Thursday, September 12, 2013

Why Obama Won't Make College Cheaper, Part 1

Education reform in America is always an attempt to get something for free. It has been that way for at least twenty-five years. No matter what the scheme of the hour is (charter schools, Teach for America, No Child Left Behind, Race to the Top) or whether you're talking about K-12 or college, every reformer makes one of two promises. Either they promise to make education better without spending any more money, or they promise to make education better while spending less money. Education reformers basically say, "Four dollars is too much to pay for a hamburger. Bring me a three dollar steak."

If you ask why the reformer expects this strategy to work, or how it could, you will be told to "be realistic." It is of course deeply unrealistic to expect taxpayers to increase spending on education. So the only "realistic" course of action is to create excellence through funding cuts. Since no solution but a three dollar steak is acceptable, we just have to figure out a plan that gets us an especially juicy, delicious, and healthy steak for three dollars. There's always a clever new three-dollar-steak scheme, no matter what happened with the last one, and you just have to give the new idea a chance. Twenty-five years on, and education reformers are still talking about the newest, hottest plan. That's because none of the old plans did much good.

President Obama's new college affordability plan is one of these reform efforts. He plans to make college cheaper for everyone, and to do this without spending any more money. Instead, he will shift around the money the federal government already spends to create incentives. College costs are a real problem, and Obama is right to want those costs lower. His plan will not actually do that.

Why not? There is the problem of getting the plan through Congress.There is the problem that this plan (like No Child Left Behind) relies on crude and oversimplified metrics that pretend to measure complicated and slippery things, and then penalizes schools based upon that statistical pretense.But the real problem is that you can't set prices for things that you don't buy. Obama's plan won't change college prices, or colleges' underlying costs, because there simply isn't enough money on the table to make a difference.

The federal government is the biggest individual player in American higher education, because it's the only entity that contributes, directly or indirectly, to nearly every college or university in the country. That means a lot of money, in absolute terms: the country has nearly 4500 colleges, universities and community colleges, with well over twenty million students. But the federal government isn't the most important contributor to any of those 4500 college budgets. It isn't the second-biggest contributor to those budgets, either. (The only exception is the service academies. The United States government pays for the entire budget at West Point and Annapolis, and they get to set the tuition: free.) We don't have a federal education system. Washington doesn't run our colleges, and doesn't pay for them. Instead, we have a vast decentralized system with thousands of schools competing in a free market.

The federal government does pay enough money to influence college's actions. Title IX, for example, is enforced by a threat to strip all government grants and funds from schools that don't comply. Losing ten or twelve percent of your annual budget really hurts; think what a ten-percent pay cut would do to you. So paying ten (or twelve, or six) percent of every school's budget gives you a lot of say. What it doesn't give you is the power to make schools give up larger sources of revenue. Tuition is a bigger part of the budget than federal funding, hands down. A deep cut in tuition could very quickly add up to more revenue lost than the federal government adds. Even if you threaten to pull all of your financial contribution (and in practice the government would only be diminishing it, in gradual stages), that's not enough to make a school forgo MORE than what you're paying. If you tell a restaurant that they have to cut the price of a steak dinner in half or you'll stop leaving a fifteen percent tip, what do you think will happen?

The reason no restaurant will sell you a steak for three dollars is that no restaurant can buy a steak for three dollars. People don't generally sell things for less than those things cost them. In fact, the only thing for sale in America for less than it costs is a college education. Colleges are already discounting tuition as much as they feel they can afford. Tuition never covers the full cost of operating a college, and the wealthier the school, the more it spends in excess of tuition. (The Harvards and Princetons of the world have the luxury of spending much more than they charge.) So college tuition is already being set significantly below cost. Tuition grows because costs grow. Why?

If you want to be a successful education reformer, meaning you want to make a good living peddling your five-point plan for three-dollar steaks, your answer should be cast in moral terms. Costs are high because someone lacks character! High costs can only be a sign of laziness and corruption! After all, that's what makes those costs amenable to "reform." And of course, the moral explanation is satisfying, because it allows you to attack anyone who disagrees with you as a bad person.

But if you look around America's 4500 colleges, you see almost all of them behaving the same way. There isn't a group of "virtuous" colleges holding down costs and another group of decadent spendthrifts charging 50% more than other schools. There are only slight differences between institutions. It is not that all 4500 colleges happen to be run by weak and depraved characters. When you see thousands of independent institutions behaving the same way, it's a sign that there are actual economic reasons in play. Colleges act the way they do because they're responding to real pressures that "character" will not make go away. Colleges don't spend money because somebody at the college was raised wrong. Colleges spend money because they believe they have to. Colleges spend what they need to spend to survive.

Those costs keep growing for reasons that I'll try to explain in Part Two.

cross-posted from Dagblog

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