Obama's College Cost Proposal

President Obama is taking colleges to school, testing and grading them according to their performance. But this isn’t to bestow schools with blue ribbons and presidential honors. This evaluation will determine a school’s very funding.

As the average cost of college tuition has risen more than 250% over the past 30 years – while average family incomes have grown only 16% – the total outstanding student loan debt has surpassed $1 trillion.

The president expressed his frustration in a speech at the University of Buffalo this week, calling education’s high cost “a barrier and a burden for too many American families.” Hence the president’s proposal of a new plan aimed at pushing schools to lower their costs and increase the quality of their instruction.

The New Proposal

One problem with the current student loan system is that every time the Federal government tries to help students by raising the amounts that can be borrowed, lowering interest rates, or extending repayment schedules, that relief rarely makes it to the students, but is quickly siphoned off by the schools.

Government raises borrowing limits – schools raise tuition. Government lowers interest rates – schools raise tuition. Government eases up on repayment terms – schools raise tuition. It’s like a mother trying to feed her child and having the family dog jump up and lick the spoon clean before it ever gets to the child’s mouth.

Obama vowed to once and for all break the cycle of opportunistic tuition hikes and spoon-licking: “Colleges are not going to be able to just keep on increasing tuition year after year, and then passing it on to students and families and taxpayers.”

And here’s how he intends to do it:

• Colleges and universities would be grouped among their peers and then ranked according to their tuition costs and performance in producing well-educated graduates.

• When a new student applies for a government loan, the amount the student could borrow would depend on the ranking of the school applied to. The higher a school’s ranking, the more Federal assistance its students would receive, and the more students the school would draw in. Thus, a school’s profits would be directly linked to its performance and affordability.

• Colleges would also receive “bonus money” for higher numbers of graduates enrolled under the Pell grants for students from lower-income households.

This means schools would not be able to simply raise tuitions to gobble up federal assistance offered to students. Instead, they would have to qualify to receive higher levels of funding from their students’ government loans. They would also have incentives to making education affordable to students from low-income families.

It “Will Be Contentious”

Many colleges are already objecting, concerned they may be mis-categorized with other schools they can’t compete with or which they feel are not a comparative match. Some are also protesting they cannot be held entirely responsible for their students’ learning success. In this they have a point; an institution cannot be held responsible for a student’s failure to study, for example.

But there are other metrics besides failure rates factoring into the newly proposed rating system, including the number of enrollments on Pell grants, average tuition costs and student loan debt, the earnings of successful graduates, and more.

Obama has directed the Education Department to have a rating system in place by the beginning of the 2015 school year based on an abundance of data already accumulated on college costs and performance over many years. Terry Hartle, senior vice president at the Washington-based American Council on Education, verified to Bloomberg that the government will have no difficulty formulating a ranking system based on its extensive data.

But deciding how to use that data to determine student loan funding limits for each school “will be contentious”, Hartle warned. A previous plan to cut aid from schools whose students did not procure sufficient employment income to pay off their school debt was already challenged in the courts and found to be discriminatory toward for-profit schools. So Obama is giving Congress until 2018 to figure out new legislation that will stand up in court.

Contention is expected not just from schools but also from politicians. Minnesota Republican and chairman of the U.S. House Education & the Workforce Committee, John Kline, expressed his concern “that imposing an arbitrary college-ranking system could curtail the very innovation we hope to encourage and even lead to federal price controls.”

The president may also need to convince members of his own party, like Iowa Democrat and head of the U.S. Senate education committee Tom Harkin, who supports a college ranking system “to help students and their families make informed decisions.” He wouldn’t state for the record whether he supports basing government assistance on it.

A New Mindset

Call it a sign of the times as America struggles to get out of the greatest recession in 80 years, but the need for frugality, efficiency, and responsibility has been forced upon us all – including schools and their students.

If you are a student, finding ways of being more “frugal” with your money does not have to be depressing but can actually be liberating as it reduces your reliance on a hefty student loan. When you realize just how little money you really need, you will have freed yourself from a few extra years of debt repayment burdens.

• Before you buy anything, pause to ask yourself: “Do I really need this?” If your answer is yes, then ask yourself: “Can I find something similar that costs less?” Just remember to be honest with yourself when you answer.

• Find clothes that are not just great looking but also a great value. Remember, you take the price tags off when you wear them, so no one will know how little you paid. After a while, your eye will learn to spot deals a mile away.

• Learn how to cook for yourself. Not only do you save a bundle, but you’ll eat healthier and maybe even eat less.

• Trade your car for a bus pass or bicycle. You’ll not only get your budget in shape but your body as well.

• If you’re looking for another reason to quit smoking besides your health, just remind yourself that one pack a day for a month costs as much as half of the average monthly student loan payment.

• And consider online courses. They could not only cut your tuition costs, but they can cut your living costs too, as you live at home instead of on campus. Your self-directed study schedule might even allow you to hold down a part-time job to bring in some extra cash, which could pay for most of your courses and reduce the student loan required.

In fact, online courses could cut your student loan in half. By the time you complete as many online courses as your program will allow, you might have barely 2 years of actual full-time college remaining. Imagine graduating with student debt of just $20,000 instead of $40,000. Think of all the interest you would save and how much more quickly that loan would be paid off.

Whether his new education assistance reforms take root or not, President Obama has certainly succeeded in raising our awareness toward this new mind-set of frugality, efficiency, and responsibility. Regardless of the career path you chose for yourself, this is a mind-set that will prove indispensable to your future success – as a student, a professional, a spouse, a parent, or simply a better you.

Joseph Cafariello

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