In August, President Obama announced plans to rate colleges based on their value and affordability and to tie those ratings to the federal grants students receive when attending colleges.

The plan would eventually function so that students at higher-rated institutions would receive larger grants and more affordable loans. Pell Grants, which the federal government uses to disburse federal aid for colleges, totaled $34.5 billion to 9.4 million students in 2012. Many Pell Grant recipients use the federal money to go to schools that have low graduation rates and do not meaningfully improve outcomes even for those students who do graduate. For example, while applicants 25 and older receive 44 percent of Pell Grant money, only 3 percent earn a bachelor's degree.

Given the considerable waste produced by the current Pell Grant system, the Board supports the principles of Obama’s plan. We believe that it will encourage students to attend high value-added schools. In so doing, it will lead poor performing colleges to reform, dubious for-profit colleges to close and the government to spend more efficiently.

At the same time, we worry that some students, who may be constrained in their college choices, would suffer as a result of this policy. In particular, students with constrained college choices may be hurt twice by this policy: Not only may they be compelled to attend poorly performing institutions because of a lack of meaningful choices, but they may now also receive lower funding because of their place of matriculation. Concerns also remain that the rankings system may give schools poor incentives when admitting students; if the ratings system ultimately incorporates graduation rates, it may incentivize schools to avoid admitting students that come from backgrounds that predict poor graduation rates. The rating system may also not be able to appropriately account for variation in backgrounds and experiences of students who attend different colleges, thus biasing its estimate of a college’s value-added.For example, it would be inappropriate to directly compare the graduation rates of schools that typically attract students whose parents attended college with students who are the first in their families to do so. Thus, while we believe Obama’s ratings plan would serve as an important informational source and would encourage students to attend effective schools, we urge caution in its application and stress that rating should never be mistaken for an absolute measure of value.

Though flaws are probable and legitimate concerns exist, the bottom line is that the government does not have to create a perfect rating system to identify schools that serve as for-profit scams or do not produce value for their students. Based on Secretary ofEducation Arne Duncan’s recent explanation and modification of Obama’s proposal, the ratings system seems to be developing on an appropriate track. He stated that his goal is to develop a ratings rather than ranking system that compares schools within categories; in other words, schools with similar missions or population sizes would be compared, but not those that have vastly different fundamental characteristics. Duncan further outlined the goals: “We’ll be looking at access, such as the percentage of students receiving Pell Grants. We’ll be looking at affordability, like average tuition, scholarships and loan debt. And we’ll be looking at outcomes, such as graduation and transfer rates, alumni satisfaction surveys, graduate earnings and the advanced degrees of college graduates.” Such a rating system would be a unique and beneficial contribution to the available higher education data, especially since the Department of Education would likely be able to gather more accurate data than private services.

The Board believes this plan would represent a prudent step in encouraging reform among colleges, encouraging students to attend schools that will improve their lives and in disseminating information that will enable students to make informed choices when deciding where to matriculate. Currently, the higher education system in America is suffering from large cost increases and failures to give value to students. The Board thus welcomes this rating plan as an important measure to address these issues.

ABSTAIN: Zach Horton

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