practices have been allowed to stymie robust, healthy competition and fuel the self-dealings of campus mandarins.

What’s needed today is a heavy dose of trust-busting, deregulation, and entrepreneurial energy.

Busting the Accreditation Trust

Federal policymaking over the past half-century has mostly focused on subsidizing higher education. Pell Grants, institutional aid, and the student lending program have provided vast sums to cover or underwrite tuition, plumping college coffers while expanding their consumer base. In order to guard against waste and fraud, these programs have relied on a system of college accreditation that has, ironically, served to further protect incumbent institutions and encourage bureaucratic bloat. 

For an institution of higher education to receive federal funds (including Pell Grants and subsidized loans), it must be accredited. The problem is that accreditors are trade associations operated and funded by the colleges they oversee. This means they’re essentially a legally sanctioned, publicly funded cartel. Mediocre colleges keep their accreditation even as they overcharge and underperform. Meanwhile, new and nontraditional entrants must leap over enormous hurdles just to get started. 

The current system isn’t suited to facilitate competition and creation. However, some form of oversight is necessary as a matter of fiduciary responsibility. The obvious solution is to build on the Trump administration’s efforts to create room for new accreditors that are less entwined with the cartel and more hospitable to new providers. This is eminently doable: Under existing law, the US Department of Education can recognize new accreditors not beholden to the same entrenched interest groups.

The Postsecondary Commission (PSC) offers one intriguing approach. PSC seeks to adapt the K–12 model of charter authorizing to higher education by focusing more on outcomes than on inputs and compliance. PSC founder, Stig Leschly, says that the goal is to stop counting faculty or campus materials and instead judge colleges based on economic returns, transparency, accountability, and innovation. To be accredited by PSC, institutions need to track and report short-term results like rates of graduation, year-to-year retention, and job placement. Over the longer term, they would need to track student labor market outcomes and calculate graduates’ earnings—as compared to a counterfactual estimate of what they would make had they not attended the institution—minus the cost of attendance. Such a system rewards institutions that build programs and approach staffing with a focus on outcomes and ROI—a development that, in turn, should have the happy effect of squeezing out the ideological stylings that have proliferated at institutions where students or faculty have too much idle time and too little focus. PSC is an example of the type of forward-thinking activity that could allow for the emergence of new accreditors, and thereby new colleges, that are less beholden to the unworkable status quo. 

The College Shakedown Racket 

But there is an even more insidious trust lurking just under the surface of American higher education. Employers use college credentials as a hiring requirement—whether they’re demonstrably relevant to the job in question or not. This practice took off after the Civil Rights Act of 1965, when it became increasingly dicey for employers to use other kinds of hiring tests. The Supreme Court warned in the early 1970s that college degrees shouldn’t be treated any differently than any other hiring requirement, but nonetheless, they have been given exactly that kind of carve-out—making them a safe haven for risk-averse HR departments and employment attorneys. The result is that employers who are fearful of screening based on knowledge or skills will casually demand a diploma even for jobs that don’t truly require one. These paper credentials have become admission tickets to the middle class that must be purchased from existing institutions of higher education.

It’s time to level the playing field. Students should enroll in college because they want to or because they need specific training, not because it’s the only way to ensure they’ll get a fair look from potential employers. There are several ways to reduce employers’ reliance on college degrees. First, the courts should subject college credentials to the same kind of scrutiny applied to any other hiring test. Degrees should be required only if they’re demonstrably related to the work at hand. Meanwhile, there’s a need to devise reliable, credible, legally sound hiring tests that can offer an appealing alternative to college credentialing for applicants and employers. Public officials have a unique opportunity to lead on this issue. Indeed, they should take a page from red and blue governors like Larry Hogan in Maryland and Josh Shapiro in Pennsylvania and eliminate degree requirements for most state government jobs, thereby requiring that positions be filled based on skills and experience rather than paper credentials.

The merit of a college education isn’t the point. The issue is that today an arbitrary judicial standard, an excessive regard for employer convenience, and an unwillingness to stand up to the college cartel mean that Americans are required to pay the ransom of a college diploma in order to seek professional success. Compelling Americans to buy an expensive degree of dubious value is behavior more typically associated with protection rackets than engines of opportunity.

Public Scams and Public Subsidies

Higher education is also rife with dubious practices that reward influence peddling and shower massive public subsidies on unaccountable providers. Some of these practices especially advantage brand-name institutions, while others insulate the broader sector from the consequences of its failings. 

Today, wealthy families who make influence-peddling “donations” to help grease the admissions skids for their children are allowed to write off the full amount as charitable contributions. This is nonsensical. After all, the IRS has long held that donors can only deduct the value of their contribution minus the value of any good or service they receive in return. This makes obvious sense: An exchange of goods or services is not a charitable contribution. Yet the IRS currently ignores the quid pro quo when it comes to admissions. Elite schools shake down wealthy families to pad their endowments and insulate themselves from market pressure. They then gift seats to donors’ children at the expense of their more deserving peers. Taxpayers pick up the tab as donors buying access wind up illegally deducting 50 percent or more of these “charitable contributions.” That publicly subsidized institutions engage in such influence peddling is particularly galling given the leaders of those same institutions are prone to go on at great length about the evils of privilege and their commitment to equity.

There is also a general lack of institutional accountability for publicly provided funds. Colleges admit students and, as long as they’re enrolled, keep pocketing taxpayer dollars—directly in the form of Pell Grants or indirectly through federally subsidized loans. If the student never graduates, the college keeps all that money. The student leaves with no degree but all the debt. When students don’t repay their loans, taxpayers are on the hook for the balance. Now we are seeing the frustration over accumulated debt fuel a political push for loan “forgiveness” that sticks taxpayers with the tab for hundreds of billions in borrowed funds, even when those funds simply serve to alleviate financial pressure on colleges whose students have no degrees or earnings to show for all the time and money they spent there.

Institutions that accept public funds should be expected to make taxpayers whole for the tuition and fees they’ve collected from students who don’t repay their loans. This would create intense pressure on colleges to help ensure that students complete their degrees and find gainful employment. It would also likely make colleges more cautious about whom they enroll. That’s a good thing. Admitting students who are unprepared for college and then pocketing tuition from them isn’t good for anyone.

Building New Institutions

Dynamism used to be the norm in higher education. Americans weren’t stuck with the institutions we inherited. Rather, we built new institutions in response to changing needs. Between 1820 and 1899, 672 new colleges were established in the US. Of those, 573 were private. That’s an average of more than a half-dozen new private institutions each year. During the second half of the nineteenth century, private donors founded 11 universities that are today ranked among the nation’s top twenty, including such famous names as Stanford, Johns Hopkins, and the University of Chicago. We’ve fallen out of this habit. In recent decades, donors have steered big gifts toward old, inflexible institutions and given short shrift to new entrants.

Much of that nineteenth-century dynamism was born of the millionaires produced by the Industrial Revolution. They saw a need for new institutions attuned to the changing needs of the economy and society. Today, the deep-pocketed donors born of the Information Age have seemingly concluded that it’s foolish to build from scratch when there are already so many prestigious institutions. Instead, they direct their giving to existing schools, ballooning endowments and erecting new buildings while further entrenching familiar brands. Nearly $60 billion was donated to higher education last year, with close to a quarter of that flowing to just 20 institutions.

Higher education is ripe for a new era of institution building. Choice works when new, better alternatives force lazy, self-indulgent incumbents to raise their game or risk obsolescence. Long lists of rules, regulations, and subsidies have yielded a higher education landscape that’s neither responsive nor responsible. It’s time to look for institutions that can do better.

Deep-pocketed donors would do well to focus on underwriting new entrants rather than cutting eight-figure checks to erect buildings, stadiums, and new initiatives at institutions busy squatting atop ten-figure endowments. We’re seeing this kind of pioneering spirit play out with the promising new University of Austin. And there’s great value in creating quasi-autonomous new units at universities to provide a home for heterodox scholarship on civic virtue, American history, and the Great Books (as at Arizona State and the University of Florida). It shouldn’t be either-or. We need a wave of such efforts.

In time, of course, these new institutions may themselves lose their way or get captured. But that simply strengthens the case for building a steady supply of new ones. This requires a shift in how we think about the tension between tradition and dynamism in higher education, where the former impulse has usually won out. Big donors troubled by the status quo should refuse to subsidize bad behavior and instead invest in new institutions—whether those are focused on workforce preparedness, the liberal arts, or anything in between. 

Looking Forward

There’s much more to be done, of course. In our new book, Getting Education Right, we explain the need for both structural changes in higher education and a renewed commitment to rigor, free inquiry, and the telos of the enterprise. However frustrated we may be with higher education today, it’s a mistake to reduce colleges and universities to social media punching bags. Whatever the manifold failings of performative professors and slacker students, higher education plays a vital role in safeguarding human knowledge, promoting scientific inquiry, and teaching wisdom to the next generation. 

We can’t afford to merely lament or critique the woeful state of higher education. We need to pursue changes that will help colleges and universities better fulfill their purpose. As Friedman, Churchill, and Emanuel would remind us, there’s a lot of silver in those clouds. Finding it requires institutions of higher education to honor their mission and serve as beacons of knowledge, understanding, and wisdom for the students they serve today as well as those yet to darken their doors.