Right-sizing the bloated ivory tower

 

President Obama deserves credit for using his bully pulpit to address the crisis in college affordability.

Especially admirable is his insistence that institutions must control their costs, instead of jacking up tuition and passing the expense on to students, as they have for decades.

It’s a message courageously directed at a portion of Obama’s own political base: the progressive types who run most campuses and who would much prefer some sort of state and federal bailout to painful budget-cutting.

I wish the president’s higher-ed speech in Buffalo last week had specifically cited the bloated ranks of highly paid campus administrators, but he did forthrightly say that “not enough colleges have been working to figure out how do we control costs, how do we cut back on costs.”

Unfortunately, Obama’s policy prescriptions — more aid and loans to students, coupled with pay-for-performance bonuses for schools — range from tepid to counterproductive.

His headline idea was to have the Education Department rank institutions by “value” and, eventually, to link schools’ share of federal student aid to the rankings.

Rep. John Kline, R-Minn., chairman of the House Committee on Education and the Workforce, frets that “imposing an arbitrary college ranking system could curtail the very innovation we hope to encourage — and even lead to federal price controls.”

That’s a phony issue. With $220 billion in state and federal money flowing into higher education each year, it’s not exactly a free market; it’s perfectly reasonable to talk about leveraging Washington’s market power. Or do Republicans think we should keep shoveling taxpayer dollars into higher ed, no strings attached?

Effectiveness is the real shortcoming of the president’s idea. Consumers can never have too much information, so, by all means, create a federal scorecard that students and parents can consult along with the U.S. News and World Report ratings and whatever else.

But “value” in education is notoriously difficult to define, much less quantify, so it’s likely that schools would figure out how to game Obama’s new system, assuming they don’t lobby it to death first.

As for student aid, what the president can’t bring himself to admit is that federal tuition subsidies — whether Pell grants or cheap loans — have contributed to the problem.

At Buffalo, the president boasted of lower student loan interest rates and said that, on his watch, many students’ repayments have been capped at 10 percent of monthly income; he proposed expanding eligibility for this benefit.

A White House fact sheet touted the $900 increase in the maximum Pell Grant under Obama, as well as the American Opportunity Tax credit, initially enacted as part of the 2009 stimulus bill and newly extended through 2017.

These benefits do not make college “more affordable,” as Obama often says; they simply fuel the tuition price spiral. Aid renders families shopping for college less sensitive to price, thereby enabling institutions to raise tuition with impunity.

Obama’s Buffalo speech roughly coincided with the publication of a working paper by the National Bureau of Economic Research that modeled the effects of a $2,000 increase in the maximum federal tuition grant: “Overall, the federal aid increase fails in significantly increasing college attendance, with much of the increase instead bidding up college expenditures and tuition,” the four economists concluded.

The biggest effect was at private institutions, the economists estimated, which would capture about 40 percent of the hypothetical aid increase, through a combination of higher tuition and reduced in-house financial aid.

We need more hard-nosed thinking about federal aid to education than Obama is offering. Yes, aid undoubtedly deserves much credit for the fact that 30 percent of adult Americans had a bachelor’s degree in 2011, up from just 5 percent in 1947, and there is a role for government in helping qualified, needy students.

Yet federal dollars have also insulated incumbent faculties and administrations from market forces, leaving them ill-prepared for a new reality marked by slow growth in family income, tighter state and federal budgets, and rapid technological change.

In a January report, the credit-rating agency Moody’s described the economic outlook for higher education as “negative.” For the first time in decades institutions see their “pricing power nearly exhausted,” Moody’s reported, as families balk at high tuition despite Obama’s student-aid increases.

Meanwhile, schools have hardly changed the “traditional higher education cost structure,” with its “guaranteed employment through tenure and continual investments in student services and capital facilities,” Moody’s noted.

In other words, higher education is already in the early stages of what could be a historic shakeout. Policy tweaks may help here and there, but mainly Washington should let the shakeout run its course.

Charles Lane is a member of The Washington Post’s editorial board.

© 2013, The Washington Post

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