Higher-Ed in the State of the Union

Cross-posted from E21

President Obama delivered a mixed performance on higher-education issues in his State of the Union address. As college tuition continues to grow, debt loads increase, and delinquency and default rates on that debt rise accordingly, it’s more important than ever that students come out of college with promising employment prospects.

To that end, we should welcome the President’s recommendation that companies help create community college programs that train students for the workforce. The private sector should assist in building a labor force that is prepared for the 21st century labor market. This is better than elected officials determining which fields of study are “useful” or lucrative, and privileging students in those fields with lower tuition or more generous aid. These companies have better senses of the skills needed today.

However, the President’s comments on the most pressing problem in American higher education–student debt–were underwhelming. He noted that “We worked with lenders to reform student loans, and today, more young people are earning college degrees than ever before.”

Though the President is correct to assert that his administration changed the federal loan program by removing federal insurance for lenders of student loans and making the federal government the primary direct lender of these loans, it’s hard to argue that the loan system has been substantively reformed. For one, total student debt outstanding and the average individual debt load have grown considerably over the past few years. These trends persist because the President and Congress have not done enough to ameliorate the root cause of the recent debt explosion, namely, the growth of college tuition coupled with the lingering effects of the Great Recession.

Tuition growth results largely from the federal loan program, which dispenses awards based on differences between students’ financial needs and their costs of attending particular colleges. Colleges therefore have carte blanche to raise tuition, knowing that the federal government will make up a large part of what students cannot pay. 

In order to fix these distorted incentives the federal government must change the way it dispenses loans. It must ensure that colleges are not insulated from the consequences of raising tuition, and that they suffer when too many of their students cannot repay their loans. In that vein, the President has proposed a plan to rate colleges on their affordability, socioeconomic diversity, graduation rates, and alumni earnings, and to then provide more generous aid to schools with higher ratings.

We are still waiting to hear what the President’s plan will actually look like, but its rough sketches are not terribly promising. The new system will not drastically reduce debt loads because it will reward better-performing schools and not punish poorly-performing ones. It seems to maintain most of the perverse incentives that have caused the debt growth. To make college a more worthwhile investment for everyone, but especially for students like Estiven Rodriguez, the “son of a factory worker” whom the President showcased, both the President and Congress will need to do better.

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