How to Contain College Costs

Op Ed published in The San Francisco Chronicle

The cost of a college education continues to climb, with federal subsidies struggling to keep up. The recent call by Congressional Democrats to cut student loan interest rates in half offers an acknowledgement that Americans feel those rising costs and want to do something about it.

While details of the plan have yet to be released, the sheer size of the programs involved means any solution is likely to be costly. That is all the more reason why a plan must do more than just sound good politically.

According to the College Board, tuition and fees (not including food and housing) for the 2006-07 academic year at private, four-year institutions reached $22,218, up $1,238 or 5.9 percent from the previous year. Prices at public, four-year institutions went up 6.3 percent, or $344, to $5836. By contrast, the overall Consumer Price Index rose by 1.3 percent during October 2005 to October 2006.

These most recent increases are part of a decades-long trend, suggests The College Cost Crisis, a 2003 report by the U.S. House Committee on Education and the Workforce. During the 1980s, the report says, tuition and fees not only began rapidly to outpace consumer prices but also rose more than three times as fast as median family income. That trend has slowed somewhat in recent years, but college costs have continued to rise regardless of the condition of the economy. They far outpaced inflation over the past decade, especially at four-year public institutions.

Federal subsidies have actually become part of the problem. As then-Secretary of Education William J. Bennett explained in 1987, “[I]ncreases in financial aid in recent years have enabled colleges and universities blithely to raise tuitions, confident that Federal loan subsidies would help cushion the increase.”

According to the House Education Committee, direct federal higher education subsidies to students and families annually surpass $70 billion, with hundreds of millions more given directly to colleges and universities.

“Once again, we are finding that no matter how much student aid rises from one year to the next, an equally dramatic spike in college costs follows,” said House Education Committee Chairman Howard P. “Buck” McKeon (R-CA) on October 24. “Neither low- and middle-income families nor American taxpayers can afford to see this trend continue without demanding some answers.”

That’s why it’s so important that federally funded colleges and universities be held accountable for rampant increases in the cost of tuition. Injecting more transparency into how tuition dollars are spent, particularly at public universities, is one important way to apply downward pressure to ever-rising tuition costs.

One model to do that is the College Affordability Index passed by the House of Representatives earlier this year (HR609). The index would publicly identify federally funded institutions that repeatedly and excessively raise tuition, giving consumers data to track tuition hikes and make informed decisions in their college spending. Institutions with the largest cost spikes would be asked to account for the reasons for these increases and to develop strategies to rein in future tuition hikes.

Other ideas should be explored, such as limiting any increase in federal education aid to the rate of inflation.

Greater accountability is also needed in federally guaranteed student loans, which comprise nearly one-third of all funding for college tuition in the United States. A September report of the Department of Education’s Office of Inspector General found that Financial Partners, the DOE division responsible for overseeing the Federal Family Education Loan Program, “had not implemented an acceptable level of internal control over its monitoring and oversight” of the program and its guaranty agencies, servicers and lenders.

Earlier this year, Congress expanded student borrowers’ consumer freedom by eliminating what’s called the single-holder rule, which limits students’ choice of consolidation lenders for their student loans. By increasing students’ freedom of choice in loan providers, this step helps control the costs of education loans.

If policymakers really want to make higher education more affordable without cheapening its value, they need to take real steps to impose some financial accountability on colleges as well as on the federal government. Accountability and cost control are vital to keeping college affordable for and accessible by all students and ensuring that the next generation of doctors and teachers enjoys freedom of choice when it comes to financing their futures.

Leslie Carbone is an adjunct scholar at the Lexington Institute.