President Obama touted his fed-ed track record and suggested an even bigger role for government in his State of the Union last night. “For less than one percent of what our Nation spends on education each year, we’ve convinced nearly every State in the country to raise their standards for teaching and learning—the first time that’s happened in a generation,” the President stated. 

In reality, his policy amounts to a cash-for-compliance deal—with no compelling evidence that the feds know better when it comes to academic achievement. On the contrary, a strong case can be made that the President’s touted national standards are weaker than many states’ standards. (See here, here, here, here, and here, for example.)  Things aren’t much better on the college front, either. Under the guise of eliminating the middle man the feds have taken over college student loans. 

But U.S. debt now equals the national economy. If the feds can’t keep their own financial house in order, how do they intend to keep American schoolhouses and colleges solvent, much less performing? A closer look at the money indicates it’s time to change who’s in charge of education dollars.

Federal, state, and local funding for public elementary and secondary schools now exceeds a half trillion dollars. That works out to more than $12,000 per student in current 2011 dollars. The average pupil/teacher ratio is 15 students, or $180,000 per classroom.  So why are “thousands of teachers,” as the President said, who make an average salary of nearly $55,000, being laid off? One explanation is that sixty years ago, teachers outnumbered other school staff by more than two to one. Today, schools typically employ as many non-teachers as teachers—or less in 21 states. Meanwhile, the median salary for school administrators is around $84,000, and even higher for superintendents, at or around $100,000

If government K-12 subsidies were directed to education savings accounts (ESAs) instead of schooling bureaucracies, parents could choose to pay for the schools of their choice. Schools would have to compete for their children and their education dollars, and they would have powerful incentives to keep costs down and performance up—in large part by paying their best teachers more and cutting back on administration. With $12,000, parents could choose public schools or private schools, where tuition averages less than $9,000 in 2011 dollars, and use the remainder for other educational purposes such as tutoring or saving for college. The same approach should be applied to higher education.

A recent analysis indicates that over a fifteen-year period postsecondary administration grew more than twice as much as instructional staff. This is significant since dozens of mid-level and senior-level administrative positions command six-figure salaries, compared to the relative handful of faculty positions that do. Increased federal subsidies did little—if anything—to keep college affordable. Understanding how typical higher education institutions are financed helps explain why.

On average, public, four-year institutions receive nearly $37,000 per undergraduate in 2011 dollars, consisting of roughly: $11,400 in self-generated income and gifts; $8,000 in government grants and contracts; $7,400 in tuition; and about $1,000 in other revenue. While most of that revenue is designated for specific purposes, such as ongoing capital projects or research, general local, state, and federal appropriations make up the remaining $9,100. 

Instead of governments directing that portion in lump-sum amounts to institutions, those funds should be directed to undergraduates in the form of annual performance grants. Students who complete their programs in four years would not have to pay back their grants; those who don’t, would. Directing $9,100 to students would incentivize them to find the best programs at the best price. Importantly, the onus would be on institutions to keep costs and tuition prices down over the long term—without the federal government imposing price controls or artificially low interest rates on loans.

As Governor Mitch Daniels (R-IN) said in his response to the State of the Union, “In word and deed, the President and his allies tell us that we just cannot handle ourselves in this complex, perilous world without their benevolent protection.  Left to ourselves, we might pick…the wrong school for our kids; why, unless they stop us, we might pick the wrong light bulb!”  Given government’s management of schooling thus far, it’s time to put parents and taxpayers back in charge.