The college admissions scandal is coming at a bad time for higher education, which has already seen its reputation tarnished by other issues like student debt, said Sheila Bair, former president of Washington College.
"I really hope colleges understand that their reputations are really on the line here. The public is losing faith and they need to get ahead of this," she said in an interview with CNBC's "Closing Bell" on Tuesday.
"They have to have more transparency around admissions. They need to get ahead of the student debt problem, do a better job to contain costs, [and] find more affordable options for financing higher education," added Bair, a member of the CNBC Financial Wellness Advisory Council and a former chair of the FDIC.
Last week, dozens of people — including actresses Felicity Huffman and Lori Loughlin — were arrested in the admissions bribery scheme. The charges included the bribing of college athletic coaches and having other people take students' admission tests.
However, those standardized tests may not be the most effective gauge of students' abilities, Bair said.
"At Washington College, we actually found that grades were a better predictor of students' success than standardize tests because there are ways to hire people to train you ... to take the test and that's perfectly legal," she said.