Obama’s Higher-Ed Plan Asks for More Government Control

The White House yesterday unveiled what it is billing as an ambitious new plan to tackle college affordability. President Obama’s wish list amounts to an expansion of centralized state control over higher education, containing a hodge-podge of special-interest items masqueraded as reform

First is a government college ranking system to be based on measures of access, affordability and outcomes. Obama hopes to have this system online by 2015 and use it to distribute differential student aid levels by 2018. Students attending colleges with more low-income students, lower tuition and debt levels, higher completion rates, and more successful graduates would be eligible for larger Pell Grants and more favorable loans. Several problems jump out to me. The private sector already offers myriad college rankings systems and does so efficiently. The Forbes-CCAP college rankings provide many of the outcome-based metrics proposed by Obama, so the government system would provide very little marginal value in terms of consumer information, notwithstanding the unlikely circumstance that student records are matched to IRS earnings data. The system as described will favor public colleges because government regulators will fail to account for subsidies such as cash transfers and tax exemption in their comparison of average tuition and debt levels.

Next is a race to the top for higher education, intended to promote competition among the states to offer innovative solutions to college affordability and completion. This is essentially refurbishment of a K-12 policy that has resulted in little more than rewarding individual states for promising to spend more. The beauty of federalism is that it provides a laboratory for policy experimentation. As the President’s agenda indicates, several states (Tennessee, Indiana and Ohio) are already pursuing performance-based funding. If these states experience success, then it is a matter of time before similar policies spread to the other states. Better to allow this to happen organically than for the federal government to push yet-unproven policies.

Obama wants to make all student loan borrowers eligible for income-based repayment, which would cap monthly payments at 10% of income. This will do little to incentivize institutions to manage tuition inflation. Students will be encouraged to take out larger loans without the commensurate risk assessment of not earning enough to repay them, effectively transferring this risk to the taxpayer. Further, IBR favors public-sector workers with shorter repayment periods. Better to let the private sector handle student lending and for government to focus on funding well-qualified, low-income, credit-constrained students.

Obama calls for greater use of technologies such as MOOCs and competency-based degrees. The biggest barrier to technologies becoming more widespread is not a lack of entrepreneurship or student interest, but the regulatory apparatus in place that assigns the accrediting agencies a central role. These private associations are comprised of college officials that serve the interests of their members. They have served as a barrier to innovation and competition in higher education since gaining gatekeeper responsibilities in the mid-20^th century. Regulatory reform needed to unleash creative destruction requires a complete overhaul, not tinkering around the edges with special exemptions and government serving as a crony venture capitalist.

A White House blog describes college education the ticket to the middle class. With rising student debt levels and underemployment becoming the new norm, aided by federal efforts to stimulate demand over the past several decades, perhaps the proper analogy is that it is a lottery ticket to the middle class. If past experience is any indication, growing federal involvement in higher education will exacerbate tuition inflation without a corresponding improvement in quality or outcomes. Better would be to pursue market-based reforms that lessen reliance on the government.