President Obama travelled to the University of Michigan last week to talk up higher education - and threaten its administrators with de facto price controls.
At the same time that he proudly pointed to his Administration's steps to increase the demand for higher education - capping student loan repayment schedules, increasing loans and grants to students, reducing interest rates on loans, and extending the tuition tax credit - he promised to push Congress to steer federal campus-based aid to "colleges that keep tuition affordable, provide good value, and serve their students well."
Clearly, the President didn't take (or didn't pass) Economics 101 when he was in college. The relentless increase in the cost of higher education has been underwritten in large part by the availability of the very programs that the President wants to expand. The scale and growth rates of these programs is staggering: the Department of Education estimates that between fiscal years 2009 and 2012, post-secondary student aid and tax benefits will have increased by $41 billion to $181 billion or nearly 30%.
Look at Germany. As a starting point, the Administration might look closely at Germany's educational system. In Germany, according to the OECD's "Education at a Glance," only 26% of adults have tertiary (e.g. college or higher) degrees, compared to the U.S. with 40%.
Yet Germany's unemployment rate is running at 6.7% compared to our 8.3% at a time when many U.S. manufacturing industries are desperately seeking qualified workers. (See my "Jobs Looking for Workers" posts over the past six months.)
Clearly, the track record of the Federal government's intervention in higher education is abysmal. As Charles Murray, the author of "Real Education," put it recently, without that intervention "the last three decades would have seen a much healthier evolution of post-secondary education that focused on concrete job credentials and courses of study not constricted by the traditional model of the four-year residential college."
Pumping Up the Bubbles. Instead of radically restructuring and downsizing Federal higher education subsidies, which increase the demand for education and the ability of administrators to increase tuition costs, the President wants to use them to force de facto price controls on every institution of higher learning. This is like pumping more hot air into the higher education bubble while simultaneously making it easier for everyone to join the party.
If this looks like the basic politically-driven policy formula which gave us the subprime mortgage crisis - and which is driving the inexorable increase in health care costs -you're right.
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