College innovation: More government is not the answer
In the Thursday speech in which he announced his plan for making college more affordable, President Obama singled out Southern New Hampshire University in Manchester as an institution that is innovating to bring down costs. He was right to highlight SNHU, though he seems to have taken the wrong lesson from it.
Earlier this year SNHU received federal approval for its new competency-based-learning approach to measuring student performance. The university's College for America gives students credit for course completion as soon as they've mastered the material, regardless of time spent in class.
Obama praised this in his speech, saying "if you're learning the material faster, you can finish faster, which means you pay less and you save money." That's partly it. You also pay less because the courses cost less to offer.
Many private colleges and universities are innovating, dropping tuition rates and offering cheaper degree programs. Some state legislatures are starting to tie university system subsidies to tuition and graduation rates. All of this predates Obama's student loan plan, which should give Obama some pause. It does not, of course.
Obama believes he must intervene to lower costs by steering colleges and universities toward better decisions. It never occurs to him that maybe Washington's impulse to steer is part of the problem. Inside Higher Ed reported in March that universities interested in pursuing competency-based learning did not move forward with it earlier for fear that Washington would not approve it.
Government's guiding hand is all over the world of higher education. Pell Grants along with two federal tax credits for higher-education amount to $54 billion a year. That does not include federal student loans or state subsidies to public university systems. (Obama addresses only federal student loans.) Most of these subsidies go to the middle class.
Economist Gary Becker, a Nobel Laureate, has written that "there is no case at all from an overall social standpoint for subsidizing students who would pay full college tuition, without the inducement of a subsidy." Yet through state subsidies, federal tax credits and federally subsidized loans, that is exactly what we do.
Regulations and subsidies distort what would otherwise be a more robustly price-competitive higher-education market. They discourage students from making better financial decisions regarding college, and they discourage colleges from innovating and from keeping a closer eye on expenses.
Rather than scaling back that meddling, Obama plans to increase it, as if this time we'll get it right. Maybe if we meddled less, colleges would not have so many disincentives to innovate and control prices.