Obama Turns the Screw on Rising College Costs
Life + Money

Obama Turns the Screw on Rising College Costs

iStockphoto/The Fiscal Times

With median household income still 6 percent below pre-recession levels and middle-class Americans struggling to make ends meet, President Obama on Thursday turned the screw a little more on the nation’s universities and colleges in a bid to restrain runaway tuition costs.

Since early in his 2012 re-election campaign, Obama has made concerns about skyrocketing college costs and student debt integral to his theme of helping middle-income families weather a rocky economic recovery. Those initiatives have included an increase in the maximum Pell Grant award by more than $900 for families that meet the income requirements, creating the American Opportunity Tax Credit, and enacting student loan reforms to eliminate bank subsidies, cap interest rates and make college more affordable.  

Obama's latest proposal, which he unveiled in a speech at the University of Buffalo today, would help parents and students better evaluate colleges and universities to determine essentially which ones offer “the most bang for the buck,” as the president put it.


The Department of Education would create a highly sophisticated matrix to rate colleges before the 2015 school year based on such measures as tuition, student debt and subsequent earnings of graduates, and the percentage of lower-income students who graduate.
The proposal would pit colleges against their peer institutions, and would provide a basis for the federal government in distributing federal grants   for higher education. Students attending highly rated colleges and universities presumably would qualify for larger grants and more affordable federally-insured loans than those attending lower rated schools.

The approach would require congressional approval, which would not be easy to achieve given Obama’s  strained relations with Republican lawmakers. Even as he outlined his new plan before cheering students in Buffalo, the president once again berated conservative Republicans for threatening to shut down the government or force a default on Treasury borrowing to derail implementation of Obama’s health care reform law.

 “We’ve got a crisis in terms of college affordability and student debt," Obama said. Colleges are not going to be able to just keep on increasing tuition year after year and passing it on to students and families and taxpayers. Our economy can’t afford the trillion dollars of outstanding student loan debt – much of which may not get repaid because students don’t have the capacity to pay it.”

“We can’t price the middle class and everybody working to get into the middle class out of a college education,” he added.

Most of the government’s $150 billion in annual federal grants is distributed based on the number of students a college enrolls, regardless of how many graduate or how much debt they incur.  Under the new approach, students would still be able to attend the college of their choice, but taxpayer support would shift to higher ranked schools.

Public and private organizations such as U.S. News & World Report already provide detailed analyses and ratings of the nation’s colleges and universities, but Obama’s plan would focus more on the value of the education and the economic benefits derived by graduates.

“The President’s plan will also take down barriers that stand in the way of competition and innovation, particularly in the use of new technology, and shine a light on the most cutting-edge college practices for providing high value at low costs,” according a White House fact sheet.


The proposal is sure to raise the hackles of many college officials, who are under increasing scrutiny by Congress, the administration and other critics for their tuition and administrative spending practices.

Administrative bloat at many colleges is a continuing sore point. A recent Goldwater Institute study found that universities have vastly expanded their administrative bureaucracies while in some cases actually shrinking the numbers of professors. 

Administrative costs have risen faster than any other cost at universities and colleges between 1993 and 2007. During those years, student enrollment at America's leading universities rose by 14.5 percent. Over that same period, the number of full-time administrators employed per 100 students at America's leading universities climbed more than 39 percent.

Terry W. Hartle, senior vice president of the American Council on Education, an advocate for colleges and universities, told The New York Times that the administration proposal raises “all kinds of issues, like deciding how far down the road you are looking, and which institutions are comparable.”

“Ultimately, the concern is that the Department of Education will develop a formula and impose it without adequate consultation, and that’s what drives campus administrations nuts,” Hartle said.

But as they begin to pack their children off to college for another year, what is driving  parents nuts are steadily mounting college bills of as much as $40,000 to $60,000 a year, depending on whether it is a public or private school.  In its most recent survey of college pricing, the College Board reports that a "moderate" college budget for an in-state public college for the 2012–2013 academic year averaged $22,261. A moderate budget at a private college averaged $43,289.


College officials say they lament the rising tuition costs and other fees but cite mounting operating and personnel costs and shrinking state support.  They claim larger pension, health care and technology costs more than justify ever-increasing tuition costs.

Yet the shocking reality is that tuition at a public four-year college has increased by more than 250 percent over the past three decades, while incomes for typical families grew by only 16 percent, according to College Board and Census data.

Tuition has almost doubled as a share of public college revenues over the past 25 years from 25 percent to 47 percent, according to the White House. While Obama says a college education remains a vital investment for getting ahead, the average student now graduates with over $26,000 in student-loan debt.

Only 58 percent of full-time students who began college in 2004 earned a four-year degree within six years. Loan default rates are rising, and many young adults are saddled with debt as they seek to start a family, buy a home, launch a business, or save for retirement.

Many prominent colleges and universities also shower prized faculty with costly perks and overly generous subsidies as they seek to burnish their schools’ reputations.

For example, New York University – one of the costliest private schools to attend with tuition, room, board and other expenses totaling $64,047 for the coming school year – provides low cost loans on multi-million-dollar year-round and vacation homes to high profile faculty. The university granted Treasury Secretary Jack Lew a $1.5 million home mortgage and other perks and benefits during Lew’s stint as NYU’s executive vice president.