The Coming Crossroads in Higher Education: Remarks of U.S. Secretary of Education Arne Duncan to the State Higher Education Executive Officers Association Annual Meeting, July 9, 2013

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It is a pleasure to join you today to speak about the nation’s higher education agenda.

Before I begin my formal remarks, let me say that there is a lot going on right now on Capitol Hill. Because Congress has failed to agree on a solution, interest rates on new subsidized student loans doubled on July 1, costing seven million students an average of $1,000.

That’s unacceptable. It’s not too late to fix this, but Congress needs to act—now.

And we don’t need just any bill—we need to guarantee that student rates will remain reasonable. The House bill leaves student rates to float in the market every spring, so they will double over time. And it reduces the deficit on the backs of students and their families, which is unacceptable.

So when I say Congress needs to address this, I want to be clear that it’s important to get this right. And most of all, it is important to keep our eye on the ball here. For the sake of middle class families and students who just saw their rates double, let’s get this done.

I also want to first take a moment to recognize the leadership and outstanding service of Paul Lingenfelter. Paul has been a tireless and thoughtful advocate for higher education for more than three decades. His work to increase access and attainment during the last 13 years as president of SHEEO has benefited not just our college students and institutions but our states and nation.

I can’t thank him enough for that, and for his insistence that higher education leaders be actively engaged in setting high-expectations in the development of the new state Common Core standards for college- and career-readiness.

Your incoming president, George Pernsteiner, has some big shoes to fill. But I have great faith that he will keep SHEEO in the forefront of higher education leadership. Paul, could you please stand, and could we give a hand to Paul in recognition of his leadership and service?

Everyone at this conference has thought long and hard about the future of higher education. And I know we all agree that the future of higher education is vitally important to America’s future.

But I would also make the case to you today that higher education is approaching a crossroads, where leaders will be asked to choose between incremental and transformational change.

At the heart of this choice is a paradox. In many ways, America’s system of higher education is still the envy of the world.

We have some of the top-ranked research universities and liberal arts colleges on the planet. And our networks of state universities and community colleges provide unparalleled access to postsecondary education for students of all socioeconomic backgrounds.

And yet, for all its historic and current successes, our system of higher education must get dramatically better. In the era of the knowledge-based, global economy, America has to rapidly accelerate college attainment to prosper and to maintain the global competitiveness of our individual states and nation.

This is certainly no time to rest on our laurels. In the space of a generation, the U.S. has gone from leading the world in college attainment to being ranked 12th in attainment for young adults among the 36 OECD and G20 partner countries.

The hard truth is that high-performing nations are out-educating us today—and in a knowledge-based economy, they will soon out-compete us as well.

Even in 2011, at a time of high unemployment, U.S. manufacturers were reporting that they could not fill as many as 600,000 jobs because workers lacked the skills to perform them. And researchers project that by 2018, America will have had at least three million jobs go unfilled due to workers lacking the postsecondary degrees needed for the job.

What has changed? In the information age, higher education is no longer a luxury or a privilege reserved for the elite. It’s a necessity that every family must be able to afford. As President Obama says, “In the United States of America, no one should go broke because they chose to go to college.”

Polls show that three out of four Americans believe—and I quote—”to get ahead in life these days, it is necessary to get a college education.” At the same time, three in four Americans also believe that college today is too expensive for most people to afford. That fundamental gap—between aspirations and opportunity—is one we must close.

Everywhere I speak around the country, I find both a strong sense of urgency about the importance of getting a college education, and a great deal of anxiety about whether middle-class families are getting priced out of college.

To boil these concerns down to their core elements, our higher education system today faces three great challenges. They are:

First, the price of a college education is too high.

Second, the college completion rate is too low.

And third, there is too little accountability in higher education for improving attainment and achievement.

I believe that higher education is at a crossroads because our current model of student and institutional aid is ultimately unsustainable. It is incapable of meeting the bipartisan goal that President Obama articulated four years ago—that America will again lead the world in college attainment by 2020.

In the past generation, state funding per full-time college student has fallen by about 25 percent, and the Great Recession rapidly accelerated that plunge in spending. Some states today are even continuing to cut higher education while running substantial surpluses—that makes no sense to me.

At the federal level, the Pell grant program for low-income students is facing a funding shortfall of about $50 billion over the next decade. And we must sustain the historic investments in the Pell Grant program of the last four years if America is to achieve the 2020 goal—and if postsecondary education and training are going to remain the engine of national economic growth and social prosperity.

All three of these core challenges to higher education—high prices, low completion rates, and too little accountability—are each difficult problems on their own. But in reality they are that much more difficult to address, because they are interrelated and cannot be dealt with piecemeal or by the federal government alone.

They can only be addressed through shared responsibility, tough-minded collaboration, and collective action. So, we very much need your insights, your innovation, and your active partnership to meet these challenges. And I make that ambitious appeal knowing full well how tough these challenges will be to meet.

I know that it is the SHEEOs, more than anyone else, who have fought so hard to preserve state investments in higher education for the last four years, and who have had to grapple with the impact of state cutbacks.

I know that much of the public does not recognize that increased student aid substantially reduces the net price of college for students, despite the shock of rapidly-rising tuition sticker prices.

And I know that throughout the country, more, not less, is being asked of higher education at a time of funding cutbacks.

Yet as difficult and as interconnected as these challenges are, your leadership, your expertise, your creativity are still very much needed if we are to collectively make the tough choices necessary to transform higher education.

Speaking in broad-brush terms, I believe we will see two ideas take hold in response to these threats to higher education.

The first response is that the system of state and federal institutional grants and loans will start to shift more toward a performance-based and outcomes-based system than is the case today—and one that does more to reward innovation.

As all of you know, state aid to institutions of higher education is now based largely on the number of students an institution enrolls.

We also need a simplified system of student aid where the federal government shares responsibility with states and institutions for keeping down costs, raising completion rates, and improving quality.

Student aid must be simplified so students and families can better understand and optimize grant, loan, and tax opportunities at colleges and universities to find the best value for their time, effort, and money.

The federal government currently provides more than $175 billion a year to postsecondary institutions and students through grants, loans, and direct school support. But together we must do a better job of defining and linking aid to satisfactory academic progress, meaningful institutional performance, and student learning outcomes.

We absolutely must continue to invest in higher education. But we must also use taxpayer dollars more wisely.

This shift in the direction of performance-based funding is already underway. As you know, President Obama has proposed a one billion dollar Race to the Top program for College Affordability and Completion in this year’s budget.

It is an ambitious program. It would award competitive grants to States that commit not only to restoring baseline funding for institutions but also to reforms and innovations to increase productivity, transparency, on-time completion, and constrain tuition growth.

President Obama has also proposed a $260 million First in the World initiative for institutions and consortia to fund innovative models to accelerate college completion and scale up and disseminate proven practices to increase productivity.

The First in the World fund would reward progress and innovation in three areas: increased access for low-income, minority, and first-generation college goers; new quality assurance systems that identify and validate competencies, assessments, and curricula in high-need fields; and finally, pay-for-success programs, tied to the new validation systems, that reward providers for successfully preparing students for free two-year degrees.

The Administration has already taken a series of far-ranging steps to promote basic transparency around college costs and provide borrowers struggling with student debt a safety net, in the form of earnings-based repayment plans.

And I am trying to remain hopeful that, in the very near future, Congress will reach a deal to keep interest rates on student loans from doubling, and that this deal will be retroactive to July 1.

Further evidence of the policy shift underway is that many states—including Indiana, Tennessee, Oregon, and Missouri—are moving in bipartisan fashion to incorporate elements of performance-based funding in higher education.

Now, if the first response to the challenges of cost, completion, and accountability is likely to be more performance-based funding and new incentives for innovation, a second response is likely to be a leveraging of educational technology to increase student learning as well as institutional performance and productivity.

We still have a lot to learn and perfect about online learning, MOOCs, simulations and gaming, and other uses of educational technology. But there is no question that a digital revolution is already underway in higher education. And its vast potential has only begun to be tapped.

Through the smart use of technology, higher education now has an extraordinary opportunity to personalize learning, expand access, and bolster productivity. Blended learning creates opportunities to empower educators and students in ways that were unimaginable just a few years ago.

Of course there are skeptics who doubt that higher education can simultaneously boost completion rates and improve accountability for outcomes, while, at the same time, constrain costs.

The skeptics point to the so-called Iron Triangle of Higher Education. And it’s true that these three sides of the iron triangle—quality, access, and cost—sometimes seem like mutually conflicting choices.

Elevating quality can raise costs. Expanding access can also raise costs because additional services and assistance to less well-prepared students may well be necessary. And reducing costs might hurt both quality and access.

Yet I don’t believe that this juggling act is higher education’s mission impossible. Productivity and accountability are reform tools that can help postsecondary institutions break out of the trap of the iron triangle.

With higher productivity and better accountability, institutions of higher education can boost both quality and access and constrain costs—all at the same time.

Now, despite these very real, tough challenges, I am actually optimistic that states and institutions of higher education are beginning to move beyond the trap of the iron triangle.

In the Obama administration’s first term, our nation benefitted from significant progress made in higher education. It’s true that we need to get better faster than ever before—and we’re not there yet as a nation.

But attainment, access, and achievement are on the upswing, and states and institutions are taking steps to boost completion—even while they constrain costs.

In the time I have left, I want to briefly spell out some of the reasons for my optimism.

First, after years of relative stagnation, our college attainment rate among young adults increased in the last four years, and our comparative standing among high-performing countries has edged upward.

In 2008, 42 percent of young adults in the U.S. had an associate or bachelor’s degree. By 2012, that number had increased to 44 percent. And by 2011, our institutions of higher education had awarded about 460,000 more associate and higher degrees than in 2008.

College access has expanded, too—especially for Hispanic students. More than half-a-million additional Hispanic students—about 550,000 in all—are now enrolled in college today than were enrolled in 2008.

In the administration’s first-term, the Pell Grant scholarship program grew by more than 50 percent, with the number of Pell Grant recipients going from 6.2 million in 2008 to more than nine million three years later. Many of those Pell grant recipients are first-generation college-goers.

And the President’s 2014 budget provides sufficient resources to fully fund the estimated $5,785 maximum Pell Grant award in the 2014-15 award year. That would be an increase of more than $1,000 since 2008.

All told, federal support for increased college access has expanded more in the last four years than at any period since the years following the passage of the GI bill.

I am optimistic about the prospect for change as well because states are beginning to move away from a pure enrollment-based model to fund their public institutions of higher education—which now educate about 75 percent of our nation’s undergraduate and graduate students.

The traditional funding model provides incentives for enrollment growth—the more students you have, the more money you get. But it doesn’t support excellence. It doesn’t encourage people to persist in college to earn their degrees. And it doesn’t enhance productivity.

It is driven by inputs, not important outcomes, like what students have learned—what they know and can do.

The truth is that our funding systems for higher education provide few long-term incentives to constrain college costs and student debt. In tight times, states have little incentive to insist on efficiency because they allow public colleges and universities to charge higher tuition and fees to make up for reduced state funding.

The truth is that every State, and every institution of higher education, should be spelling out ambitious but achievable goals to substantially boost completion and control the growth in college costs.

Thankfully, more states are now altering their enrollment-growth funding models to include performance-based elements for completion and cost containment.

Nationwide, more than half the states have now set goals for the educational attainment of the adult population. And a number of state strategic plans include language about containing costs. These are basic but important steps that all states should be taking and learning from each other.

In Oregon, for example, the state’s landmark 40-40-20 law has established the goal that by 2025 all adult Oregonians will hold a high school diploma or equivalent.

The legislation’s goals are that 40 percent of adults will have an associate’s degree or a meaningful postsecondary certificate, and 40 percent will hold a bachelor’s or advanced degree.

As George Pernsteiner, your incoming president and former Chancellor of the OSU system can tell you, the law is driving concrete and far-ranging changes in the state system.

Under the 40-40-20 plan, OSU institutions now have new Achievement Compacts which specify outcome completion measures, like degrees in different categories; quality measures, like the workforce success of graduates; and access measures, like the participation of dual credit and transfer students.

Just last week, the Oregon Legislature called for a feasibility study and potential pilot of an intriguing plan to allow students to attend state college without paying tuition upfront or taking out traditional loans. Instead, students would commit to paying a percentage of their future income to Oregon, based on what they earn, to pay for their degree.

It’s a fascinating idea—and countries like Australia and New Zealand can teach us a lot, as they are well ahead of us in this area. I look forward with anticipation to learning more about the plan’s feasibility and possible implementation, and to other states’ interest in pursuing the concept.

However, Oregon is far from alone in pushing for transformational change.

From 2009 to 2011, Montana had a seven percentage point rise in graduation rates at the state’s public, two-year colleges, and a two percentage point increase at their public, four-year colleges.

So, state policy—what SHEEOs do—matters. Montana froze tuition at almost every institution for the last six years. And with support from the legislature, the MUS system dramatically expanded the availability of distance learning.

More than 10,000 students in Montana are now enrolled in at least one distance learning course, and Montana universities and colleges now offer more than 90 online degrees.

In Maryland, the University of Maryland’s Efficiency and Effectiveness Initiative is another great example of successfully breaking out of the Iron Triangle.

Since its launch in 2004, Maryland’s initiative has saved more than $250 million yet held in-state tuition flat from 2006 through 2009. At the same time that baseline operating costs were cut three percent, the University of Maryland system is educating six percent more students.

Just as impressive, four-year graduation rates are at an historic high, as are community college transfer rates. Maryland is also using technology to bring down the cost of some introductory-level classes and increase pass rates at the same time.

Other states, like Georgia, are making great headway in increasing access and college completion for underserved students. Since 2002, the University System of Georgia’s African American Male Initiative has boosted black male enrollment by more than 80 percent. And it’s not just enrollment that is up. During the same time period, the six-year graduation rate rose 11 percentage points, from 29 percent to 40 percent.

And perhaps most gratifying, the number of bachelor’s degrees conferred annually on black males has jumped almost 60 percent, from about 1,300 black males who earned their BA in 2003 to more than 2,000 who did so in 2011.

Even during the Great Recession, the USG system dramatically increased enrollment by almost a third, enrolling an additional 7,600 black males from 2008 to 2011. Obviously, there is still a long way to go here. But this is real, meaningful progress.

There are so many other examples of state higher education leaders thinking outside the box today, from Indiana’s 21st Century Scholars Program to Louisville’s county-wide 55,000 Degrees program.

Yet the two ingredients these innovative programs share are public-private partnerships that cross traditional silos, and leaders who seek to transform and elevate higher education—rather than tinker at the margins of the existing system.

Last but not least, the proliferation of online learning in various forms is plainly one more sign of a looming turning point in higher education.

The century-old practice of awarding degrees based on seat time, rather than on demonstrated competence in a field of study, is completely at odds with a world in which the Internet offers perpetual opportunities for learning and gaining skills at your own pace.

In the years ahead, higher education will have extraordinary possibilities to redesign courses and programs of study, utilize blended learning, and create high-quality open educational resources.

And while we know that educational technology holds both promise and perils, we also know more today than before about effective and ineffective ways to incorporate technology in higher education.

For example, since 1999, the National Center for Academic Transformation has evaluated and pioneered the redesign of high-enrollment courses at more than 100 institutions. Its first round of course redesigns at 30 institutions reduced the cost of courses by almost 40 percent compared to traditional courses—while improving student learning and retention.

And I love the City University of New York’s ASAP program. In the ASAP program, CUNY took a series of steps to accelerate three-year degree completion.

CUNY removed scheduling obstacles. They provided counselors to students who were having difficulties. They lent textbooks and provided free transportation. They closed the financial need gap.

A rigorous three-year study of the ASAP showed remarkable results—it more than doubled the associate degree completion rate, from 24 percent to 55 percent.

And even though the ASAP program was more expensive than CUNY’s traditional associate degree program, it was very cost-effective—and ultimately saved money for both taxpayers and students.

These are just some of the examples of why I am optimistic that a profound shift is underway in higher education toward transformational change.

An obvious takeaway here is that what state higher education leaders do—your work—has a tremendous impact on the life chances and opportunities of our students.

Today, several states, like Colorado, West Virginia, and Kentucky, are doing a better job than others of making progress toward their portion of the 2020 goal, of having America regain its place as the best-educated workforce in the world.

And if state policy matters, we know that institutional policy matters, too. I bet every SHEEO in this room can cite an example of a college or university in his or her state that is doing better than expected in increasing access and attainment—and conversely, an institution that is doing worse than might be expected.

Ultimately, the challenges to our higher education system can only be met through a shared partnership with clear responsibilities, involving all levels of government, institutions, and students, as well as the business, education, labor, and philanthropic communities.

It’s time to end the buck-passing and blame game, where college leaders blame high schools for sending them ill-prepared students, where high school principals blame the elementary schools, where elementary school principals blame the preschool programs, and preschool teachers blame the parents.

At every stage, from cradle through career, our students are always our students—not someone else’s. There must be no more cracks to fall through. Collectively, we must own both the challenges and the solutions.

I’m not asking for some kind of a Kumbaya moment, where everyone joins hands together and sings. Instead, I’m talking about tough-minded partnerships that drive transformational change and truly deliver a “first-in-the-world” system of higher education opportunities for all Americans.

And all of this must happen without letting efforts to trim costs and improve efficiency become an excuse for reducing quality. Our country needs more graduates with high-quality degrees and 21st century knowledge and skills—not more graduates with meaningless paper credentials.

Clearly there are no simple solutions here, there are no silver bullets. But we can’t let the scope of the challenges facing higher education become a discussion-ending excuse for inaction. Quite the opposite—it should motivate us to move with both a sense of real urgency and mission clarity.

Thankfully, the skeptics, and the conventional wisdom about the capacity for higher education to change, improve, and reform, have often proved wrong.

History is on our side. Recall that President Lincoln signed the Morrill Act, establishing our nation’s land grant universities, in the midst of the Civil War. FDR signed the GI bill in 1944 during the epic Battle of Normandy. And in the fragile aftermath of World War II, Harry Truman successfully pushed for the creation of our nation’s community college system.

In the Obama administration’s first term, the skeptics warned that the federal government would never accomplish the multi-billion dollar conversion to Direct Lending in a timely and effective way. They were wrong. We were able to invest an additional $40 billion in Pell Grants and students, without going back to taxpayers for a nickel.

The skeptics warned that Congress would never reform our health insurance system. They were wrong again. America can still do big things.

Because of the Affordable Care Act, states will be creating health insurance marketplaces this fall where no one can be turned away for coverage. And thanks to the new healthcare law, college students who don’t get jobs with health benefits right away after graduation can now stay on their parents’ plan until they turn 26.

Today, there are universities, community colleges, and state leaders all across America that are thinking boldly, that are tackling all of the tough tradeoffs of higher education’s iron triangle. We just need now to take transformational change to scale—and show that the iron triangle is not so rigid after all.

Promising innovations, which constrain costs and increase completion, while improving quality, are still the exception today. Collectively—by better aligning incentives and rewarding courage—we must make them the norm.