Outflanking Democrats on College Costs

Many political debates in the upcoming presidential race will play out this way: The Democrat will offer "X for all," and the Republican will respond, "Do you have any idea how much that's going to cost?" That's the way nearly all political debates are engaged -- usually to the disadvantage of Republicans (and the public fisc).

That's why I wished, while attending a panel on higher education reform sponsored jointly by the Ethics and Public Policy Center and The Bradley Foundation, that every Republican candidate in America had been listening.

The Democrats have a tried-and-true formula (which is actually false, but work with me): They promise to spend more on education to make it more accessible. President Obama has proposed to make community college "free."

The Democrats' approach has created massive debt (student debt now stands at $1.2 trillion, outpacing all consumer debt except mortgages). That's worrisome. But as Andrew P. Kelly of the American Enterprise Institute stresses, that is not the most telling problem with the Democrats' approach.

The deeper problem is that the system Democrats have put in place steers benefits to those who don't need them while leaving many others with no good options.

Due to federally subsidized loans, tuition growth has hugely outpaced family incomes since 1970. Bloomberg reports that over the past three decades, college costs have risen "four times faster than the increase in the consumer price index."

Many lower- and middle-income Americans are aware that college or some post-secondary training would improve their income prospects (the income premium for a college degree is substantial, though stagnant), but their options and their information are both limited under the current system. Forty percent of those who take out loans for college do not repay them. The prospects for those who attend some college but fail to get a degree are dismal. "Some college" counts for little these days, while the debt is no less real.

Some Republicans (such as Rick Santorum) have responded by suggesting that college isn't important. That's hard to square with the data on income and other measures of well-being. (Of course, if our primary and secondary schools were better, college might not be so crucial, but that's a topic for another day.)

Kelly stresses that the tax credits and loans extended under, for example, Obama's "Income-Based Repayment" plan include many graduate students. In effect, all taxpayers wind up subsidizing the educations of people who are or soon will be in the highest income brackets. Elizabeth Warren's loan forgiveness plan suffers from the same disability: It's poorly targeted.

At the same time, 37 percent of federal loans go to students at colleges with very low graduation rates. The schools pocket the tuition, and the students struggle with the debt. Under the current system, there is no incentive -- no skin in the game -- to encourage colleges to help their students succeed and get a degree. If colleges were on the hook for at least part of the loan (under 5 percent has worked in the mortgage market), they would focus more on helping students to graduate. Schools could receive a bonus for Pell grant students to prevent them from limiting their exposure by rejecting poorer applicants.

Beyond reforming the student loan system to target it more narrowly to those who really need it, there are other reforms that would help to make college and/or training more accessible and affordable.

1) Give students (i.e. consumers) more information about how much a degree from a particular institution is actually worth. A number of states including Texas, Florida and California have begun to do this. Graduation rates, jobs secured by graduates and costs should all be available like nutrition information on a granola bar.

2) Permit private financing schemes. Sen. Marco Rubio has endorsed the idea of permitting employers to subsidize the education of students in exchange for the promise of some years of employment (as the armed services do).

3) Smash barriers to entry. Federal rules combined with outdated accreditation standards keep the old brick-and-mortar monopoly alive. Online courses (as Alexander Tabarrok of the Marginal Revolution blog detailed) have the potential to revolutionize education. The benefits of online courses flow particularly to those who cannot, for family or economic reasons, afford to attend traditional colleges. Other possibilities abound, such as specialized boot camps for tech training -- typically an intense 10-15 week skill course run by a consortium of companies.

The current higher-ed system mostly serves the interests of the already well off. If Republicans are smart, they will speak for the rest.

t the same time, 37 percent of federal loans go to students at colleges with very low graduation rates. The schools pocket the tuition, and the students struggle with the debt. Under the current system, there is no incentive — no skin in the game — to encourage colleges to help their students succeed and get a degree. If colleges were on the hook for at least part of the loan (under 5 percent has worked in the mortgage market), they would focus more on helping students to graduate.

Over 30 years ago, I worked in the business office of a college. And I worked with student loans and loan repayment options for students.

If the loan default rate rose about a certain level, the college found sanctions imposed by the federal government. The college was on the hook for a portion of loans not collected. And the college was then limited in the amount of new loans which could be originated, until the loan default rate was brought back down.

Apparently none of these penalties are being applied to colleges and universities anymore. Back in those days, the colleges had a vested interest in seeing that their students paid back their loans. Now apparently there is no such interest.

Just saying, at one time, colleges were very involved in loan billing and collections, and had the vested interest in their students paying their loans.

” If colleges were on the hook for at least part of the loan (under 5 percent has worked in the mortgage market), they would focus more on helping students to graduate. “

In other words, how much is the degree? Here’s the money, give me my degree and don’t worry whether I show up to class or not. I believe they call that a diploma mill.

The alternative financing options are great ideas, but the only way to cut college costs in the long-run is to tear down the administrative superstructure that has been built on top of the faculty at essentially all colleges and universities. Again I point to my own institution: over the past 20 years or so, enrollment has gone up about 25%, the faculty shrunk by 0.4%, the number of administrators and support-staff answerable to administrators has gone up 50%, faculty salaries have barely kept pace with inflation, while administrators regularly got 8% raises (in years with 2-3% inflation).

It is also from the administrative superstructure, not the leftist faculty, that most of the politically correct rot at universities emanates. Yes there are rotten programs like [name-of-affimative-action-beneficiary-group] Studies, but they don’t run “sensitivity training workshops”, “sex-positive” orientation activities, and the like, these are the deformed brain-children of Associate Deans of Student Life, Vice-Provosts for Diversity, Deans of Housing and Dining, and other folks occupying positions that really shouldn’t exist at all, even were they staffed with devotees of the classical university as conceived by Cardinal Newman, rather than left-wing loons.

And most of the outrageous increase in tuition is from bloated, progressive administrations. If colleges are to be funded by tax dollars and students/families going into debt to the federal government, we should make the colleges follow the “Obamacare” 80/20 rule. The Democrats thought this was fabulous to do to “greedy” medical insurance companies.... 80% of all revenue has to be spent directly on claims, no more than 20% on overhead, employee compensation and cost of doing business.

If colleges had to follow that rule then 80% would have to be spent directly on students and classroom instruction, no more than 20% on administrative costs and compensation.

Hoist the progressives by their own petard.

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