Uncle Sam Taking Over the College Quad

by Annie Hsiao

Last week, President Obama met with college and state university system leaders at the White House to discuss college affordability and productivity. Called on short notice, the meeting indicates the president’s interest in expanding the discussion from student loans to college costs and quality. Despite initial signs of a ballooning student-debt crisis, the president’s solution to the impending burst in the higher-education bubble and the eroding public confidence in the merits of a college degree is more federal intervention.

No clear policy proposals resulted from the meeting. But participants expect to see the administration propose financial incentives for colleges that increase degree attainment and productivity. This discussion further suggests that the administration’s priority will be to “scale up” policies from one college to large state systems or even universities across the nation.

Despite recent policy changes, college tuition has continued to increase — in the last year, prices are up by 4.5 percent and average student debt is up 5 percent. Student contribution has not increased, however, because, according to the College Board, the federal government has covered the difference. 

Yet this subsidization has not improved quality. Recent reports show that nearly half of all students are not learning in their first two years of college; and the graduation rate is at 40 percent and has not increased in the past ten years. Unemployment for recent college graduates also increased from 5.8 percent to 8.7 percent from 2008 to 2009 and has increased by over 70 percent since 1990.

The president’s proposal to address this burgeoning problem? Secretary Duncan said last week at the Federal Student Aid conference, the largest national gathering of financial-aid administrators, “With higher productivity and better accountability, institutions of higher education can boost both quality and access and constrain costs, all at the same time.”

Accountability has become a euphemism for more regulation and intervention in this administration. But rather than merely “scaling up” federal involvement in higher education, policy reforms should limit the role of the federal government, encourage a culture of transparency in reporting school results, and support state-level reforms for public schools to address college costs and quality.

When it comes to colleges and universities, states are more directly knowledgeable about local needs, as they work closely with their public colleges and universities, communities, local high schools, and other organizations. Over $772 billion is spent annually on post-secondary education and training.  About two-thirds of all higher-education funding comes from state governments, making states uniquely qualified to play a more effective role in improving the quality and costs of college. Why not allow states themselves to deal with public school funding by injecting competition into this system and matching funding to majors and productivity? As China has recently proposed, the country plans to de-fund college majors that produce unemployable graduates, or those programs with 60 percent of graduates who fail to find work for two consecutive years.

The best way for the federal government to encourage best practices without mandating them is to let the states initiate their own reforms. More uniform federal involvement or increased funding will only further subsidize and cushion post-secondary education from a real and functioning market.

For the past 40 years most of the attention in higher-education policy has been focused on college access, taking necessary attention away from the topic of college success.#more# Policy changes to student loans, have not only increased the financial risk for the American taxpayer, but have amplified the potential for student financial distress.

According to a 2011 Moody’s Analytics report, “colleges have been steering students to even larger loans given declines in the value of their endowments and the abundance of relatively cheap credit provided by the government and private sources.” Colleges themselves are encouraging more borrowing, further exacerbating the potential for student default. But government policies have aided and abetted this behavior, enabling colleges to shift the burden to students.

The public has historically endowed institutions of higher education with a sizeable degree of trust and confidence. But because schools have been insulated from real market forces with federal subsidies, they have accumulated an advantage that has now been called into question. Abraham Lincoln said of the First Morrill Act, “The land-grant university system is being built on behalf of the people, who have invested in these public universities their hopes, their support, and their confidence.”  Public hope and confidence in higher education must be restored soon before support is permanently lost.

— Annie Hsiao is director of education policy at the American Action Forum.

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