Obama, on bus tour, to unveil new strategy to curb college costs

President Obama is using the slow August news cycle to call attention to an issue that has long been a focus of his: college affordability.

As he begins a bus tour in upstate New York Thursday, in which he plans to stop at three colleges and one high school, Mr. Obama has promised to unveil a plan “to make college more affordable, tackle rising costs, and improve value for students and their families.” The plan links student aid to a new college rating system that measures outcomes for students, such as affordability, graduation rates, and earnings of graduates.

In a letter e-mailed to supporters Tuesday, Obama noted that average tuition at a public four-year college has more than tripled over the past three decades, and that the average student today graduates with more than $26,000 in debt.

“Just tinkering around the edge won’t be enough,” he wrote, noting that his plan may not be popular with “some who've made higher education their business.” “We’ve got to shake up the current system.”

Between 1982 and 2012, college tuition and fees have risen, on average, by 603 percent, according to data compiled by the Higher Education Policy Institute. Over that same period, the Consumer Price Index has risen 130 percent, and median family income 148 percent.

It’s a cycle that’s tough to break: Students face more pressure than ever before to go to college, in an economy in which, increasingly, a post-secondary degree is necessary to break out of minimum-wage territory. Government assistance has vastly expanded to help students get that education, but it also fuels spiraling costs.

Moreover, the struggling economy has only made things worse, as states cut higher-ed spending to balance their budgets, and public universities make up the cuts by raising tuition.

Just what Obama can do to shake up that system is unclear, even if he is able to get Congress to cooperate with him. A major rethinking of the current system – how it’s funded, how we conceive of higher education and who pays for it, and how such education is delivered – is likely needed, but such game-changing solutions are politically difficult.

The Obama plan aims to set up a rating system by 2015 and to start using that system to distribute student aid by 2018.  For students, opting for a highly rated college means access to larger grants and more affordable loans. The aim of the plan is to give institutions an incentive to cut costs and ensure better outcomes for disadvantaged students. But such a plan would be controversial and require complex legislation in a typically gridlocked Congress.

“Part of the reason the federal government hasn’t been able to do anything is less a technical issue than a political one,” says Amy Latinen, deputy director for higher education at the New America Foundation. “The federal government can do a lot. Obama on his own can’t do much.”

While student loans and interest rates often get the most attention – such as the heated debate earlier this summer over the rate on certain subsidized federal student loans – most higher-education observers agree that the more significant issue for family budgets is the skyrocketing cost of college.

Over the past few decades, tuition has risen two to three times the cost of inflation. In the last 10 years, tuition at public four-year colleges has increased about 75 percent, and at private colleges by about 25 percent – all at a time when median family income has fallen. The total amount of student debt has reached $1.2 trillion, and an increasing number of students find themselves burdened by tens of thousands of dollars of debt that they’re unable to repay, and that even a bankruptcy declaration can’t diminish.

According to the latest data released this week from the National Center for Education Statistics, a majority of undergraduates – 57 percent – are now receiving some sort of federal financial aid, up from 47 percent four years ago, the last time the NCES released statistics. Some 42 percent of undergraduates took out loans, up from 39 percent four years ago.

While the federal government ostensibly has little direct involvement with the financing of either private or public colleges, it issues about $150 billion a year in financial aid – all of which plays a key part in the budgets of most higher education institutions, and which comes with few strings attached to the institution.

There has long been a heated debate about the degree to which expanding federal financial aid has fueled tuition hikes and spiraling college costs. Some critics see the huge expansion of loans and grants as directly responsible, saying they provide misguided incentives to college and universities, and essentially shift costs away from the schools to the federal government and the families who are borrowing.

Others agree that tuition would not have been able to rise without the loan programs, but they also believe that the federal aid programs are needed to promote access to higher education. Still others discount the hypothesis entirely as a misguided attempt to get the federal government to reduce much-needed aid to students.

Still, many observers see student aid as the best leverage the federal government has to try to bring college costs under control and – just as important – to encourage better value and high-quality programs in exchange for students’ investment.

Increasingly, notes Ms. Laitinen, people are asking whether college is worth it – which, in her opinion, isn’t the right question. “College on average is unequivocally worth it,” she says. “But that’s on average. It doesn’t get to which program, at which college, at which price, which is what really matters.”

Laitinen and others say the government could start tying its aid – both grants and loans – to some sort of basic performance measures on the part of schools, possibly around cost, completion rates, or quality of education, ensuring that they are offering students a fair value and that students are not taking on debt they’re never likely to be able to repay.

Attaching such strings to federal aid, as Obama is proposing, would be very hard to implement, critics say.

“It would be a massive change in federal higher education policy that would flounder on the shoals of controversy,” says Terry Hartle, a senior vice president at the American Council on Education. Any ranking system, he notes, would depend on which weights are applied to which measures, and would become incredibly controversial as people begin to realize which institutions and states would be winners and which would be losers.

Students in one state might have more eligibility for aid than students in another state, based on how their public universities rank – another wrinkle that Mr. Hartle says would be tough to iron out. 

“This is an easy thing to conceptualize at a very high level, but it becomes far more controversial and contentious the more you try to define it,” says Hartle.

The “stick” approach to the situation – cutting off aid unless colleges curb rising costs – could cause unintended consequences, perhaps leading schools to start favoring students who can pay the full sticker price or sacrificing quality, says Richard Vedder, director of the Center for College Affordability.

But he also sees the escalating levels of loans as the major factor that needs to be changed. He urges government to start cutting back on financial aid, beginning with limiting programs for higher-income students or cutting off the tuition tax credit, which mainly benefits upper-income families. Federal limits on the number of years students can get grants and loans, to give colleges and universities more of an incentive to ensure that students graduate in a reasonable amount of time, could also be an option, he says. 

“You don’t have to kill these programs overnight and say, 'We’re done with it.' That would wreak havoc and cause hardship,” says Mr. Vedder. “But if you don’t do something with these programs in terms of cutting them back, these programs are going to get bigger and fester.”

He sees little that the Obama administration can actually accomplish to rein in costs, given that the federal government lacks direct leverage (the way loans and grants are currently structured, they go directly to students, not to institutions) and that the main drivers of college cost – state funding levels and human resources – are outside its control.

But others say that, whatever Obama proposes this week, tackling the college-cost question long-term will require big, creative solutions – and that the federal government may well play a role simply in bringing the various players together.

Measures the administration has already taken – to improve transparency, increase the number of Pell grants, and reduce the complexity of the financial aid application process – have all been helpful, says Pat Callan, president of the Higher Education Policy Institute in San Jose, Calif. They’re simply insufficient given the magnitude of the problem.

“None of the state and federal policy infrastructure was designed for an era in which many more people must have higher education and in which demographics suggest that we must get many of the groups we’ve never served before into the mainstream,” says Mr. Callan. “We aren’t going to be able to tweak our way through this.”

Restricting or reducing federal loans and grants just punishes students for the failures of institutions, he says, and any real solution is going to have to involve a far-reaching conversation that involves the federal government, states, and higher education institutions, and gets buy-in from all three.

Technology, as well, may be part of the solution, as institutions begin to find ways to deliver quality education for much lower cost.

Laitinen of New America says one of the suggestions Obama put forward in his budget, which got little attention at the time, could have a lot of potential in the long run: paying nonaccredited providers on the back end for free two-year degrees that are of demonstrably high quality, accepted by employers, or four-year institutions.

Under this idea, the government would provide an incentive for institutions or individuals to put together free programs – perhaps using already existing Massive Open Online Courses (MOOC), but cobbling them together with strong student support, or creating new online courses – that are rigorous and high quality.

“You’d be going from a $35,000 degree to something free for students,” says Laitinen. “It could be a game-changer.”