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It’s Higher Education Day at Pickings. First, why does it cost so much? The WSJ Weekend Interview asks Richard Vedder.
… Mr. Vedder, age 72, has taught college economics since 1965 and published papers on the likes of Scandinavian migration, racial disparities in unemployment and tax reform. Over the last decade he’s made himself America’s foremost expert on the economics of higher education, which he distilled in his 2004 book “Going Broke by Degree: Why College Costs Too Much.” His analysis isn’t the same as President Obama’s.
This week on his back-to-school tour of New York and Pennsylvania colleges, Mr. Obama presented a new plan to make college more affordable. “If the federal government keeps on putting more and more money in the system,” he noted at the State University of New York at Buffalo on Thursday, and “if the cost is going up by 250%” and “tax revenues aren’t going up 250%,” at “some point, the government will run out of money.”
Note that for the record: Mr. Obama has admitted some theoretical limit to how much the federal government can spend.
His solution consists of tieing financial aid to college performance, using government funds as a “catalyst to innovation,” and making it easier for borrowers to discharge their debts. “In fairness to the president, some of his ideas make some decent, even good sense,” Mr. Vedder says, such as providing students with more information about college costs and graduation rates. But his plan addresses just “the tip of the iceberg. He’s not dealing with the fundamental problems.”
College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. Vedder, and the president’s new plan could exacerbate the trend. By Mr. Vedder’s lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible.
In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans. …
IBD Editors think the president’s proposals are a poor idea.
President Obama says his new aid proposal will make college more affordable. It’s actually an attempt to leverage a government-caused problem to root Washington even more deeply into higher education.
Like most Obama proposals, this one has a surface appeal. “It is time to stop subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future,” the president told an audience of college students in Buffalo, N.Y.
Well, who could oppose that? But, like most Obama proposals, things get ugly once you scratch that surface. …
Minding the Campus had a symposium of five.
It’s called “the Bennett Hypothesis,” and it explains–or tries to explain–why the cost of college lies so tantalizingly out of reach for so many. In 1987, then Secretary of Education William J. Bennett launched a quarter century of debate by saying, in effect, “Federal aid doesn’t help; colleges and universities just cream off the extra money by raising tuition.” Now Andrew Gillen, research director of CCAP–the Center for College Affordability and Productivity–has tweaked the data and produced a sophisticated “2.0″ version of the hypothesis. It’s filled with heavy math, game theory and terms like “inelastic fairly vertical curves.” You probably won’t read it. We know. But it’s important. So here are some smart people who have read it, and have something to say: Peter Wood, Hans Bader, Richard Vedder, George Leef and Herbert London.
Peter Wood: They Are Insatiable
Long before I knew it was called the “Bennett Hypothesis” I knew that colleges and universities increase tuition to capture increases in federal and state financial aid. I attended numerous meetings of university administrators where the topic of setting next year’s tuition was discussed.
The regnant phrase was “Don’t leave money sitting on the table.” The metaphoric table in question was the one on which the government had laid out a sumptuous banquet of increases of financial aid. Our job was to figure out how to consume as much of it as possible in tuition increases. …
Power Line’s Paul Mirengoff posts on the “education reform.”
… While the first elements of Obama’s plan is merely unnecessary, the second element — tying federal assistance to the federal rating system — strikes me as pernicious. First, I doubt the federal government’s ability to rate colleges with sufficient accuracy to justify attaching monetary consequences to its ratings.
Second, Obama’s plan will increase the federal government’s ability to coerce colleges into embracing even more fully a left-wing agenda — e.g., discriminating against whites in admissions and hiring, unfairly disciplining male students based on flimsy allegations of sexual harassment, and so forth.
Third, even if the federal government were able to come up with a reasonable and unbiased rating system, it would still have no business discriminating financially against the families of students who decide to attend colleges they (and the families) believe are better suited to their particular purposes. …
WSJ Editors comment on what colleges will look like with more federal “help.”
… Particularly jarring for Mr. Obama’s fans in the faculty lounge, he talked about them on Thursday in the same disrespectful manner that he normally reserves for entrepreneurs. “And I’ve got to tell you ahead of time, these reforms won’t be popular with everybody, especially those who are making out just fine under the current system. But my main concern is not with those institutions; my main concern is the students those institutions are there to serve,” said the President.
Conservative readers may be tempted to chuckle here. And we concede that this latest Obama regulatory onslaught couldn’t happen to a nicer bunch than the university elite who did so much to elect him. …
… Mr. Obama is trodding a well-worn political path. Politicians subsidize the purchase of a good or service, prices inevitably rise in response to this pumped-up demand, and then the pols blame the provider of the good or service for responding to the incentives the politicians created. Think housing finance and medical care. Now President Obama is attacking colleges for rationally raising tuitions and padding their payrolls in response to a subsidy machine that began in 1965.
That’s when the feds launched a program to make college “affordable” by offering a taxpayer guarantee on student loans. Federal grants and loans have been expanding ever since and it’s no coincidence that tuition prices have been rising faster than inflation for decades. This week the White House noted that since the academic year ending in 1983 tuition and fees at four-year public colleges have risen by 257%, while typical family incomes have advanced 16%.
The better answer is to stop the increases in grants and subsidized loans that Mr. Obama has so greatly accelerated. Let educators, students and their parents decide which courses and campus amenities provide the most educational value. As fervently as many professors abhor the idea of free people operating in a free market, they may decide it’s better than federal politicians running their universities.
Gretchen Morgenson provided a good example of poorly run government programs in Sunday’s NY Times. Her example is a Dept of Agriculture program of loans to businesses in rural areas. Of course it was needed. Don’t you want rural areas to prosper?
CREATING jobs is an essential goal today, given our high unemployment rate. But when job programs rely on taxpayer backing, their success or failure should be clearly disclosed.
For example, the United States Department of Agriculture has called its $1.6 billion business and industry loan program a rousing success. Not surprisingly, the department often trumpets the number of jobs that are expected to result from these loans — figures that it gets from the borrowers themselves. Whether these jobs are actually created, however, is another story.
The loan guarantee program is overseen by the Rural Development unit of the Agriculture Department and is part of the American Recovery and Reinvestment Act of 2009. Rural Development provides loan guarantees of as much as 90 percent to banks or other approved lenders that finance the improvement or development of businesses in rural and high-unemployment areas.
How many jobs were added or saved through the loans is also a crucial measure of the program’s success or failure.
A current success story on the agency’s Web site is that of Carolina AAC, a company that received $10.4 million in late 2010 to build a concrete manufacturing plant in Bennettsville, S.C.
“This project will create approximately 197 new jobs in MarlboroCounty,” the Agriculture Department’s Web site says. Such a figure would make Carolina AAC the program’s third-largest borrower in terms of jobs created.
But Carolina AAC said in a January 2011 news release that only 36 jobs would be created at the project. And even that has not come to pass. Currently, 10 people work at the company, according to Charles Paterno, its managing member. Troubling for taxpayers is that the government backs 90 percent of the loans and they are in liquidation. …