August 22, 2013 10:25AM

Obama to Control the Price of Ivy?

Superabundant federal student aid has done a huge amount to get us into our bankrupting college mess. To get us out, today President Obama will propose, essentially, "soft" price controls. But they will likely leave the root problem intact while, if anything, adding new kinds of woe.

On his college bus tour, President Obama will propose that Washington start publishing ratings of schools based on such measures as average tuition, graduation rates, debt and earnings of graduates, and the percentage of a college's students who are low-income. The ratings would also "compare colleges with similar missions." Ultimately, the president will propose that the availability of aid be partly conditioned on the new ratings.

Let's be clear: The price of college is almost certainly far higher than it should be, fueled largely by federal aid that essentially tells colleges "charge whatever you want -- we'll give students the money." That's a major reason that average, inflation-adjusted prices have more than doubled in the last 30 years. And it is good that the president, and many others, are essentially acknowledging the inflationary reality of aid. But will price controls help or hurt?

Perhaps the first question is, will the controls actually lower prices? As I've pointed out before, there is abundant, readily available data about colleges, earnings, etc., and it seems to have little effect on college consumption. Why? Many reasons, but there are almost certainly two major ones. First, the Feds will give almost any student almost any amount of money needed to pursue any major. That eliminates the terrific service that private lenders, who need to take decent risks, would provide: telling people when their college decisions are unrealistic, and not giving them the rope to financially hang themselves. The other big problem is that soundbite-driven politicians love to tell everyone they need to go to college, both driving credential inflation -- a degree is often considered an essential even if it has no bearing on the skills one needs for a specific job -- and pushing people into expensive degree programs because they think they are necessary to prosper.

Publishing data -- and the president promises a "Datapalooza" -- simply isn't likely to help much if aid remains. But what about conditioning receipt of aid on a school's rating? That might control prices, but it depends on the specifics of the withholding. In particular, what triggers sanctions -- for instance, what constitutes raising prices too high, too fast -- and what is the punishment per, say, unit of inflation? Alas, while he suggests conditioning Pell Grant and loan terms and amounts on the ratings, the president ultimately punts on these crucial matters, saying that he will convene lots of hearings to work out lots of details, and a final decision won't be made until 2018.

At least in the near future, then, federal price controls won't likely exert big, downward pressure on college costs. And despite the huge problem of tuition hyperinflation, that is probably a good thing.

Looking at the ratings criteria, it is pretty clear that private colleges -- which can't keep sticker prices artificially low by taking taxpayer dough upfront -- will look disproportionately bad. That may be mitigated somewhat if private institutions are compared only to other private institutions, but even if that is the initial format how long will it be kept? And will for-profit schools -- which primarily seek to furnish education for "gainful employment" -- be compared to community colleges, which have a similar mission but are much more heavily subsidized upfront? (And which, according to federal data, appear to perform significantly worse than for-profit schools?)

There are also serious problems with making debt and earnings the ultimate end points for judging success or failure. First, on what time frame do you base earnings? One year after graduation? Five years? Ten years?  And what about people who are happy to take on debt to study subjects that aren't highly remunerative but are nonetheless rewarding? As long as the borrowers pay those debts off, why should Washington decide that the institutions are less worthy choices than other schools? Of course the answer is that the Feds are paying, but it is the paying that is the problem, and using that power to "manage" higher education only compounds the ills. Finally, collecting big data, as we all now know, opens us all up for invasions of privacy, as well as empowering even more intrusive federal management to decide who should major in what and where they should do it. Indeed, there are serious cradle-to-grave implications for all of this when coupled with the data collection driven by Race to the Top and other federal education laws.

Finally, there is the problem of judging schools based on how many low-income students they enroll. The unfortunate, but pretty well documented reality is that many low-income people enter higher education, incur big costs, but disproportionately don't finish. This is no doubt a function of many things -- bad K-12 schools, a greater need to work while in college, disproportionately attending weak institutions -- but encouraging schools to simply enroll more low-income students won't solve these problems. And conditioning aid amounts on graduation rates for such students won't ultimately help. Yes, graduation rates might go up, but colleges could easily pass students along, or push them into easier majors, or do other things that keep the schools out of trouble while giving out largely worthless degrees.

Thanks in large part to federal aid, the price of college has risen astronomically, kneecapping students and taxpayers. Price controls will only mask the root problem while creating new pains of their own. Only phasing out student aid -- eliminating the root problem -- will get us the higher education system we need.