The Obama Higher Education “Shake Up”


On August 22nd, 2013, President Obama announced a new plan to help keep the costs of college down by providing prospective students with better information about which school to attend, forcing schools to provide more value to their students and changing the way that federally-funded student loan assistance programs work.

His Administration is referring to this plan as a “Shake Up” of higher education, but that’s the understatement of the century if they can actually pull all of this stuff off. While George W. Bush focused on regime change in the Middle East, it seems like President Obama has higher education squarely in his sites. If the goal of this announcement was to accomplish ‘shock and awe’, then we’d say he nailed it.

While some irresponsible media outlets are reporting that the new “Obama plan announces to forgive all student loans”, the “Shake Up” plan does nothing of the sort. What it does do is propose to entirely restructure the entire higher education system. Here’s a breakdown of the true goals that President Obama’s “Shake Up” plan seeks to accomplish:

Make Good Data More Accessible

The Administration’s “Shake Up” plan pushes for “college scorecards” that will include the following ranking factors:

  • Access to Pell grants, including the percentage of current students that have received them
  • Affordability, including an average tuition rate, average scholarships, average loan debt and other details
  • Graduation outcomes, like the graduation and transfer rates, average graduate earnings and percentage of graduates that move on to get advanced degrees

President Obama and his administration claim that this type of data will be far more useful in helping students choose which colleges to attend, especially compared to the traditional ranking factors like the faculty to student ratio and such.

The thing is, a lot of this information is already publicly available, like the percentage of students who receive Pell Grants, the average tuition rate, average scholarship value, average loan debt and average graduation rate. Yes, average graduate earnings aren’t yet publicly available, but current law does state that colleges and universities must report it to the Department of Education, whose been promising to release that data for some time now. The new plan sets a date on that release: this Fall.

The big change brought by this plan is that the data is supposed to be made available through a variety of new sources, making it more accessible to your average high school student. The Department of Education announced that they’ll be reaching out to tech entrepreneurs with what they’re calling a “Datapalooza” aimed at figuring out the best way to get this data into the hands of those making decisions about where to go to school, helping them to make better decisions about which college will be their best fit.

Unfortunately, the new plan doesn’t go as far as the  “Student Right to Know Before You Go Act”, sponsored by Senators Ron Wyden (D-Oregon) and Marco Rubio (R-Florida). Know Before You Go was all set to repeal the ban on collection of student-level college data, allowing the Government to start collecting much more information and providing a far more detailed analysis of college and university performance.

Know Before You Go was set to do some amazing things, like allowing a link between individual student transcripts with their post-collegiate earnings data, which would have allowed for analyses like a comparison between earnings by majors and GPA’s from any given school. Now THAT would have made for some powerful stuff!

Rank Colleges Based On This Improved Data

The current gold standard in higher education rankings is the U.S News & World Report Rankings, which has been around for years, and which colleges and universities across the country have been gaming for just as long in order to get themselves nearer to the top of the list.

President Obama’s new plan aims to throw that rankings systems (and other similar systems that compete with it) for a loop by creating something far more effective at determining the real value of a degree from any particular school. His new “college scorecard”, which is supposed to be unveiled before the beginning of the 2015 school year will “develop a new ratings system to help students compare the value offered by colleges”, as well as encouraging colleges to improve their scores on real-world based metrics that provide real value to students.

Of especially important note is the fact that the new rankings system is set to “compare colleges with similar missions and identify colleges that do the most to help students from disadvantaged backgrounds as well as colleges that are improving their performance.” This is a pretty serious shot across the bow at that old guard of schools and universities that have topped traditional rankings lists for decades, and it’s certainly a move in the right direction.

The Federal Government has never released rankings like these before, having previously left it entirely up to the private sector. And while the U.S. News has dominated that industry for years, there are other competitors that have used similar data to that proposed to be used for this plan, like the Washington Monthly’s rankings based on social mobility, research and national service. It’s not an entirely new idea, but it is an entirely new initiative to take on the private market as a publicly-funded competitor.

As you can imagine, colleges and universities across the country are hesitant for this data to be released (hesitant being the understatement of the year), as some of them are sure to end up looking terrible once some actually relevant figures about their performance end up published for all to see. Expect to see a lot of criticism for this plan in upcoming weeks and months, as the higher education lobby isn’t just large – it’s incredibly well-funded and especially well-connected.

Give The Rankings Some Bite

Perhaps my favorite part of the plan is that the Government plans to make these rankings matter. Unlike previous attempts to help students make better decisions about which colleges they should attend, which have always stopped at publishing new data for the public to consume, President Obama’s “shake up” plan is set to give those rankings some bite. How?

The Administration will tie rankings to federal student aid, with things like Pell Grants and federal student loans being made more readily available to those schools ranking near the top of the list, and less available to those who get left behind. In order to make sure that the school’s own marketing agencies aren’t able to overcome this actual data with advertising fluff, the Administration plans to entirely “transform the way federal aid is awarded to colleges once the ratings are well developed”.

In a nut-shell, students attending schools with better rankings will have access to “larger Pell Grants and more affordable student loans”. I’m all for tying performance to funding, as long as the system works in an organic way, but this does sound a bit like a higher education blacklist to me too. I’m wary of how this could all play out, and I think you should be too.

It’s a big, big change compared to the current system too, which allows any school with accreditation to offer federal student loan assistance to their students. The problem with the current regime is that for-profit schools with terrible graduation rates, horrible job placement rates, but excellent marketing campaigns (like Kaplan University, University of Phoenix and the other day-time tv advertisers) rake in a huge percentage of their revenue from federally-funded student loans, making for a massive waste of taxpayer dollars.

The “Shake Up” plan is set to turn this system on it’s head, forcing schools to get their act together or lose access to the best student loan interest rates and other federally-funded financial assistance programs. I do like that about it, and I do think it’s a step in the right direction, but like I mentioned above – the system needs to be perfect because it’ll be rife with opportunity for abuse, blackmail and all sorts of other corruption.

Offer Income-Based Repayment to Everyone

Current law only offers income-based repayment for federally-funded student loans to certain types of loans and certain types of occupations. This significantly limits the effectiveness of a program supposed to help make the system more egalitarian and encourage people to get degrees in subjects like teaching rather than economics. It’s an attempt at countering the economic incentive to get your degree in the most lucrative subject, rather than the one that best benefits society at large.

Apparently, this limitation is being done away with entirely, with President Obama’s “Shake Up” plan proposing to allow “all student borrowers to cap their federal student loan payments at 10% of their monthly income”. This opportunity will be offered to those students who didn’t get the right to take advantage of this as part of President Obama’s Pay As You Earn Plan, which left those students who first borrowed before 2008, or who hadn’t borrowed since 2011 hanging out to dry.

The Department of Education is apparently set to make this a big thrust of their upcoming attempt at reworking federal student loan debt, with a major initiative set to launch in the Fall where employees will contact borrowers who are falling behind on their payments, undergraduate borrowers with higher than average levels of student loan debt, and borrowers in deferment or forbearance because of financial hardship or unemployment to make sure that all of these groups are aware of the new opportunity of limiting their monthly payments to 10% of their income.

Currently, about 2 million of the 37 million people that have federally-funded student loan debt are taking advantage of existing income-based repayment programs, including the Federal “Income-Based Repayment” program (setting monthly student loan payments at 15% of income), the “Income-Sensitive Repayment” program and the “Income-Contingent Repayment” program (setting monthly student loan payments at 20% income). The newer Obama Pay As You Earn plan sets a maximum monthly loan repayment at just 10% of income, and the new “Shake Up” plan will offer those benefits to many students that haven’t yet been given access to the benefit.

There’s actually a proposed plan called the ExCEL Act, sponsored by Representatives Tom Petri (R-Wisconsin) and Jared Polis (D-Colorado), which is set to make income-based repayment universally available for all federal student loans, but which also calls for eliminating the current option of receiving complete federal student loan forgiveness after making 20 years of income-based payments, leaving it open to criticism from the Administration. The ExCEL Act also has a provision to cap the amount of total interest borrowers would have to pay on their federal student loan debt, making it a much bigger benefit (especially for poorer students) than President Obama’s new “Shake Up” plan.

I’m torn on whether or not making income-based repayment available to everyone is a good idea. On the surface, it seems like a grand plan, but on a deeper level, I think it’ll be rife with opportunities for abuse. My fear is that ‘creative’ tax consultants will be able to fudge the numbers for their Wall Street clients to hide enough income to get them eligible for a 10% cap, and I don’t want my tax money being used to subsidize overly expensive Ivy League educations for Trust Fund babies who now make 10 times as much as the rest of us.

Create a Higher Education Race To The Top

President Obama’s “Shake Up” plan for higher education “request $1 billion in Race to the Top funding to spur state higher education reforms and reshape the federal-state partnership by ensuring that states maintain funding for public higher education.” What’s that mean? State’s won’t be able to pull money away from their publicly-funded colleges and universities, leaving them out to dry, while continuing to fund other initiatives like employee pension programs and localized pork barrel projects.

Race to the Top is supposed to promote a “special focus on promoting paying for value as opposed to enrollment or just seat time”, meaning that those state schools who perform better than their counterparts will end up with additional funds or other financial benefits. None of this is new, as the $1 billion President Obama requested here was included in his budget request for fiscal year 2014, but I don’t think this plan does a whole lot to actually help with the problem that it was apparently created to solve.

Public universities continue to claim that they’re increasing college tuition rates because of “declining state funding”, which this plan is supposed to protect against, but the reality is that states are running out of money, finding themselves forced to balance budgets by raising taxes and cutting spending during economic dry spells. Will this program prevent them from doing that? No, not at all. Not even in the slightest.

Some opponents of the plan are advocating putting funding into the hands of the federal government (I don’t like that idea at all), or even by creating a state-federal revenue sharing program like we had in place between the Nixon and Reagan administrations. I’m not sure that I like that idea either, as giving more power to the Feds has rarely helped to improve local economic conditions, the value of products and services or anything other than added red-tape and increased inefficiencies.

Incentivize Enrolling Poor Students

A major tenet of the “Shake Up” plan is to encourage schools to enroll poor students, by giving “colleges a bonus based upon the number of Pell students they graduate”. The plan is also set to prevent wasted taxpayer funding via Pell grants by “requiring colleges with high dropout rates to disburse student aid over the course of the semester as students face expenses, rather than in a lump sum at the beginning of the semester, so students who drop out do not receive Pell Grants for time they are not in school.” Are you freaking kidding me? This is a no-brainer and I can’t believe it wasn’t already implemented.

Schools across the country have been ignoring low-income students and enrolling their middle and upper-income counterparts at increasing rates in recent years, which is a trend that this part of the plan might just be able to overcome by effectively penalizing those schools that enroll a lot of Pell grant receivers who don’t actually end up graduating. However, this won’t help overcome the huge imbalance of federally-funded money that goes to the middle and upper income students, from such benefits as the American Opportunity Tax Credit (a tax credit for families making up to $160,000 per year), unsubsidized Stafford Loans and PLUS Loans, all of which incentivize schools to enroll as many upper-income students as possible.

Tie Federal Aid To Graduation Progress

Existing law for federal student loan funding makes almost no sense at all in one particularly infuriating area – high school students that qualify for certain funds before going to college remain eligible for continued financial assistance no matter how poorly they perform. These students can continue to receive thousands of dollars in educational assistance even if they fail all their classes as long as the school keeps allowing them to enroll each semester.

The new “Shake Up” plan for higher education is set to toss that part of the system on it’s head (and for good reason!), making aid accountable to progress not just for colleges, but for students themselves as well. The President’s new proposal calls for legislation “to ensure students are making progress toward their degrees… such as requiring students to complete a certain percentage of their classes before receiving continued funding.” My opinion? This is another no-brainer that should have been put into place years ago, and something that we definitely need to get on the books now.

I personally witnessed some pretty rampant abuses of federally funded student loan assistance while I was in school, watching roommates spend Pell grant money on new computers and digital cameras, clothing and things that had absolutely nothing to do with their education-related expenses, all while they failed out of classes. The system effectively subsidizing their road to becoming federally-funded college drop outs by funding their desires for distractions (including for alcohol and illegal drugs).

I see this as one of the most important problems faced by existing law – we’re paying for kids to waste money on personal expenses without requiring any sort of checks based on academic success. We’re also giving funds to teenagers and irresponsible young adults without requiring that they prove those funds are actually being spent on educational costs. Why do we continue to do this when it’s obvious that it’s being abused so badly?

Test New Higher Education Models

This one’s a big idea, and one with some serious potential value. Everyone who’s been to college (and many who don’t) are well-aware of the fact that it doesn’t actually provide a whole lot of value to some students who manage to get by via cheating or by performing well on tests and other assessments that don’t really do a good job of evaluating competency skills or actual knowledge. We all know a few people who have degrees, but who we don’t really think deserved them, because the current educational system doesn’t make a whole lot of sense.

President Obama’s “Shake Up” plan seeks to present other paths to graduation other than the traditional ‘get enough credits to get by’ model, and instead focuses on making students prove their ability to demonstrate proficiency in the subject that they’re chosen to study. Basically, the plan calls for setting something up that would operate similar to the GED test for high school students.

The new plan proposes a “$260 million First in the World fund to test and evaluate innovative approaches to higher education that yield dramatically better outcomes, and to develop new ways for colleges to demonstrate that they are helping their students learn”, as well as “an additional $500 million to community colleges and eligible four-year colleges and universities”. Some of these funds will be earmarked for promoting “accelerated degree paths and credentials that would drive more high quality and affordable options for adult workers and students”, hopefully helping to find a higher education experience that provides more real-world value.

Other changes aim to reduce inefficiencies in the current system, by introducing options for things like offering “Pell grants to high school students taking college courses, allowing federal financial aid to be used to pay test fees when students seek academic credit for prior learning, and combining traditional and competency-based courses into a single program of study.” This could significantly reduce the amount of taxpayer funds necessary to produce individual graduates, helping to make federally-funded loans significantly more efficient.

What’s more – the plan even promotes the idea of running tests with massive open online courses (MOOCs), via accredited schools and universities, but also through non-traditional education providers like the Khan Academy. This could introduce a sea-change and paradigm shift in the way that higher education plays out in the real world, allowing students to move entirely away from traditional colleges and universities and toward far less-expensive (or even entirely free) credential programs.

What remains to be seen is how the Administration would force colleges and universities to go against their own interests and offer early graduation programs to qualifying students, basically sacrificing a year or more of their guaranteed federally-funded tuition. What school wants to accept just 3 years of Government money when they’ve been promised and have signed up for 4 years of it? Schools operate within the free market system, so there would certainly be a need to regulate and enforce a system like this, which might end up costing a lot more in funding and resources than it actually ends up saving.

Will It Work?

How will this all play out in the trenches? I’m not entirely sure, but I do certainly see it as an exciting step in the right direction. We’ll keep you updated as tenets of this plan are further refined, put into place, tested and evaluated.

To check the plan out for yourself, be sure to view the White House’s official Fact Sheet called “The President’s Plan to Make College More Affordable: A Better Bargain for the Middle Class”.

Is this plan more than a political play to help Obama’s approval ratings? Do you see anything in it that you particularly like (or despise)? We would love to hear your take on it, and invite you to sound off in the comments section below.


Tim's experience battling crushing student loan debt led him to create the website Forget Student Loan Debt, where he offers advice on dealing with excessive student loans and advocates a cautious approach to funding education costs via borrowed money.

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