It never ceases to amaze me how private and public policy often work together to help the rich get richer and the poor get poorer.  In their educational arms race to improve U.S. News and World Report rankings, many private institutions have adopted  merit-based, instead of need-based, financial aid policies.

Incredibly, many of these institutions – in a throwback to long-discredited trickle-down economic theories – argue that such policies will help poor students in the long run by allowing them to attract more funds and do more for poor students.

In a recent study appropriately titled “Keeping Up with the Joneses,” a Wake Forest economics professor explodes that myth.  Not the slightest bit surprisingly, such institutions enroll smaller shares of Pell grant recipients and African-American students ten years after adopting such policies.

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.

While attending law school, I had an opportunity to explain to an Associate Dean exactly how I would go about improving the law school’s U.S. News and World Report ranking, an issue over which he had been obsessing.  Basically, I went down the scoring criteria one by one and explained what logically could be changed and how difficult and/or costly it would be to make the change.

Today higher education institutions are light years ahead of me in scheming new ways to improve their U.S. News rankings.  Three of my favorites as reported over the last few months:

• SAT Scores. Schools at which a student can avoid having his or her SAT/ACT score considered during the admissions process do not report the scores for such students and thus inflate their institutional SAT/ACT averages dramatically.
• Class Size. Because U.S. News measures the proportion of classes with fewer than 20 students, Clemson University keeps some sections at 18 or 19 while bumping others to 70.
• Reputation. Clemson University officials down-rank other institutions’ academic programs while up-ranking their own in reputational surveys.

I wonder if it’s hard to regulate student cheating at such institutions where the administrators also cheat.  Fortunately, or unfortunately, few West Virginia institutions compete seriously in the world of U.S. News rankings …  and as we will be reminded again very soon, some don’t even bother to participate in more meaningful ranking systems.