President Joe Biden’s student debt cancellation package has generated plenty of charged responses across the political spectrum. But one thing all parties can agree on is that the plan does not fundamentally address the root causes of the college debt crisis.
“We have $1.6 trillion in debt and that’s going to go down to about $1.1 trillion,” said Kelly McManus, who directs the higher education portfolio for Arnold Ventures. “According to the estimates, we’re going to be back at $1.6 trillion in outstanding debt by 2028. This isn’t a path that we can keep going down.”
This leaves higher ed funders concerned about student debt with a limited number of viable options. First, they can ramp up support for financial aid. While this may not make much of a dent at the macro-level, it clearly makes a huge difference for students facing a lifetime of debt. But McManus’ comment serves as a reminder that short-term relief for individuals alone — whether from Uncle Sam or powerful alumni donors — won’t mitigate, much less solve, the crisis. Deliverance will only come in the form of policy change.
A lot of higher ed funders tend to avoid getting into the weeds of federal policy, often overly wary of the rules around 501(c)(3) giving and advocacy. But for Arnold Ventures, the philanthropic LLC of billionaire couple Laura and John Arnold, advocacy and policy come with the territory.
“There is absolutely a role for donors, but I think that people need to engage in policy,” McManus said. “I know that’s tricky for some funders, but there is no way that we get around this without people engaging in the policy process.”
And with the absence of any miraculous, sweeping legislative efforts on the horizon, Arnold Ventures is doubling down on a specific approach — accelerating efforts to “make sure that when students are going into debt to pay for higher education that odds are in their favor of achieving economic mobility,” McManus said. This means providing students with the right information about outcomes for graduates and ensuring taxpayer dollars don’t flow to chronically underperforming institutions.
An expanding higher ed portfolio
Arnold Ventures made its first big investment in higher education six years ago when it supported Harvard Law School’s Legal Services Center’s Project on Predatory Student Lending (PPSL). Launched in 2012, the project seeks to expose predatory lending practices in higher ed, mostly focusing on the for-profit college industry.
McManus joined Arnold Ventures in January 2019 as the first director of the funder’s higher education portfolio. Prior to this role, she served as the director of government affairs for the D.C.-based Education Trust, directing strategy and legislative advocacy across early childhood, K-12 education, higher education, and appropriations issues. McManus said she was drawn to Arnold Ventures given the funder’s commitment to advocacy. “I’m very much a policy person,” she said, “and that’s the approach Arnold takes.”
Around this time, Arnold Ventures’ leadership acknowledged that while ending predatory behavior was necessary, it was also insufficient. “Even if bad actors were eliminated, there were still too many students who were not getting the promise of higher education, and taxpayers were largely on the hook for that,” McManus said. “There needed to be significantly more work done to improve outcomes across the board.”
In response, McManus and her team zeroed in on increasing data availability and accuracy to ensure that students, families, policymakers and other stakeholders can make informed decisions. This data-driven approach aligns with Arnold Ventures’ work in other areas like criminal justice reform and democracy and civic engagement. The higher ed team also put an emphasis on institutional accountability and identifying scalable practices that improve student outcomes. “We still invest heavily in litigation, policy and advocacy work, trying to bring every lever we have to make policy change in higher ed,” McManus said.
Speaking of policy change, in August, the PPSL announced that a federal judge granted preliminary approval of the proposed joint settlement in the lawsuit Sweet v. Cardona. Assuming the court grants full approval, the settlement would cancel at least $6 billion in federal student loans for approximately 200,000 individuals.
The need for a “Grand Bargain”
I spoke with McManus a few weeks after Arnold Ventures’ cofounder Laura Arnold penned a CNBC op-ed laying out the funder’s higher ed strategy in the aftermath of Biden’s announcement. “The student debt burden is a symptom of a broken higher education system,” she wrote. “This means mandating accountability and transparency in colleges and universities. Students deserve to know they’re not wasting time and money on broken promises. Taxpayers deserve to know we’re getting the highest return on our public investment in higher education.”
Arnold took a cautiously optimistic tone, noting that the Biden administration “has smartly proposed imposing accountability rules that will help ensure taxpayer funds are only spent on schools that can prove their value for students.” For instance, the gainful employment rules “will end federal funding for any career program whose graduates don’t earn enough to repay their loans.”
She went on to note that Biden “is already on the right track with a new College Completion Fund (CCF) to invest in evidence-based completion and retention efforts at colleges serving large numbers of low-income students.” This accountability work, McManus told me, will naturally require robust congressional support — the CCF fund only received $5 million in appropriations in 2022 — and data illustrating how schools are serving different groups of students.
“I think the area where the most work needs to be done is putting together an accountability system that promotes better outcomes for students and protects taxpayer dollars,” McManus said. “Something that needs to happen is a grand bargain where we really think about how we finance higher education and what we should expect from schools in order to keep getting access to taxpayer dollars. That’s a conversation that’s really just starting.”
From my vantage point, this conversation should ensure that any federally designed accountability mechanism doesn’t unwittingly contribute to tuition-increasing administrative bloat. It should also include university administrators themselves, many of whom, McManus rightfully contends, have “been left off the hook” when it comes to the student debt crisis.
“I think there are ways that we can explore how to put those pressures back on the institution,” she said. “Colleges sign program participation agreements. It may be worth looking at situations where an institution agrees, for example, not to increase tuition beyond the rate of inflation. Institutions and their lobby have been very effective at holding off these kinds of conversations, but I don’t think that they can anymore.”
“A new kind of prestige”
All of which brings me back to another important part of the student debt equation — alumni donors. Back in February, I spoke with Ann Kaplan, the author of the Council for Advancement and Support of Education’s industry-leading report on higher ed fundraising in the 2021 fiscal year. Buoyed by a resurgent stock market, alumni were “stepping up to the plate to primarily fund scholarships and not buildings,” Kaplan said.
While encouraging, this support remains a drop in bucket given the current $1.1 trillion student debt balance. Nor is it tenable in the long term. After holding relatively flat during the pandemic, tuition rates are inching upward across the country. The U.S. stock market, that tried-and-true bellwether for alumni generosity, is dipping in and out of bear territory. And with baby boomer alumni slowly ceding the stage, universities can’t expect their debt-ridden millennials to match the support of their parents’ generation.
While McManus doesn’t directly engage with alumni donors, she is hopeful that Biden’s plan and its surrounding debate will generate some overdue soul-searching. “Schools cater to their donors, so donors have an enormous amount of power, and they need to ask themselves, ‘Why don’t I do something that is actually going to contribute to economic mobility in this country?’” she said. “That takes a mindset shift that I don’t think is going to come easily.” For instance, donors that do support financial aid rather than policy work can prioritize need-based aid, which “can be transformative in terms of economic mobility.”
I spoke to McManus around the same time that U.S. News and World Report published its much-maligned college rankings. I took a closer look at the 10 categories that it weighs to come up with its rankings and discovered that while “undergraduate academic reputation” had a weight of 20%, “social mobility,” defined as Pell Grant graduation rates and performance, only clocked in at 5%. Is it any wonder that some alumni have prioritized glittering new buildings over gifts that advance social mobility?
McManus is nonetheless bullish, citing the increased attention to open-access universities like community colleges and Third Way, a ranking system that prioritizes economic mobility over reputation and selectivity. If this mentality can take root, McManus envisions a future when universities tout a “new kind of prestige” defined as advancing economic mobility instead of rejecting 95% of applications and refusing to substantially expand the undergraduate population. She also realizes that while providing more need-based aid is a sound short-term strategy for funders reluctant to engage in full-throated advocacy, it won’t be enough to solve the $1 trillion-plus student debt crisis.
“At the end of the day, legislators, administrators and alumni need to start making different choices, whether it’s around policy or philanthropy,” McManus said. “Everyone who is connected with higher ed needs to be asking themselves, ‘What behavior am I incentivizing? What am I enabling in this system?’ Because we wouldn’t be here if everybody wasn’t enabling some piece of the current system in some way.”