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SOTU
On College Affordability, Obama Swings and Misses

President Obama was right to highlight college affordability at his State of the Union address last night. America’s exploding student loan debt has become a national scourge, helping to hold back consumption and household formation, increasing inequality, and—in the long-run—causing wider trouble as borrowers start to default at higher rates. But his proposed solutions fell short of the mark:

And we have to make college affordable for every American. Because no hardworking student should be stuck in the red. We’ve already reduced student loan payments to ten percent of a borrower’s income. Now, we’ve actually got to cut the cost of college. Providing two years of community college at no cost for every responsible student is one of the best ways to do that, and I’m going to keep fighting to get that started this year.

The first of Obama’s proposed policy responses—extending and deepening student loan subsidies—is likely to make the problem worse in the long-run. One recent study found that federal loans account for almost all of the increase in college tuition over the last generation. As our friend Glenn Reynolds likes to say, “when you subsidize something, the cost goes up.” This is as true of higher education as it is of any other service. This doesn’t mean that the government should get out of the student loan business all at once, but it does mean that, if serious cost reduction is your long-term goal, extending subsidies is not a sustainable strategy.

The President’s second proposed policy, publicly funded community college, is also not a wise allocation of resources. As we’ve noted before, just one in four people who enroll in community college today will have a degree in the next five years. Many enrollees are there for remedial high school coursework. We are not optimistic about pumping more money into an inefficient system that already allows so many students to fall through the cracks.

A better approach would combine tighter criteria for student loan subsidies with regulatory changes that would enable a more dynamic higher education system. A study commissioned by Vanderbilt University found that federal regulatory burdens, which have grown and grown in the last decades, cost American universities around $27 billion per year. Moreover, the federal monopoly on higher education accreditation stifles competition, preventing new and alternative forms of education delivery from getting traction. To his credit, the President has taken steps to support vocational education, but the government could still do more to make room for alternatives to the four-year brick-and-mortar college, like online education.

In higher education as in healthcare, the answer is to be smarter, not merely spend more.

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  • rheddles

    “when you subsidize something, the cost goes up.” This is as true of
    higher education as it is of any other service. This doesn’t mean that
    the government should get out of the student loan business all at once,

    Why not?

    In higher education as in healthcare, the answer is to be smarter, not merely spend more.

    The answer is to get the government out of the transaction. If you wish to redistribute wealth, say so. Otherwise, let people do what they think best.

  • Fat_Man

    If the higher education system is going to be largely funded by the federal government, then rigorous price controls should be imposed on it. No more college presidents who are paid more than the President of the United States.

    • GS

      How about the imposition of the rigorous quality controls, starting with a strong meritocratic selection in admission and retention of students?

      • Fat_Man

        They don’t care about quality, they care about political correctness. They don’t care about meritocratic admissions because they don’t want to have that many Asians.

        They do care about money, so I say squeeze them there.

        • GS

          Heaven willing, Donald Trump will step on the PC tails in a hard way.

  • Andrew Allison

    Um, has he ever swung and hit? The proposal to make community colleges free is simply a way to reduce the absolutely dreadful employment numbers by parking the unemployed in college. The problem which the left appears unable to grasp is that if the recipient of welfare has no skin in the game, the results will be disappointing.

  • GS

    An idiocy, regardless of the economic arrangements around it [cf. The Bell Curve]. Much less than a half of the age cohort belongs in the college. Judging from the past and present experience around the globe, it is about 25% or less. What “college for every American”?

  • Boritz

    It seems like a round about plan to make a doctorate the new bachelor’s degree.

  • Jim__L

    Obama is trying to take to scale a path that individuals have made good use of. I know more than one person who’s come from a modest background, gone to a California community college for two years (where the classes, while not free, are dirt cheap), then gone on to be successful places like UCLA or even MIT.

    I don’t believe that Obama’s ambition will pan out, mostly because his proposed policy is already in place in California, but it isn’t scaling here. It works for motivated individuals; it isn’t working for the crowd.

    There is no reason to believe that getting the Federal Government involved would change that dynamic. Good intentions are not the same as good policy.

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