Sometimes policy makers create more problems and greater unfairness in efforts to incentivize higher education institutions to do the right thing than they would by leaving well enough alone.  So it is with the current House of Representatives’ proposal to reform the way in which Perkins loan program funds are distributed to institutions.

Problem No. 1: Institutional tuition rates are spinning out control.

House Solution: Distribute more Perkins funds to schools that keep their tuition low in comparison to comparable institutions.

Problem with Solution: The higher tuition rates are in your institution’s particular sector the more money you’re going to get if you keep tuition rates low.  So private four-year institutions, which charge the most as a sector, would get the most money – almost half of the available funds – followed closely by public four-year institutions.  Bringing up the rear would be community colleges, which, as a sector, have done the best job of keeping tuition rates low.  Despite accounting for more than 25 percent of institutions and an even higher percentage of students, they would receive only 7.1 percent of the incentive funds.

Problem No. 2: Institutions don’t devote enough internal funds to students with financial need.

House Solution: Distribute more Perkins funds to institutions that provide more need-based financial aid.

Problem with Solution: Institutions that have more resources available to offset tuition costs – the rich – would get richer, while the poor – you guessed it, community colleges – would receive little or nothing.  Making matters worse, merit aid, going to offset high tuition costs would count under the formula.

If you think the federal government is the only entity mismanaging financial aid distributions, look at West Virginia Higher Education Grant distribution data over the last decade.  I fought for five years to change its distribution methodology, which rewarded traditional students at the expense of non-traditional students and high tuition schools at the expense of low tuition schools, and succeeded in part only this past year.  I will be curious to see if the changes we made change educational outcomes.

Let’s hope Congress – in trying to incentivize colleges to do the right thing – doesn’t produce the same types of illogical outcomes the West Virginia Higher Education Grant Program did for many years.