In recent weeks, President Obama offered to do for higher education what the government has done for healthcare: become more heavily involved in deciding who gets what, and at what price.
“In his Jan. 24 State of the Union address, the president warned colleges and universities that he was putting them ‘on notice,’ adding: ‘If you can’t stop tuition from going up, the funding you get from taxpayers will go down.’
A short time later the White House decided to elaborate:
“’Colleges that can show that they are providing students with good long-term value will be rewarded with additional dollars to help students attend,’ the White House said in a statement. ‘Those that show poor value, or who don’t act responsibly in setting tuition, will receive less federal campus-based aid.’”
Anyone familiar with our posts and the history of government involvement in healthcare will immediately see the parallel between this approach and what the federal government has been doing for some time through Medicare and Medicaid; and will soon begin doing in the private insurance market by virtue of a host of new powers granted to the Department of Health and Human Services by The Affordable Care (“ObamaCare”) Act. The term “good long-term value” implies that the “quality” of an educational experience (however the heck that can be objectively defined) can be readily compared with the cost of the tuition in dollars to create a metric of “value” that state and federal governments can us to determine their level of financial payments. Before long, universities will need to report on various “quality” metrics in order to justify whatever level of federal funding they wish to receive. The reporting will come with its own bureaucracy, checklists and monitoring costs – all of which will gradually overshadow and overwhelm their original educational function.
Lending a sense of déjà vu to this process is the fact that it can be just as hard to measure the “quality” of something like higher education as it is the quality of healthcare. Both fields deliver something whose benefits are highly personal, and in a setting where endpoints are often tough to quantify. How does one objectively decide whether students are receiving a quality education when courses of study range from drama and political science to computer engineering? (Now there’s an interesting field. How the devil did politics ever become a “science”? And how exactly is political science differentiated from political theater?) By how successful students are in passing standardized tests? By passing standardized tests in their field of major study? By the speed with which they find employment? By how happy or well-adjusted they are? Will it be necessary to adjust for how intelligent new students are, just as it’s necessary to adjust for how sick patients are upon admission to the hospital?
Adding a measure of irony to the need for tuition cost controls is the fact that, in education as in healthcare, the federal government is almost certainly responsible for much of the cost inflation that we are seeing. Indeed, what’s astonishing is how much the increase in spending on education resembles the housing bubble caused by federally-mandated easing of loan qualifications. The website Higher Ed describes this rather well:
“The facts, though, are that enrollments are at an all-time high of 20 million students annually, degree attainment rates for all age groups have risen consistently and sometimes very rapidly for more than half a century, and public funding of higher education has increased at an explosive clip over the past decade. Pell Grant spending and tuition tax credits more than tripled in real terms from 2000 to 2010, while federal funding of university-based research and federal student loan costs for interest subsidies and defaults grew by at least 50 percent in constant dollars during the past decade. Even state and local funding of higher education grew by 10 percent in real terms during the 2000s; it’s only when the rapid increase in enrollments over the past decade is factored into the equation that state and local support on a per-student basis shows a significant decline in constant dollars.
Two of the statistics that have been accurately portrayed in recent debates are that college charges have increased at more than twice the rate of inflation over the past several decades and that student loan debt burdens have grown enormously, both in terms of the number of students who borrow and in how much they borrow. These are the troubling statistics that need to be addressed.”
Basically the federal government has been heavily subsidizing education, thereby increasing the demand and the amounts that people are willing to borrow (just like mortgages!) in order to buy themselves the educational equivalent of house that they would normally never be able to afford. At the same time, well-intentioned regulatory requirements have displayed the “unintended consequences” phenomenon of actually demanding that universities actually increase their tuitions so that students still have some skin in the game:
“In his State of the Union Address, President Obama decried skyrocketing college tuition, attempting to take advantage of public anger over the steadily-worsening college tuition bubble. This was ironic, since his own Administration has done much to foster rising college tuitions.
For example, it imposed the 90-10 rule, which forced low-cost educational institutions to raise their tuition to comply with a new federal regulation requiring them to charge enough over federal financial aid so that at least 10 percent of education costs don’t come from financial aid. For example, Corinthian College had diploma programs in health care and other fields that can be completed in a year or less. Until 2011, many of those programs had a total cost of about $15,000, which meant that federal grants and loans could cover nearly 100 percent of their cost. In response to the Education Department’s rule, the college raised tuition to comply with the 90/10 rule. The net result of the Obama Education Department’s rule was to “create a perverse, no-win ‘Catch-22′ that could prevent low-income students from attending college,” by encouraging such colleges to raise tuition to outstrip rising financial aid by more than ten percent. Administration allies like Senator Richard Durbin (D-IL) are now pushing a new rule, the 85-15 rule, that would require low-cost institutions to further raise tuition so that at least 15 percent of education costs aren’t covered by financial aid. (With this kind of mentality, it is no wonder that college graduation rates have actually “fallen somewhat since the 1970s” “among poor and working-class students”).”
And there is one more fascinating data point that is worth sharing – the remarkable relationship between federal spending and tuition increases over the past fifteen years. Consider this chart and text from the website Political Calculations:
“Here we find that for the years from 1976 to 1992, the change in total federal spending has a correlation coefficient of 0.984. Or to describe what that means in simpler terms, the change in total federal spending “explains” some 98.4% of the change in the average cost of tuition at a four-year institution.
We next see a transition period running from 1992 to 1996, after which, changes in total federal spending would appear to “explain” some 99.4% of the recorded changes in the average cost of college tuition, all the way up through the 2008-09 academic school year.
These high and increasing levels of correlation between total federal spending and the average cost of college tuition strongly indicates that the federal government is directly responsible for the escalating cost of attending college for the vast majority of students.”
Although correlation does not necessarily imply causation, one can certainly imagine a scenario in which federal subsidies make it easier for students to borrow, which makes it easier for colleges to increase tuition in the face of high demand, which leads to still more demand for federal aid so people can afford college. Multiply this over a whole collection of fields in which the federal government has decided to insert itself as a major force in the marketplace – healthcare, housing, retirement benefits and now “clean energy” – and it rapidly becomes apparent that social intervention is an expensive business that can slip out of control faster than a pack of Dobermans at a cat show.
Taxpayers simply can’t go around subsidize things and lowering the cost to end-users without creating demand that isn’t based on a rational expectation of returns. It’s not necessarily the case that, just because a student can now borrow the money to get an advanced degree in ancient Mayan culture, that investment will ever generate sufficient value to justify the subsidy. By the same token it’s relatively easy to demand end-of-life care or well-person physicals if the government will pay for them, despite the fact that the return on those investments may be vanishingly small. When you then add in bureaucracy in an effort to control costs, total spending is driven still higher.
The problems we’re seeing with the affordability of healthcare and the affordability of education almost certainly have a great deal in common. Neither area of human endeavor is going to become any more sustainable until we agree to limit the unintended consequences of government subsidies and regulatory interventions.