The Red Tape Ruse

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This month, the U.S. Department of Education kicked several campuses at two college chains – the Marinello Schools of Beauty and the Computer Systems Institute – out of the federal financial aid programs. According to detailed investigations, the schools, which received $107 million in federal student aid last year alone, falsified job placement rates and misrepresented educational programs. Five days earlier, the Department announced sanctions against DeVry University, the second largest beneficiary from the federal aid programs at $1.5 billion received last year alone. Add in the $164 million-plus in requests for loan forgiveness from defrauded borrowers at the now-shuttered Corinthian Colleges, and the cost of abuse in the federal aid programs is getting quite steep.

Why, then, is Congress seeking to deregulate colleges at the same time that unwinding years of fraud is going to cost taxpayers hundreds of millions, if not billions, of dollars?

Loosening regulation on colleges has been the main higher education platform for Sen. Lamar Alexander, R-Tenn., the chairman of the Senate Health, Education, Labor, and Pensions Committee for the last several years. In 2013, Alexander and Sens. Richard Burr, R-N.C., Barbara Mikulski, D-Md., and Michael Bennet, D-Colo., convened a task force comprised entirely of university leaders to study federal burden in higher education. The main lobbying association representing colleges – the American Council on Education – organized its meetings and underwrote much of the cost.

Unsurprisingly, a study of regulations written by the regulated produced the higher education equivalent of asking the banking industry to weigh in on the Dodd-Frank financial reform law. When the final report came out in 2015, the task force claimed higher education was drowning in a “jungle of red tape.” If one were to read the report at face value, it would appear as though colleges are pursued with all kinds of onerous requirements that add millions to their annual expenses. In an extreme case, Vanderbilt Chancellor Nicholas Zeppos, a co-chair of the report, claimed that regulations cost his institution nearly $150 million, or $11,000 per student.

While the red tape rhetoric may sound great, a closer look at the facts reveals the burden expense is widely overstated. Take for example the eye-popping assertion that regulations costs Vanderbilt nearly $150 million. It turns out that 80 percent of that is related to research costs, which has nothing to do with students or the Department of Education. In fact, less than 4 percent went to higher education burden that would include the department. This does not appear to be unusual – a review of 13 institutions also by Vanderbilt found that financial aid compliance cost 0.3 percent of non-research expenditures. That’s not a bad trade for millions in federal grants and loans.

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