College Costs Will Keep Rising Under Obama Plan

August 27, 2013

Colleges' exploitation of young Americans through rapidly rising and increasingly exorbitant fees is a national scandal that can no longer be ignored. In his recent college tour, President Barack Obama spoke at length about what he intends to do about it, after promising "tough love" on higher education for the last two years, says Richard Vedder, distinguished professor of economics emeritus at Ohio University.

Some of what he proposes is good in principle; some is very bad.

  • Obama wants to expand access to information on colleges by having the Department of Education issue a ranking of institutions relating outcomes to costs.
  • The government has the power, via the Internal Revenue Service, to get some interesting data on college graduates' earnings and providing that data to consumers would be useful.
  • Even independent college rankings -- such as those published by U.S. News & World Report and Forbes -- could be improved with more data.

Tying federal funding after 2018 to the new federal ratings, which in turn incorporate performance measures such as graduation rates, may be a step toward giving colleges incentives to take cost reduction seriously. But the potential for unintended and damaging consequences is high: If the key to federal funding is raising graduation rates, colleges may lower already abysmally low standards.

Without any federal aid at all, cheap or free online courses are appearing all over. The accrediting agencies will probably try to stall this innovation, because it isn't controlled by their member universities.

The president's proposal has one very bad idea: a forgiveness boon for those paying off loans right now. The proposal, limiting loan payments to 10 percent of income, potentially relieves millions of students from repaying part of their obligation. So why not major in fields the economy values least -- anthropology or drama instead of engineering or math -- if you don't have to worry about earning enough to pay off your student loans over a certain period?

The idea simply raises incentives for future students to borrow more money if they know their obligation to pay it back is capped. That, in turn, allows colleges to keep raising costs.

Source: Richard Vedder, "College Costs Will Keep Rising Under Obama Plan," Bloomberg, August 22, 2013.

 

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