A proposal currently being considered in Congress would extend the Pell Grant Program to cover students enrolling in very-short-term job training programs. As I have written earlier, this could be a big mistake, especially as it could squeeze out employer-supported training programs and stoke rapid growth of programs that sound appealing to enrollees but actually provide little value to students, or to the taxpayers that fund Pell Grants. Employers are major stakeholders in job training, and displacing the programs that they fund could gravely undermine the quality of future training programs by introducing a textbook case of moral hazard.
While current proposals in Congress would require that new training programs be approved by federal and local authorities, that approach to consumer protection would backfire, as it would mire colleges in paperwork while providing no ongoing assurance of quality, and thus mislead potential students.
Before a pipeline of federal dollars is opened up for very-short-term job training programs, stronger consumer protections to ensure program quality need to be put in place. The most effective consumer protection guardrails would meet most or all of these objectives:
- Day one protection. The guardrail serves as a restraint on predatory recruiting or pricing at the start of federal aid availability, without having to await future data.
- Ongoing protection. The guardrail adapts as programs change or grow, without the intervention of a regulatory agency.
- Self-implementing and enforceable rules. The school has frontline responsibility and accountability for abiding by the rule, yet compliance can be monitored and enforced.
- Meaningful measures of protection. The guardrail protects students from predatory recruiting and/or pricing, but is not arbitrary or irrational.
- Rules that are difficult to game or evade. The guardrail is enforceable, and it cannot easily be evaded through games with numbers and definitions or through political waivers.
- Rules that do not imply federal endorsement. While government funding of a program or school by conferring Pell Grant eligibility sends a strong signal of government endorsement, the guardrail does not establish an additional impression that the government is vouching for the quality or value of the program.
Further Revising the Proposed Approach
In a commentary last month I proposed a reform to the proposal currently in Congress that would base future growth of any very-short-term program on enrollment and financial data from prior periods. After conferring with a group of community college officials, I have simplified one of the approaches: the very-short-term Pell Grant–eligible programs would be allowed as long as the school was committing the bulk of the tuition revenue received for such programs into educating its students. This simplified approach is consistent with the consumer protection objectives listed above.
Here is how a consumer protection provision could be drafted in the bill, as a condition for program eligibility:
(ii) EDUCATION SPENDING. Program expenditures for instruction, academic support, and student services, excluding pre-enrollment expenditures (such as recruiting and advertising), amount to more than half of the revenue from program tuition and fees.
To allow for situations in which campus officials may be uncertain about revenue or expenses, or lack adequate program accounting systems, the bill could include—as an alternative quality control measure—the price validation approach I had suggested previously:
(iii) PRICE VALIDATION ALTERNATIVE. The number of students enrolled in a program during [a period] is no more than two times the number of students who, in one of the prior two [periods], enrolled without receiving federal education assistance funds or any type of indebtedness offered or arranged by the institution.
The education-spending requirement would provide some assurance that short-term Pell Grants are not being used primarily as a money-maker to finance a school’s other programs or to enrich contractors engaged in recruiting operations, for example. The alternative approach would ensure that, if program resources were difficult to track or forecast, the program would instead have to demonstrate prior non-federal validation in order to continue or to grow in size.
This approach would keep colleges and employers in the driver’s seat, with no bureaucratic program pre-approval required, while providing consumers and taxpayers with an effective and flexible assurance that the program is not just a moneymaker introduced to tap into Pell Grant funds to finance other priorities at the college.
Why This Approach Makes Sense
Measures of education spending and non-federally-aided program enrollment are two non-bureaucratic ways to prevent growth of programs that are simply gobbling up federal dollars rather than providing educational value. What follows below is a series of questions and answers that explore how these consumer protection measures would work to help ensure the quality of very-short-term job training programs.
How can federal aid unintentionally stoke predatory recruitment of students?
Short-term programs are aimed at people who are in need of a quick improvement in their financial situation. The availability of federal aid to these needy students reduces friction in the sales and enrollment process for program administrators. This eased access has a negative side: when a school or its contractors are incentivized by unchecked revenue growth, it provides incentive to oversell the program to students for whom the program may not be their best next educational step. A guardrail tied to spending or third-party payers helps to reduce the hazard.
Would a 50 percent education-spending requirement be difficult for colleges to meet?
Spending on instruction, academic support, and student services is typically far more than half of tuition revenue; community college officials have told me they do not see this requirement as a barrier to serving low-income students. Not only would this requirement protect students who are accessing Pell Grants, it would prevent the type of predatory practices that could otherwise result from expanding access to any Title IV aid.
Does the federal government already require colleges to estimate spending by program?
Finance data currently submitted to the federal government are for the whole institution, not particular programs. Many institutions, however, do monitor program expenses and revenues. In terms of enforcement, program spending and revenue would be a part of the federal program review process, and could be included in annual financial or compliance audits.
Why does the proposal exclude school spending on recruitment and advertising?
Colleges would not be prohibited from spending revenues from Pell Grants or other sources on recruitment and marketing, but that spending would not be allowed to be counted as an educational expense within the 50 percent requirement. (This requirement would avoid the current situation where, at the institutional level, the inclusion of admissions and marketing expenses in the student services category in federal data has undermined transparency in college spending. For-profit schools and contractors in particular often spend a third or more of tuition revenue on marketing, but those amounts are hidden within the student services figures.)
For the price-validation alternative, why measure non-federally-supported students rather than employer-supported students?
Unless a student received federal aid, a college frequently does not know a student’s source of funds. Monitoring compliance with a non-federal requirement, however, is relatively straightforward. The fact that students are finding support independently is meaningful and serves as a useful guardrail, even if not all of the non-federal tuition comes from employers.
For the price-validation alternative, would it be okay if each student paid half the tuition and Pell covered the other half?
No, that would be a case where Pell funds would enable a doubling of the price that is validated by a private payer. However, if the program spent at least half of its tuition revenues for educating the students, then it would qualify under the education-spending approach.
Why does the price-validation alternative use a look-back approach?
Relying on data from prior periods prevents a situation in which a college is suddenly out of compliance because it inadvertently ended up with an enrollment cohort that has a greater proportion of Pell-funded students than anticipated. A look-back approach would only cap the total current-period enrollment, while the composition of the enrollment would affect a future period. For example, if a school has 100 students who did not get federal aid in one period, in the next period the school could enroll 200 students, without regard to how many of them get federal aid.