Speaking on Friday at the University of Michigan, President Obama declared, “I want this to be a big, bold, generous country where everybody gets a fair shot, everybody is doing their fair share, everybody is playing by the same set of rules. That’s the America I know. That’s the American I want to keep. That’s the future within our reach.” How did the President propose to achieve his goal? The wrong kind of federal intervention into higher education with the goal of bringing down the cost of attending college.
The President is right to highlight the rising cost of higher education. Tuition and fees continue to shoot through the roof, now exceeding $17,000 per year, rising on average 8.3 percent at public universities this year. That means medium-income Americans are struggling to send their kids to college, and graduates are leaving school with monstrous debt. Last year in America, total student loan debt surpassed credit card debt. The total bill is expected to exceed $1 trillion this next year, and in 2009, 55 percent of graduating bachelor’s degree students at public colleges were in debt, with an average indebtedness of $19,800 ($26,100 for private college graduates, 65 percent of whom were in debt.)
One of the President’s solutions to the problem? Conditioning the amount of federal campus-based aid to colleges to slow down tuition. What the President ignores is that college costs have increased 439 since 1985, despite a 475 percent increase in federal subsidies such as Pell Grants. In other words, more federal funding hasn’t decreased the cost of attending college.
The Heritage Foundation’s Stuart Butler explains in National Affairs that the increasing cost of education — and the resulting debt — will make it increasingly difficult for low and moderate-income Americans to afford the cost of college and that this burden, combined with an emergence of new technologies that breed alternatives to the traditional university model, is laying the groundwork for a revolution in higher education:
Today, competitors are exploring markets that are ill-served by the traditional model, such as working Americans who want to enhance their skills and lower-income potential students looking for much cheaper degrees. Meanwhile, rapid change in information technology is giving creative new entrants a growing technological edge — an essential precondition for transformative change.
The most obvious technological threat to the comfortable world of higher education is online education. Online learning changes the entire relationship between student and teacher; it enables information to be transferred, and student performance to be monitored, at a fraction of conventional costs. Often called “distance learning,” online education has the potential to completely upend today’s established universities.
Butler writes that a fundamental restructuring of higher education with dramatically lower costs and increased flexibility for millions of students would be a great benefit to the United States. More Americans would have access to higher education, thereby increasing their mobility and value — and hence their earnings — in the work force. But that doesn’t mean that government’s heavy hand should be used to spur on this innovation, though it may have a role in ensuring quality where taxpayer dollars are at stake. Moreover, there are concerns that established institutions could use government rules to measure “quality” (as the government defines it) to block new entrants and competitors in the market, thereby actually decreasing choice and innovation.
When it comes to helping Americans save for college and improve the debt burden of graduates, and avoid incurring so much debt, there are steps Congress can and should take. One is to remove the double taxation of all savings, including savings for college. Another is to give “human capital” investments in college education similar tax benefits to investments in physical capital. Heritage’s Saving the American Dream plan does that. It would end the taxation of savings and it would allow all families to take a tax deduction for higher education costs, capped at the equivalent cost of four years in a state college. Doing so would encourage families to save for college, rather than taking on more debt.
America’s higher education system has reached a tipping point, and with its astronomical costs for students, the system is bound to crash as innovators enter the marketplace and offer alternatives for college-bound students. Rather than prop up a failing system, the federal government should help families save for their children’s futures while also stepping back to allow the higher education revolution to unfold.