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Three Better Ways to Make Higher Education Affordable than the President's Plan

August 28, 2013 J

Last week, President Obama pulled one of his signature moves by announcing a supposedly bold new policy reform while giving only vague details about its implementation. We’ve heard plenty of these half-baked proposals this summer, from his June proclamation of a new “Climate Action Plan” to repeated mentions of a universal preschool proposal, to his desire to end Fannie and Freddie without the details or legislative initiative to pull it off. While no new legislation or regulation has yet come from the President’s wild imagination, the light bulb over his head somehow keeps flashing.

This time, the topic is higher education. The President embarked on a two-day university tour to outline a forthcoming effort from the Department of Education aimed at making college more affordable. While the details are still a bit hazy, what’s clear is that the crux of the plan is a ranking system that will rate universities based on largely financial measures like their tuition, student debt, degree-completion rate, low-income enrollment, student body diversity, and graduate employment rate. While this list seems innocent enough, the federal government would then tie the size of Pell Grants and loan interest rates to how high the student’s institution ranks, making way for more politicization, market distortion and unintended consequences.  This approaches neglects the true drivers of high education costs.

Instead of inflating the higher education bubble even further, the federal government would make more headway lowering the cost of college by giving the market more freedom to correct itself. To be specific, here’s three ways that the federal government could make college more affordable than the President’s plan:

  1. Get the government out of the student loan business.
    From Pell to PLUS to Perkins
    , the federal government now spends over $100 billion per year with the aim of making college more affordable to the masses. Nowadays, almost any student with the drive to attend college can do so at the cost of replaying loans later in life. Unsurprisingly, this easy money policy led to a large increase in demand which in turn led to an even larger increase in price. From 1978 to 2008, the cost of obtaining a college degree has spiked twelvefold. And, as any one of the 44% of underemployed recent graduateswould tell you, a bachelor’s degree doesn’t mean what it used to in 1978, either.

    While getting the government out of the student loan business seems politically impossible today, it would undoubtedly be the most effective reform to lower the cost of higher education. Private loan institutions could better judge whether a student is worth the investment than the federal government, keeping college accessible to low-income students with the drive to succeed while keeping college costs down. Critics may cry that such a privatized system would decrease low-income enrollment, but history proves that just the opposite is true. As Allysia Finley of the Wall Street Journal explains, “Today, only about 7% of recent college grads come from the bottom-income quartile compared with 12% in 1970 when federal aid was scarce.”

  2. Let colleges innovate to make education more affordable.
    Although much of the higher education crisis revolves around Washington, some colleges aren’t waiting for federal action to make their services more affordable. In July, the Oregon State Legislature passed a “Pay It Forward” pilot program that could potentially revolutionize how students afford college. Inspired by a 1955 proposal by Milton Friedman, Pay It Forward would allow Oregon students to attend a public university tuition free and instead pay approximately 3% of their income to their alma mater for the first 20-25 years of their working lives. While the bill has yet to be signed into law and its effects have yet to be seen, more innovation of this sort by private and public universities could hopefully discover a more affordable way to fund college.
  3.  Stop the shaming of for-profit colleges.
    For-profit colleges are not perfect. Studies have shown they have higher dropout rates than nonprofit universities and often cost more too. However, for-profit colleges have made higher education much more accessible to low-income individuals than any federal program. In fact, approximately 19% of low-income students attend for-profit colleges compared to 15% in public universities. That’s because for-profit universities offer a level of flexibility unseen in their public counterparts. Online classes favored by for-profits allow low-income students the freedom to work and study at their own pace.

    Yet, for-profit colleges have been constantly demonized by the Obama administration as “exploiting” their students. On his bus tour, the President slammed for-profits for “making out like a bandit” while so many of their students fail. But, how exactly are nonprofit universities inherently any better? In fact, as the Cato Institute’s Vance Fried pointed out in “Federal Higher Education Policy and the Profitable Nonprofits,” nonprofit universities spend much more on expenses not related to instruction than for-profits. By continually criticizing for-profit universities, the Obama administration is only discouraging the market from providing better access to college than any government could ever provide.

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