Reforming State Authorization of Colleges to Boost Competition and Lower Tuition

Key Points

• The higher education market is stagnant. The vast majority of students attend colleges that are more than 50 years old, and rising demand for college has not seen the entry of new institutions.
• State authorization agencies, the first point of entry to the market for new colleges and universities, represent an underappreciated barrier to entry in higher education.
• Authorization agencies impose many requirements on new colleges that are counterproductive, such as accreditation mandates. State regulations also give rise to long approval timelines and disadvantage innovative educational models.
• Reformers should reduce authorization agencies’ emphasis on “inputs” to the education process and focus more on consumer protections and student outcomes.

Executive Summary

Higher education suffers from barriers to entry. Though the ranks of students at traditional colleges have grown by 29 percent over the past three decades, the number of active institutions has declined. Four in five students today attend an institution that was founded before 1970, and virtually none attend a school that formed in the 21st century. This stagnant market contributes to higher tuition—as new schools cannot enter the market to compete down prices—and arguably suppresses innovation that typically comes from new market entrants.

For aspiring colleges and universities in the United States, the first point of entry to the market is a state authorization agency, which decides which institutions are allowed to operate in the state. Though processes for approval differ from state to state, most state authorizers require would-be institutions to satisfy a list of inputs-based requirements and some demand new colleges justify the need for their existence to competitors. Most state authorizers also require new colleges to secure accreditation, which adds another layer of costs and restrictions.

As a result, the approval process for new institutions can drag on for years, as two case studies in this report illuminate. A new college in Rhode Island serving adult learners took five years to receive approval from its state authorizer and nine years to qualify for federal financial aid, in part due to heavy pushback from existing colleges in the state. In Texas, which has a reputation for friendliness to innovation, the University of Austin spent nearly two years preparing its application and waiting on a decision from its state authorizer. It has only just begun to enroll students.

State reformers have many options to improve their authorization systems to make higher education markets more competitive. First, authorizers should steer away from inputs-based requirements around faculty, pedagogy, and facilities, both to accelerate approval timelines and make regulations friendlier to new models. They should also drop accreditation requirements, which add costs but largely fail at quality control. Authorizers should maintain and strengthen consumer protections to ensure students are made whole when experimental models fail. They should also evaluate both new and existing institutions on an ongoing basis by examining student outcomes data.

Higher education is not a dynamic sector of the economy, and this is in no small part due to barriers to entry. Reform-minded state governments should consider how improvements to their authorization systems can lower costs and foster innovation in higher education markets.

Introduction

Artificial barriers to entry have been a feature of markets for millennia. From medieval guilds that prevented non-members from becoming weavers or blacksmiths, to modern patent systems that suppress generic alternatives to brand-name drugs, barriers to entry have kept would-be suppliers of certain goods and services out of the market. The usual justification for such barriers is to protect consumers from unqualified or fraudulent providers but, too often, barriers to entry have resulted in higher prices and artificial scarcity.

Market-friendly policy analysts frequently target barriers to entry such as unnecessary patents, occupational licensure, and certificate-of-need laws in health care. However, some of the most daunting—and underappreciated—barriers to entry in the United States constrain competition in higher education.

State governments play a key role in setting barriers to entry in higher education. Each state operates one or more state authorization agencies which must approve new colleges and universities to legally operate and enroll students. As the first point of entry to the market for new institutions, state authorizers have unique power to affect the landscape of postsecondary education.

Restrictive state policies keep the higher education marketplace closed to new entrants. This allows incumbent institutions to charge higher tuition and removes the competitive pressure that drives innovation. Higher education stagnates, and students continue to lose faith in the value of a college degree.

But smart policy can create a more open environment in which new and potentially innovative entrants can make their mark. Lower barriers to entry may reduce tuition, improve the quality of higher education, and open the door to potentially transformative changes in how colleges operate. Moreover, state authorizers can pair these lower barriers to entry with strong consumer protections that ensure both new and existing colleges are held accountable for their results.

The higher education market is stagnant—and that’s a problem

The landscape of traditional colleges—that is, public and private nonprofit institutions that grant degrees—is dominated by older institutions. According to U.S. Department of Education (ED) records, the overwhelming majority (81 percent) of students at four-year colleges attend a school that was founded before 1970. Just one percent of four-year college students attend a school that formed in the 21st century.

Granted, it is possible that new colleges form all the time, but students prefer established schools and thus flock towards institutions with earlier founding dates. But the degree of the skew towards older schools is still striking. In other markets for expensive goods such as automobiles, later entrants have grabbed market share from long-established companies. That sort of market churn appears almost entirely absent from higher education.

Moreover, even the “new” schools that have formed over the past quarter-century usually don’t fit the role of scrappy startups challenging entrenched incumbents. Many “new” schools are in fact born of existing institutions, such as new branch campuses or colleges that were spun out of larger university systems. Other new schools are highly specialized institutions such as theological seminaries.

In the state of Texas, for example, ED data records 19 “new” traditional colleges with founding dates in the 21stt century (a detailed list is available here). Of these, eight are offshoots or branch campuses of existing university systems such as Texas A&M or Texas Tech. Another eight offer only religious education; these schools are largely exempt from Texas’ state authorization requirements. Two were founded over 50 years ago but did not seek ED recognition until much later. Just one new institution—North American University in Stafford—is a recent startup college in the conventional sense.

The paucity of new colleges might appear to be less of an issue today, since college enrollment is declining. But the number of active institutions of postsecondary education has been stagnant for decades, even as student numbers have waxed and waned. Between 2000 and 2010, enrollment in traditional colleges increased by six million studebts—but the number of schools actually declined over the same period.

Even considering falling enrollment, the number of active colleges is lower than it should be based on historical patterns. Student numbers at traditional schools remain 29 percent above their level in 1990, yet the number of institutions enrolling those students remains almost exactly the same.

Why barriers to entry hurt students

In a well-functioning market, new providers should enter in response to higher demand. With more students pursuing college, entrepreneurs should set up new schools to serve them. The fact that this has not happened suggests that new schools face significant barriers to entry.

Barriers to entry enable incumbent players in a market to charge higher prices for their services. This has famously happened in higher education: despite a recent decline, college tuition has still risen substantially over the past several decades. Even though financial aid has increased over the same period, the rise in tuition frustrates attempts to make college more affordable. Because they have market power, institutions are able to capture additional aid by raising prices.

Insufficient market entry has effects on quality as well as price. Colleges face little competitive pressure to improve their offerings. FREOPP’s research has shown that millions of students are enrolled in postsecondary programs that provide no return on investment. Things may be getting worse: the average college wage premium, once consistently rising, has begun to fall.

Several colleges have closed since the COVID-19 pandemic due to falling enrollment, so it may seem an odd time to worry about barriers to entry in higher education. But one major reason for falling enrollment is the fact that many Americans believe a four-year college degree is no longer worth the cost. Changing that perception means offering a more valuable education at a lower price point. That requires shaking up standard models of higher education. But it is new entrants to a market that often drive innovation.

State authorization: the first barrier for new colleges

In the United States, higher education is regulated by a triad of entities: state authorizing agencies, private accreditation agencies, and the U.S. Department of Education. Of the three corners of the triad, state authorization is arguably the most essential. While recognition by an accreditor and ED are theoretically optional—though, in most circumstances, required de facto —institutions need the permission of the state in which they are located just to operate. 

State authorization is therefore the first point of entry to the market for new colleges—the “fundamental formative act in the creation of postsecondary institutions,” according to the Education Commission of the States.

Institutions need authorization simply to call themselves “colleges” or “universities” and enroll students, even if they are not seeking taxpayer funding. Schools have faced penalties for failing to secure authorization: Flatiron School, a coding academy in New York, paid a $375,000 penalty for operating without approval from the New York Bureau of Proprietary School Supervision, the applicable state authorizer.

Each state has one or more agencies which authorize institutions of postsecondary education. These agencies may be solely dedicated to the task of authorizing and regulating colleges, or have responsibility for several tasks, of which authorization is only one. For instance, the Texas Workforce Commission authorizes the state’s proprietary schools, but also runs the state’s unemployment insurance system and workforce development programs.

Often, states operate multiple agencies focused on different sectors of higher education. While the New York State Education Department Board of Regents authorizes traditional degree-granting institutions in the Empire State, the Bureau of Proprietary School Supervision authorizes vocational schools such as Flatiron. It is also common for schools which prepare students for professional licensure to be authorized by the relevant licensing board rather than the dedicated state authorizer. One typical example is the New Jersey State Board of Cosmetology and Hairstyling, which authorizes the Garden State’s beauty schools.

This report focuses primarily on state authorizers of traditional colleges—that is, public and private nonprofit institutions that grant degrees—as this is the sector in which barriers to entry appear to be most acute. Proprietary institutions and nondegree-granting institutions, which often face different state authorizers—and different accreditors—than their traditional brethren, seem to enjoy much more fluid entry and exit from the market.

How authorizers decide which colleges may exist

State authorizers must first determine which schools are allowed to operate within the market, and develop the requirements for schools that wish to do so. They are also responsible for policing market conduct: that is, developing and enforcing consumer protections to which institutions must adhere. Authorizers must also make periodic reauthorization decisions. This section focuses on several typical requirements for schools seeking authorization. However, as noted several times, the requirements and processes described here may not apply in every state.

Inputs-based requirements for new institutions seeking authorization

While requirements vary across states, there are common themes in the process schools seeking initial authorization must undergo. Authorizers often require extensive documentation from schools before even provisionally approving them to operate. A new institution seeking authorization may prepare its application for several months before formally seeking approval from the state agency.

New institutions must demonstrate their capacity to offer education by documenting  “inputs” into the education process—faculty, pedagogy, facilities, and so on. Research by Andrew Kelly, Kevin James, and Rooney Columbus catalogs common inputs-based requirements.

One of the most common requirements is for institutions to document the qualifications of their faculty members, which may involve submitting the resumes or CVs of instructors. Practitioners interviewed in Kelly’s research cited these requirements as among the most burdensome, especially for schools which rely on part-time faculty and must prepare hundreds of CVs. Some states go even further: New York requires schools to submit the syllabi for each course on offer, and these syllabi must satisfy a list of specifications.

Sometimes inputs-based requirements have unusual specificity. Mississippi, for instance, requires classrooms to have a minimum square footage. North Carolina requires institutions to submit floor plans of their campuses, which must have a library with a “pleasant and inviting atmosphere.”

Some states spell out their requirements explicitly, but others leave their criteria for approval vague. In South Carolina, there must be a “reasonable” ratio of students to teachers—but what counts as “reasonable” is not specified. In practice, many authorizers interpret vague rules by comparing new institutions to existing ones.

Sometimes states require institutions to prove that the state has a “need” for each program that the institution plans to offer. Rhode Island, for instance, requires institutions to “describe the needs that the program addresses, such as societal needs, labor market needs, student requests, and any other evidence of need for the program.” Of course, whether a school’s demonstration of “need” is satisfactory is up to the subjective judgement of the authorizer.

Consumer protections and outcomes-based requirements

In addition to inputs-based requirements, state authorizers often require institutions to adopt certain consumer protections. The three most common consumer protections are mandatory surety instruments, tuition refund policies, and contributions to tuition recovery funds.

Surety instruments involve an institution either setting aside a certain amount of funds, or securing a guarantee from a third-party financial institution for payment of those funds, as a condition of operating in the state. Most states have some sort of surety requirement, though the amounts of the surety required and the set of institutions it applies to vary from state to state. Texas, for instance, sets a minimum surety amount of $25,000, which can be higher for larger institutions. If an institution closes, students can make a claim against the surety instrument to recover the tuition they paid.

Most states also require institutions to have a tuition refund policy for students who withdraw early on in the semester. Texas’ policy is typical. Institutions are required to “refund the amount of tuition and mandatory fees collected for courses from which students drop within the first 12 days of a fall or spring semester or a summer term of 10 weeks or longer.” State authorization professionals I spoke to also noted that authorizers sometimes look to tuition refund policies as an indicator of the institution’s seriousness, even in states that don’t explicitly require them. Fly-by-night operators usually don’t offer refunds.

A less-common form of consumer protection is the tuition recovery fund, which is present in some form in 17 states. These states require institutions to contribute to a common fund on an ongoing basis. This differs from the surety instrument, which is generally only required at authorization. Schools typically contribute a set percentage of the tuition revenues they collect toward the fund; in California, schools have contributed $2.50 for every $1,000 in tuition they collected over the past two years (contributions are currently paused). Students may apply for relief through the fund if they suffered financial harm from the institution. For instance, California’s fund has paid out nearly $15 million to the former students of now-defunct Silicon Valley University after the school suddenly closed.

Some authorizers also track institutions’ student outcomes and may use this information to make reauthorization decisions. According to a survey by Rooney Columbus, most state authorizers require institutions to report outcomes data on an ongoing basis, though roughly one-third do not). The most commonly reported metrics are graduation rates and retention rates. Economic outcomes such as post-enrollment earnings, licensure exam passage rates, and student loan default rates are required much less frequently. Even where outcomes metrics are reported, authorizers rarely require their institutions to meet explicit performance thresholds.

Accreditation requirements

Although other requirements vary from state to state, the vast majority of states require institutions seeking authorization to gain recognition from an accrediting agency. As of September 2024, 42 states required private, nonprofit, degree-granting institutions in their states to either have accreditation or be on a path towards accreditation.

Some state authorizers, especially in smaller states, effectively outsource their quality control responsibilities to accreditors. South Dakota’s state authorizer is the secretary of state, who has a multitude of other responsibilities in addition to authorization. The Mount Rushmore State is considered by analysts to have among the least stringent state authorization processes. Applications for preliminary authorization may be approved in as little as one week. It does not require surety bonds or contributions to tuition recovery funds. However, South Dakota also requires institutions to become accredited as a condition of authorization, which means that quality control at the state’s colleges is essentially the responsibility of the state’s regional accreditor, the Higher Learning Commission.

Accreditation, though, can be a significant barrier in its own right. The process of initial accreditation typically lasts years and may necessitate the hiring of full-time staff devoted to accreditation compliance duties. Each accreditation cycle costs institutions more than $300,000, according to researcher PJ Woolston. Accreditors may also have conflicts of interest: accreditation commissions are typically constituted by representatives of the schools they oversee, who may not be eager to approve new institutions that will compete with their own institutions.

Since accreditors also require new institutions they recognize to have authorization from the state in which they plan to operate, the accreditation requirement can create a Catch-22. In practice, many institutions must partner with an existing university that already has accreditation in order to apply for authorization. Again, this effectively requires existing institutions to greenlight their own competition. While many states have workarounds allowing institutions with provisional authorization to seek accreditation, an accreditation requirement can still throw a wrench into the process of starting a new institution.

The application process

Institutions complain that the state authorization process moves at a glacial pace. One reason is that authorizing agencies are often an afterthought for state governments. A report by state authorization expert Molly Hall-Martin found that some agencies have the equivalent of one full-time employee—or fewer—devoted to authorization duties. Hall-Martin also finds that the median authorizer’s budget is $525,000, which corresponds to just 0.04 percent of total state support for higher education. Funding for authorization duties often comes from authorization fees charged to institutions rather than general revenues, which limits the agencies’ capacity.

As a result of such understaffing, the process of authorizing a new school can take months, if not years. Researchers Angela Boatman and Katrina Borowiec surveyed several state authorizers and found that approval timelines ranged from around three months to a year or more. That time does not include months that institutions spend preparing their applications for submission.

The drawn-out process sometimes creates frustrations for institutions. “It would just be nice if they were really staffed more to be able to be as responsive and move as quickly as the businesses clearly want to move,” observed a representative from one institution whom Boatman and Borowiec interviewed.

Informal dynamics often dominate the relationship between institutions and authorizers. It may not be enough for aspiring institutions to simply follow the black-letter laws and regulations to receive authorization; much depends on cultivating a relationship with key staff at the authorizer and gaining support from influential political figures in the state. “Regulations are regulations,” notes one college dean, “But it’s the relationship you build with the regulator that makes or breaks the experience of how that regulation is operationalized at your institution.”

Case studies: How two new institutions navigated state authorization

The requirements that state authorizers impose on aspiring colleges are numerous. It is instructive to follow the process of initial state authorization from the perspective of two institutions that received initial approval in the past ten years: College Unbound and the University of Austin. Though the two cases differ in the institutions’ target student base—adult and returning learners vs. recent high school graduates—and in the political leanings of the state in which they sought authorization (progressive Rhode Island vs. conservative Texas), parallels between their stories reflect larger truths about how state authorization works today.

College Unbound (Rhode Island)

College Unbound began in Providence, Rhode Island in 2009. A private nonprofit college, it aims to help working adult learners with some college experience complete their degrees.

In order to keep costs down, the model departs from the traditional college experience in many ways. It lacks a physical campus, holding classes in leased spaces, and relies on part-time faculty who are employed at other universities. Tuition is set low enough that low-income students’ Pell Grants mostly cover it. Despite the shoestring model, the school is well-connected politically: its board of trustees has at various points included several leaders in Rhode Island state politics, including a former Commissioner of Higher Education.

The school began its life as a partnership with Roger Williams University, also in Rhode Island. According to a history prepared by Louis Soares and Vickie Choitz for the American Council on Education, College Unbound first applied for authorization from the Rhode Island Council on Postsecondary Education in 2010. However, the school’s application was rejected, as it “fell short of the very traditional institutional requirements necessary for approval.”

James Purcell, who led the Ocean State’s authorizer between 2014 and 2017, admits that Rhode Island “is a tough state for an institution of higher education to get state authorization.” When College Unbound applied, Rhode Island had not authorized a new brick-and-mortar institution in twenty years. Pushback from established institutions may be part of the reason. Existing colleges within the state “are part of the review process,” according to Purcell, “and they really believe they are addressing the needs of all the students in the state.”

Having failed to secure initial authorization, College Unbound’s leaders attempted to secure approval to operate through the state legislature, where representatives introduced a bill to allow College Unbound to operate for three years in conjunction with a state college. The bill passed the state house but stalled in the senate. According to Soares and Choitz, there was “disapproval among some of the elite colleges in the state that [College Unbound] was not rigorous enough to be approved as an institution of higher education. In general, there was quite a bit of bias against adult students.”

The school then applied for authorization the traditional way once more, this time with a “high-powered board of trustees” and the support of the state’s governor. Still, it required weekly meetings with Rhode Island’s postsecondary commissioner and a 1,200-page application to finally receive approval in 2015, five years after its initial application.

But state authorization was only the first step, as Rhode Island requires degree-granting institutions to become accredited. Beginning in 2015, College Unbound sought recognition from the New England Commission of Higher Education. In marked contrast to the state authorizer, though, the accreditor disapproved of the school’s partnerships with existing institutions and insisted that it “operate as an independent institution for at least one academic year.”

Being ineligible for federal financial aid during this period, the school raised significant philanthropic funding in order to offer free tuition to its students. College Unbound did not receive initial accreditation until 2020, more than ten years after its launch. The school now appears to enjoy the support of regulators and the political establishment in Rhode Island, but the road was not easy. Soares and Choitz offer the following assessment:

“Since College Unbound is different from traditional models of higher education, it had to clear a higher bar, particularly in the state authorization process. This incredible amount of time and energy translated into hundreds of thousands of dollars in staff time to build the institution and processes, document and validate the components in reports and site visits, and do the legwork to complete each phase. These costs are in addition to the fees and site visit travel reimbursements paid by the institution seeking accreditation.”

The University of Austin (Texas)

The University of Austin launched in 2021 with the backing of several major public figures and a telling tagline: “We can’t wait for universities to fix themselves. So we’re starting a new one.” The school aims to offer an alternative to the elite institutions of higher education that its founders believe have lost their way. Unlike College Unbound, which targets adult learners, the University of Austin enrolls mostly recent high school graduates through a competitive admissions process.

In addition to offering a favorable environment for free inquiry, the school aims to fix the economic problems that bedevil higher education, including excessive costs and poor student outcomes. The school plans to jettison some of higher education’s traditional sacred cows. Faculty do not need terminal degrees in their fields, nor will they earn tenure.

Though the school launched in 2021, it spent a year preparing its initial application to the Texas Higher Education Coordinating Board, the relevant state authorizer. Though Texas has an innovation-friendly reputation, the state has little recent experience approving large, independent, degree-granting institutions with no religious affiliation. Michael Shires, the school’s chief of staff and vice president of strategic initiatives, says that Texas and other states “have layered a lot of new rules and regulations on top of the laws” governing state authorization, and that “one of the challenges we had was finding paths and interpreting the code with all these new layers on top of it.”

The school submitted its initial application in December 2022. The application was 1,200 pages long, not counting 700 to 800 additional pages of supporting documentation. Texas granted the University of Austin initial approval in October 2023, after ten months of official consideration and more than a year of preparation. Even then, Texas’ regulatory restrictions meant that the institution was only allowed to launch with a single degree program.

With approval from the state, the school enrolled its first undergraduate class of 100 students in fall 2024. But that wasn’t the end of its regulatory approval journey.

Like Rhode Island, Texas requires degree-granting institutions to be accredited. Therefore, after Texas gave the University of Austin its initial approval in 2023, the state required the school to secure full accreditation within eight years. The University of Austin is still in the process of seeking accreditation from the Middle States Commission on Higher Education, and expects to complete its first accreditation cycle between 2028 and 2031—just barely meeting the state’s deadline.

Accreditation may present challenges to the school’s business model. Accreditors tend to “benchmark” new schools against existing ones—for instance, accreditors might look at how many administrative staff other colleges have to decide whether the University of Austin has a sufficient number. But according to Shires, the University of Austin is “trying to look different than other institutions…. It’s very important to us that we’re allowed to hold on to that mission, and that we’re not going to be expected to go out and match whatever Baylor or [the University of Texas] is doing.” The school’s lack of a terminal degree requirement for faculty—which aims to help recruit professors from outside academia—may also clash with how accreditors have traditionally interpreted their standards around faculty qualifications.

The University of Austin is likely to overcome many of these challenges. The school has nearly $250 million in philanthropic funding. Texas Governor Greg Abbott has signaled his support. But its case nonetheless illustrates the steep regulatory barriers that aspiring colleges—particularly those without considerable resources or political connections—face in getting off the ground.

Four principles for state authorization reform

Historically, states took a greater interest in their roles as authorizers of colleges and universities. But that has changed over the past several decades as federal funding for higher education ballooned and state governments began to outsource quality-control responsibilities to accreditors. Yet states retain considerable power to shape postsecondary education within their borders in line with state values and aspirations.

Specifically, states can leverage their roles as authorizers to reduce barriers to entry and promote competition in the postsecondary education space, while maintaining important consumer protections and quality controls. The following four policy recommendations lay out a roadmap for states interested in pro-competitive state authorization reform.

Authorizers should reduce focus on inputs, but maintain consumer protections

Authorizers have both explicit and implicit inputs-based requirements for institutions seeking approval to operate, which can range from minimum square footage in classrooms to terminal degree requirements for faculty. Some authorizers even micromanage the content of courses. These inputs-based requirements necessitate the submission of long applications, which can take months for institutions to prepare and even longer for authorizers to process.

Inputs-based requirements may also prevent new institutions from making potentially innovative alterations to the standard higher education model. Moreover, the long time horizons can be a barrier to entry, as institutions must expend resources for years even as they cannot enroll students or raise tuition revenue.

Authorizers should instead endeavor to reduce their focus on inputs, accelerate approval processes, and make yes-or-no decisions on new institutions’ applications relatively quickly. Kelly, James, and Columbus suggest “moving away from an input-based, compliance-driven approach” which presents unnecessary burdens on institutions and strains the limited capacities of authorizing agencies.

Many authorizers agree with the need to move faster. “Academic agility will allow Texas higher education institutions to adapt to the changing workforce landscape, preparing students for in-demand jobs and emerging and essential industries,” says David Troutman, the Deputy Commissioner for Academic Affairs at the Texas Higher Education Coordinating Board. “Regulators can support this agility and alignment by streamlining program approval processes so institutions can respond quicker to workforce needs.”

Authorizers can accelerate timelines by focusing on markers of “seriousness” in the applications of new institutions. Financial capacity is one such marker. Surety bonds, though they can represent a financial burden in some cases, demonstrate an institution’s ability to raise sufficient funds to carry out its mission. As Kelly, James, and Columbus write: “Because fly-by-night providers will be less able to attract the necessary investment or credit from the private market, such a requirement can help separate the serious from the unscrupulous.”

But the foremost markers of seriousness are consumer protections. David Tandberg, Ellie Breucker, and Dustin Weeden enumerate key consumer protections that authorizers should look for. Does the institution have a robust tuition refund policy? A credible process for handling student complaints? A teach-out plan that will allow students to finish out their programs if the institution closes? States can also consider using tuition recovery funds, funded fully by the institutions themselves, to make students whole when schools do not live up to their promises.

Innovation requires experimentation, and experimentation will occasionally lead to failure. Authorizers should ensure that students are protected if a new institution’s model doesn’t work out, rather than regulating inputs so heavily that new models cannot even be tried.

States should decouple accreditation from authorization

Institutions frequently cite accreditation as the most burdensome corner of the higher education regulatory triad. Gaining initial accreditation takes several years—usually longer than state authorization—and costs can run into the hundreds of thousands or even millions of dollars. Despite these costs, it’s not clear what quality-control benefits accreditation provides. FREOPP research has found that every major accreditor approves dozens of degree programs with no financial value, and accreditors have faced sanctions for failing to recognize obvious problems at their member institutions.

While most states require accreditation as a condition of state authorization, eight do not, and those states do not have an obvious plague of low-quality colleges. The other 42 states should consider dropping accreditation as a condition of state authorization, so long as new institutions meet the other requirements for authorization in the state.

Accreditation would still be required for institutions seeking federal Title IV funding (Pell Grants and student loans), and states might consider continuing to require accreditation for schools that wish to participate in state-based financial aid programs. But there is no reason that an institution that has no immediate desire to seek taxpayer funding should have to undergo the rigamarole of accreditation. If students and other private interests wish to use their own funds at an unaccredited institution which satisfies other basic regulatory requirements, state governments should not stand in their way.

Relieved of the burden of accreditation, new institutions would be able to operate with state authorization alone. This would enable many to get off the ground faster, and would give them breathing room to build up a track record of success. An institution with several years’ experience operating in the market might then be in a better position to eventually seek accreditation and taxpayer funding, as it could point to a solid performance record instead of having to justify a possibly untested model to an accreditor. Even if accreditors remain a key corner of the triad, allowing institutions to operate without accreditation could mitigate the system’s anticompetitive nature.

Authorizers should use student outcomes data to evaluate existing institutions

Authorizers should deemphasize inputs, and focus more on consumer protections, when making initial approval decisions for new institutions. But state agencies must also reauthorize institutions periodically. Once an institution has been active for several years, it likely has a performance record for the authorizer to examine. Recent advances in data collection and aggregation leave state agencies with few excuses not to do this.

Zakiya Ellis, the former education secretary of New Jersey, is a major proponent of this approach. “Reauthorization processes should evaluate institutions based, in part, on student success metrics using College Scorecard data,” Ellis writes, referring to the federal dataset which disseminates student outcomes data at the institution level. “Graduation rates, transfer rates, economic outcomes (including for non-graduates), and student loan repayment rates are all vital indicators. Institutions with persistently poor outcomes could face sanctions or even lose their reauthorization status.”

States can also leverage their own databases to assess institutional performance. Forty states now have longitudinal data systems, which track individual students between different administrative datasets (for instance, by linking students’ college enrollment records to wage data from state departments of labor). States should leverage these data systems in the reauthorization process and augment them to increase their utility to authorizers.

Granted, not every institution defines success in the same way. While most students pursue postsecondary education to increase their earnings potential, some institutions may have different missions. (Theological seminaries are one example.) Nonetheless, institutions that do not see labor market success as a goal should be clear upfront about their mission and work with authorizers to develop alternate metrics to gauge success.

While state authorizers should ensure a low bar for market entry, there should not be unnecessary hurdles to starting a new institution. Low barriers to entry are entirely consistent with high standards for extant institutions. Authorizers should give new institutions a chance, but should not be afraid to hold them accountable.

Authorization should be a priority, not an afterthought

Many of the reforms suggested in this section will require the attention of full-time staff at state authorizers. But for too many states, authorization is an afterthought that receives little attention from state governments. State authorizers are often folded into other agencies that have more pressing responsibilities. Many states devote less than one full-time employee to authorization.

Michael Meotti, executive director of the Washington Student Achievement Council, notes that state regulatory agencies for other industries have more staff and a more defined sense of responsibility around regulation. “Our state insurance agency has almost 300 employees. Regulation is the agency’s mission. I suspect that virtually all these employees are involved in regulatory activities or support,” says Meotti. While his agency has 130 employees, most work on other aspects of higher education policy. “Our Consumer Protection team has five staff working on the state authorization function,” he notes.

Advocates of freer markets may be loath to give bureaucrats more resources. But past a certain point, under-resourcing regulators can be counterproductive. A dearth of staff capacity draws out the timelines for approving new institutions. Worse, it can lead authorizers to outsource their regulatory responsibilities to accreditors, which represent a much more significant barrier to entry.

States should consider dedicating more staff exclusively to authorization duties, rather than tacking authorization on to the responsibilities of other offices. However, any increase in resources for authorizers should be paired with stipulations that authorizers act more efficiently, for instance by shortening approval timelines for new institutions and cutting down on paperwork requirements. If state authorization reform is to succeed, the staff tasked with implementing the reforms will need sufficient resources to do their jobs.

Conclusion

Barriers to entry are a common economic problem, but their applicability to higher education is underappreciated. The static market for traditional colleges and universities has produced hefty tuition hikes and arguably slowed the pace of innovation. State authorization agencies represent a key barrier to entry in this market. Excessive inputs-based requirements, long approval timelines, and reliance on accreditors make the state authorization process more cumbersome than it has to be.

Fortunately, innovation-minded states can explore several policy options to make their state authorization systems less anticompetitive. States should dismantle inputs-based authorization requirements while maintaining and expanding consumer protections. Accreditation should no longer be a condition of authorization. Authorizers should use student outcomes data to conduct ongoing evaluations of old and new institutions alike, and they should have sufficient resources to carry out these missions.

With college enrollment declining and Americans less likely to tell pollsters they believe in the value of college, higher education is in need of a shakeup. A more dynamic higher education system is one where innovative models flourish and colleges compete to cut tuition rather than raise it. State authorization reform is one path to that open and thriving market.