Obama’s Buffalo speech roughly coincided with the publication of a working paper by the National Bureau of Economic Research that modeled the effects of a $2,000 increase in the maximum federal tuition grant: “Overall, the federal aid increase fails in significantly increasing college attendance, with much of the increase instead bidding up college expenditures and tuition,” the four economists concluded.
The biggest effect was at private institutions, the economists estimated, which would capture about 40 percent of the hypothetical aid increase, through a combination of higher tuition and reduced in-house financial aid.
Lane is a Post editorial writer, specializing in economic policy, financial issues and trade, and a contributor to the PostPartisan blog.
We need more hard-nosed thinking about federal aid to education than Obama is offering. Yes, aid undoubtedly deserves much credit for the fact that 30 percent of adult Americans had a bachelor’s degree in 2011, up from just 5 percent in 1947, and there is a role for government in helping qualified, needy students.
Yet federal dollars have also insulated incumbent faculties and administrations from market forces, leaving them ill-prepared for a new reality marked by slow growth in family income, tighter state and federal budgets, and rapid technological change.
In a January report, the credit-rating agency Moody’s described the economic outlook for higher education as “negative.” For the first time in decades institutions see their “pricing power nearly exhausted,” Moody’s reported, as families balk at high tuition despite Obama’s student-aid increases.
Meanwhile, schools have hardly changed the “traditional higher education cost structure,” with its “guaranteed employment through tenure and continual investments in student services and capital facilities,” Moody’s noted.
In other words, higher education is already in the early stages of what could be a historic shakeout. Policy tweaks may help here and there, but mainly Washington should let the shakeout run its course.
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