Kids & Money

February 10, 2012

Obama’s financial aid reform comes with strings attached

President Barack Obama wants to unleash the authority of the federal government on another troubled part of the business sector — the business of higher education.

President Barack Obama wants to unleash the authority of the federal government on another troubled part of the business sector — the business of higher education.

In his recent State of the Union address, the president unveiled a series of proposals aimed at making college more accessible. Many of them have merit, including holding the line on student loan interest rates for one year, increasing Pell Grant awards and doubling student work-study jobs.

But the lightning rod in his plan is requiring all schools that receive federal financial aid, which is nearly all of the more than 4,000 colleges and universities in this country, to justify tuition increases or risk losing federal financial aid funds.

“If you can’t stop tuition from going up, then the funding you get from taxpayers each year will go down,” the president said in a speech at the University of Michigan a few days after his State of the Union address.

Put another way, price controls.

When I was growing up, a four-year college degree represented a major advancement from a high school diploma toward landing a good job. Now an undergraduate degree is considered the bare minimum, the equivalent to my generation’s high school diploma. As the thinking goes, you really need to earn a master’s degree or beyond to fulfill your education — and that’s a serious investment.

As many parents know too well, higher education is in a financial mess. Sticker prices are rising more than 4 percent a year, and many public and private schools have blown past $50,000 as the price to attend — for a year, not four.

No wonder that federal student loan debt has surpassed credit card debt. Moreover, an organization of U.S. bankruptcy lawyers released a survey this week that noted that potential clients with student loan debts have “significantly increased” the past three to four years.

Believe me, I’ve written numerous checks in recent years to pay the tuition bills, and it is no fun.

But the president’s approach?

It won’t work. The idea, like so many others trotted out in an election year, should be placed back on the shelf.

I understand that schools need to be more efficient and cut their costs, but you can’t totally blame the institutions for higher tuition. Much of it has been brought on by states cutting higher education budgets.

So if federal funding is withheld, will states pick up the slack? Recent evidence points to the contrary.

Perhaps college administrators should wrap their legislative funding requests for more test tubes and higher teacher salaries with the handouts that sports moguls demand for new stadiums or corporate executives request to build office buildings and parking garages. Then things might get interesting.

Another flaw in the president’s approach is a seeming obsession with the posted tuition. Those prices are deceptive, since schools discount the sticker price for most students,sometimes by half or more.

Finally, there is competition in higher education, and some schools may be in danger of pricing themselves out of the game for all but the wealthy. Enrollment supply and demand trends also point to fewer students attending college in the years ahead.

There will continue to be a lot of rhetoric this election year around lowering the cost of college, but parents and students aren’t powerless in this debate.

My recommendation is that you take a close look at the cost calculators that schools have been required to post since last fall and apply to schools that are not a financial stretch. In that regard, parents are often their own worst enemies.

It’s also just as important to try to graduate in no more than four years. Only about half of today’s students are doing so.

If college spills over to two or three or four extra semesters, that’s like adding $30,000 or more in costs. And that’s a big bite — no matter how much you’ve saved up.

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