Friday, August 23, 2013

Can feds lower college costs?

President Obama announced a plan to lower college tuition yesterday.  The key elements are a new set of college performance rankings (done this time by the US Dept of Education, not US News) that will eventually be linked to federal financial aid.  As WP's Ezra Klein points out, the rankings piece can be done without Congressional approval, but Congress would have to approve any changes to the formulas regulating how federal aid is divvied up. 

I have long felt that informational asymmetries have been an issue that require some regulatory action by state or federal governments.  Colleges do not report in any accessible, systematic way their graduation rates or what happens to students when they graduate.  College is a huge investment, but there are no data on graduation rates, placement rates, and salaries by major at most institutions of higher learning.  Collecting such data is not an easy task and publishing it in a way that will inform decisions while protecting the privacy of individual students will be a challenge. 

But (as you might expect) there is much, much more to the Obama plan than a dictate to collect and publish more data.  I am skeptical of any pay-for-performance scheme the feds would cook up.  Suppose the feds include graduation rates as a key part of their performance measure -- what do you think colleges might do to make sure they have high graduation rates?  Any formula can be gamed and, trust me, if fed funds are at stake there would be a whole lot of gaming going on.  And do we really need another Race to the Top for colleges and universities????

Although college-bashing has become routine in the media, keep in mind two facts: (1) the rate of return to a completed college degree is much higher than anyone is likely to see in the financial markets and (2) the U.S. system despite its flaws remains the envy of the world and is one of the few sectors where we run a trade surplus. 

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