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August 23 2013

Professor Obama's College Cost Solution: More of What Ails Us

Charlotte Hays

President Obama has popped up with a new solution to the skyrocketing cost of a higher education. Unfortunately, the president’s idea boils down to this: a bigger role for government.

Richard Vedder, director of the Center for College Affordability and Productivity, and an adjunct scholar at AEI, has a word for the way colleges raise their tuition costs: exploitation.

But it’s Uncle Sam’s eagerness to arrive on the scene and pull out his checkbook that has allowed colleges and universities to engage in this kind of exploitation. President Obama, as is his wont, wants more of the same.

Vedder also writes today on Bloomberg that, while there on principle are some good ideas in President Obama’s new rating system for colleges, some are very bad and overall the plan won’t do anything to bring down the costs of higher education. (My IWF colleague Vicki Alger also has an excellent blog on the president's plan.)

I commented yesterday on one ostensibly excellent proposal in the president’s generally bad plan: evaluating the graduation rates of colleges. Some greedy colleges take students they know aren’t really up to snuff and then encourage them to take out loans for what will be a short-lived college career. The loans have to be paid anyway.

Vedder caught something that eluded me: colleges will have incentive to allow students who don’t meet muster to graduate in order to keep the money coming. The president also wants to promote “innovation,” though the government has a pretty dismal record in the innovation racket. The great recent innovation is online courses, something that happened without any government interference.

The president’s very bad idea, according to Vedder, is a plan to limit loan payments to 10 percent of earnings. Vedder writes:

So why not major in fields the economy values least -- anthropology or drama instead of engineering or math -- if you don’t have to worry about earning enough to pay off your student loans over a certain period?

The idea simply raises incentives for future students to borrow more money, if they know their obligation to pay it back is capped. That, in turn, allows colleges to keep raising costs.

But the real problem is that President Obama’s new plan ignores the root of the problem—and indeed merely wants more of what is causing the cost of higher education to skyrocket in the first place:

Obama proposes to ignore or worsen the root cause of much of the explosion in student costs: the federal financial assistance programs that encourage schools to raise costs and that haven’t achieved their goals of providing college access to low-income Americans.

The impact of federal aid to college students has not been quite what was expected:

A new study by Dennis Epple, Richard Romano, Sinan Sarpca and Holger Sieg for the National Bureau of Economic Research suggests that the impact of these aid programs is clearly different from what federal policy makers intended. “We show that private colleges game the federal financial aid system,” they conclude. Every dollar in new financial aid to students leads to about 40 cents less spent by the colleges on institutional financial aid -- so students benefit far less than federal policy makers intended.

So many problems are created by government. The rising cost of higher education is, at least in part, a phenomenon created by the government.

Independent Women’s Forum’s mission is to improve the lives of Americans by increasing the number of women who value free markets and personal liberty. Sister organization of Independent Women’s Voice.
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