Obama’s Higher Education Reforms Doomed to Fail

February 1, 2012 • Commentary
This article appeared in Investor’s Business Daily on February 1, 2012.

Usually low‐​tier, last week President Obama signaled in both the State of the Union and a University of Michigan speech that higher education will loom large in Campaign 2012.

With Americans outraged over skyrocketing prices and student debt, it makes sense. Unfortunately, Obama’s proposed solutions aren’t similarly sensible.

In his speeches, the president talked tough about reining in colleges that raise prices at breakneck speeds, casting much needed attention to a decades‐​old problem.

But decrying symptoms doesn’t cure a disease. That requires attacking root causes, which is where Obama fails: Rather than assault ever‐​expanding student aid, which practically begs colleges to inflate prices, the president wants to increase aid while imposing weak price controls on schools and states.

Obama isn’t totally off, of course, in reasoning that colleges largely set their own tuition, so one way to control prices is to pressure schools. And he’s right that states tend to slow funding for public colleges during bad economic times.

But how is it colleges can raise their prices at incredible rates and still get people to pay?

Because students use lots of money belonging to other people, and Washington ensures that the funding meets ever‐​ballooning bills.

Indeed, in 2010 the federal government disbursed roughly $140 billion in financial aid to students, a staggering amount that has exploded from roughly $30 billion, adjusted for inflation, in 1985.

And those tightfisted states?

According to data from the State Higher Education Executive Officers, inflation‐​adjusted state and local allocations to public institutions actually rose from $69.2 billion in 2000 to $74.9 billion in 2010.

Gov’t Spending Up

In that same time, however, inflation‐​adjusted tuition and fees at public four‐​year colleges increased from $4,586 to $7,889.

Schools hiked their prices despite state and local appropriations rising.

Corroborating that cheap states aren’t the primary drivers of college costs are private institutions. They haven’t lost big state and local subsidies because they’ve never gotten them, yet they increased real prices from $21,013 in 2000 to $28,254 in 2010.

Still, on a per‐​student basis state and local funding has been decreasing, because enrollment has significantly grown.

Such losses might be regrettable were students graduating and moving on to high‐​paying jobs. But they aren’t.

According to the federal Digest of Education Statistics, the latest six‐​year graduation rate for public four‐​year programs is a dismal 55 percent. In addition, about one‐​third of bachelor’s holders are in jobs that don’t require degrees. Finally, real earnings for people whose top attainment is a bachelor’s have dropped over the decade.

Simply put, there are too many people in college. Unfortunately, to deal with these realities the president is proposing to increase aid, to which he’d couple a few soft price controls.

Too Many Students?

He proposes, for instance, increasing spending on Perkins Loans, Work Study, and Supplemental Educational Opportunity Grants to $10 billion, but giving less money through those programs to colleges that, according to the White House, “show poor value, or… don’t act responsibly in setting tuition.”

The president would also create a $1 billion “Race to the Top” that would “incentivize” states to, among other things, “maintain adequate levels of funding for higher education.”

The White House doesn’t define “adequate,” but the implication is clear: Spend more taxpayer money, get more taxpayer money.

Ultimately the plan is a stinker, with the disaster‐​exacerbating aid increase the most likely part to pass. Few in Washington can resist doling out “free” money.

And the price controls?

Such controls are almost always bad, distorting supply and demand. But given the government‐​fueled Ivory Tower excess, perhaps weak controls would be helpful, at least in the short term.

But the ones proposed would have little power. Even plussed‐​up to $10 billion, the programs the president would employ for leverage would be dwarfed by Pell Grants, Stafford Loans, and tax incentives, which tally in the hundreds of billions. Most colleges could more than make up for slight Perkins or Work Study losses with other aid.

And Race to the Top? If it’s at all like its K-12 cousin, it’ll be a dud. Lots of states made huge fusses to get the money, but since it’s been awarded the winners have shown little urgency to implement their promised reforms.

It’s good that the president is focusing on higher education. But his remedies would do nothing to cure the disease.

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