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The School of Hard Knocks

by Richard Vedder

Obama’s proposals won’t reduce tuition, but markets will

Speaking in Buffalo on August 22, President Obama vowed that the rapid rise in higher-education costs had to stop, and that he would exercise tough love with colleges to help make it happen, including rating the colleges and withholding money from them if they raised fees too much. His speech was filled with strong rhetoric but short on details.

When the smoke clears, I suspect the president will get his wish — a significant slowdown of the rise in tuition fees — but not because of his speech or his actions, although he will no doubt be quick to take credit. In fact, the federal government is a large part of the problem of rising fees. Yet markets work. To be sure, when market signals are distorted by government taxes, subsidies, or regulations, or by an artificial lack of competition, markets function more slowly and less efficiently. Nonetheless, there are powerful forces at work that are at last overcoming the distortions caused by our huge and dysfunctional federal student-financial-aid programs and state-government higher-education subsidies.

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