The rise of “unbundling” in higher education provides policymakers with the opportunity to experiment with new approaches to regulating higher education and financial aid policy, according to a new report from the American Enterprise Institute (AEI).
“Unbundling,” as it is used in the report, refers to the growing trend of offering the components of a postsecondary degree or certification – such as stand-alone courses or series of courses – at much lower costs than traditional higher education institutions. These models also offer students more flexibility and customization for their learning objectives, though there are concerns among policymakers about the role federal financial aid should or can play in providing access to these new models of learning.
In the report, AEI argued that a combination of regulatory approaches and tools can be used to give students access to these models, while at the same time protecting consumers and taxpayers. Among the group’s suggestions are reforms to the federal approach to quality assurance, new ways policymakers can utilize private funding methods, and a pathway to allowing consumer demand and competition to drive innovation.
AEI recommends allowing these new higher education providers access to federal financial aid in the Title IV programs and suggests three tactics to help maintain accountability and transparency:
The second recommendation in the report is for policymakers to leverage private financing to share the risk in quality assurance. “Specifically,” AEI noted in the report, “requiring providers and students to raise some of their own financing from the private market would rely on private investors to ferret out the most valuable provider and models and steer taxpayer dollars toward those options.”
To accomplish this recommendation, AEI suggests policymakers require new providers to cover the upfront costs of their offerings to be eligible for federal aid, and use a “pay for success” model that would allow them to be reimbursed based on their success.
“The key insight here is that a system that requires new entrants to put up capital gives providers greater ‘skin in the game’ than one in which they get full access to government money,” AEI said in the report.
AEI also suggested that policymakers create a space for private financing, such as income-share agreements, in addition to need-based grants that students can use to access unbundled higher education programs.
Finally, AEI recommended that policymakers “wait for the market to mature on its own and let consumer demand and competition drive innovation.”
Though each recommendation could be implemented on its own, AEI argues that it would be better to experiment with a combination of recommendations and tools.
“No one tool will be a magic bullet, and pushing for a comprehensive reform to the eligibility rules governing federal student aid programs would be a mistake at this early stage,” AEI said in the report. Rather, policymakers should “experiment with these different approaches and tools and mix and match them to learn about the strengths and weaknesses of each,” the group noted.
Publication Date: 8/21/2015