Opinion | Obama: college affordability using market principles
Published: Friday, September 6, 2013
Updated: Friday, September 6, 2013 00:09
Few topics in contemporary political and social discourse have drawn such broad-based interest from policy-makers, journalists, academics and ordinary families like the unsustainable inflation of college tuition in the past 30 years at American universities. While the actual statistics documenting this trend vary dramatically depending on the criteria used, one thing which the vast majority of commentators in this field of expertise agree on is that the relative cost of obtaining a college education has outpaced inflation in an unsustainable way over the course of the past few decades, jeopardizing the democratic meritocracy in which we as Americans take deep pride.
Recognizing this highly visible trend, President Obama begun outlining an ambitious, but hearteningly pragmatic, plan for bringing spiraling college costs under control this summer. The plan utilizes market principles to achieve a positive social and economic outcome. But before a discussion of his proposed solution(s), it is important to outline the scope and gravity of the problem.
According to Forbes Magazine, if a college tuition cost a student $10,000 in 1986, and if college costs rose at the same rate as the general cost of living, than that student today would pay $21,500 for the same education. However, the heightened rate of college inflation indicates that the same student will actually pay $59,800, or more than 2.5 times the rate of inflation. While in recent years taxpayers have been shouldering some of the burden of these increased costs through increasing federal subsidies in the forms of grants and loans, the recession has eradicated much of that progress through massive cuts in state funding for public universities—whose taxpayer-subsidized tuitions had often in the past acted as a pricing break on their private counterparts through competition. The resulting effect of these changes on American families is stark. According to a report recently released by the U.S. Department of Education, statistics indicate that the average low-income family (as derived by government parameters constituting what is low-income) could expect to be shouldered with a bill equaling 72 percent of their annual income on educating one child at a tertiary level for one year, after calculating net financial aid. While middle and upper class families are better off, only requiring 27 percent and 14 percent of their incomes, respectively, they too have struggled as of late. According to Bloomberg, total American student debt has now passed the $1 trillion mark, and has actually surpassed total credit card debt according the Consumer Protection Bureau. Perhaps more importantly, of the roughly $1.2 trillion owed by American students, over $1 trillion of it is owed to the federal government, and thus leaves American taxpayers liable if the students cannot pay. Nor is the problem an isolated one, as over 2/3 of new graduates have some debt, with the average a sickening $26,000. Compounding the problem, due to a government effort to convince the financial sector to loan money to credit-less youth, bankruptcy protections do not extend to student loans, which cannot be downsized or forgiven through refinancing without proof that the borrower is undergoing what is considered “extreme hardship” (a very challenging thing to prove in a civil court).
President Obama has proposed in principle two different but complementary actions that the federal government can take to at least slow the rate of cost inflation in tuition and the relative impact on family income to a more sustainable level. First, using what authority he already possesses, the President plans to dramatically expand an existing but chronically underutilized option in Federal loans called “income-based repayment” which mandates borrowers pay no more than 10 percent of their post-graduate income for no longer than 20 years, after which the remainder of the debt will be forgiven as taxable income. This program, which already exists, currently benefits less than 10 percent of the students that borrow money from the government to pay for school. Whereas, starting in 2014, it will cover them all. This significant reform will reduce the relative financial burden of student debt on youth through tying the amount repaid with both the amount borrowed AND post-graduate income to mitigate financial hardship and decrease the opportunity costs of obtaining a higher education.
The President’s second, far more ambitious proposal will require congressional approval (which anyone following recent political developments knows is “ambitious” in and of itself) because it involves a fundamental recalculation of how federal aid is disbursed to universities and students. Expanding on an already existing system established in the Higher Education Opportunity Act of 2008, which publishes information about the cost of attending a university for the public’s benefit through the Department of Education, the President has asked Congress to allow the Federal government to disburse aid based on four broad measurements: average tuition, rate of enrolled low income students, retention rate and/or graduation rates, and rate of employment of graduates. Through tying federal aid to the relative merit of institutions and their ability to offer an affordable but high-quality education, the President hopes to draw on capitalistic tendencies of universities to compete for federal money and thus focus more heavily on affordability for their students.
Both of these proposals offer incremental solutions that will mitigate, but certainly not solve the problem of education inflation. The President should be commended for attempting to address this problem, but as always, there is far more to be done. Here’s to hoping that Congress will agree, and maybe help to save us some money when we send our own children to school someday.