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How Obama's plan might lower college costs

The president has called for a ratings-based reform of higher education funding. Will it work? And if so, how soon?

By Donna_Freedman Aug 27, 2013 1:32PM

Logo: Image: College graduate (Corbis)President Barack Obama recently called for performance-based funding of higher education. In front of a cheering crowd of students at the University of Buffalo, the president declared that the United States should stop "subsidizing schools that are not producing good results, and reward schools that deliver for American students and our future."

The government provides more than $150 billion in financial aid annually -- and most of that money is handed out based on enrollment, not on the number of degrees awarded or what students actually learn.

The president's proposal would tie funding to a system that rated factors like affordability, access and outcome (completion rates, graduates' salaries). Theoretically, this would encourage college and universities to keep costs down.

A White House fact sheet suggests that "students can continue to choose whichever college they want, but taxpayer dollars will be steered toward high-performing colleges that provide the best value."


But don't count on this program making a difference in your kid's college plans until 2018 -- that is, if it even gets through Congress. Like most political statements, it's long on idealism and somewhat vague in terms of execution.

Besides, the cheers had barely died away before pundits and professors were questioning exactly how the government would go about obtaining and analyzing the data, and pointing out potential inequities in the metrics. 

The rankings could help families determine the best return on their college dollars. Seeing that College X graduates most students on time and with minimal debt load could be useful information, especially as compared to College Y's record of five- and six-year bachelor's degrees and higher overall costs.

Here's another reason to read the ratings: Under the proposed plan, students who attend higher-ranked schools could be eligible for more Pell Grant funding and more affordable loans.
A few other proposed grant changes: 

  • The plan proposes legislation for bonus funding to colleges based on the number of Pell students they graduate.
  • Another proposed law would require students to complete "a certain percentage" of their classes before receiving additional funding. 
  • Colleges with high dropout rates would be required to parcel out student aid throughout the semester, versus in a lump-sum payment at the start. That way students who do drop out won't receive grant money for time not spent in school.
Comparing apples to oranges?
The administration does not have its rating system in hand, saying only that it will be prepared by 2015. However, college and university leaders say they're concerned about how fair such metrics will be.

For example, public universities tend to cost less (score points for affordability) than private schools, but they have lower graduation rates (deduct points for lack of diplomas). Schools that graduate a lot of teachers and social workers would fare just fine for completion, but would underperform with regard to earnings, because those jobs aren't necessarily high-paying.
(The latter is a moot point because current postgraduate earnings data aren't available, according to The Chronicle of Higher Education. It isn't yet clear how the government will obtain those figures.)

What about at-risk students who flounder and ultimately drop out due to a lack of preparation and/or academic support? One university president told Bloomberg News that the president's proposal would cause his institution to seek students who are best prepared, "financially and academically," to finish college. 

Thus Obama's plan "would deter colleges from graduating more students, particularly in the middle-income and lower-income populations," says James T. Harris, president of Widener University. These are the very groups the president is trying to help, he notes.

Keeping track

Another sticking point is how completion rates will be compiled. If a student starts at one school and transfers to another, will the original institution be penalized? More than 33% of all students will attend more than one institution, according to the Context For Success: Measuring Colleges' Impact research project.

"At a minimum, to account for this phenomenon, states need to have data on in-state transfers," study authors say -- and ideally, the government would use the National Student Clearinghouse for data on transfers/completions at out-of-state and private colleges.

Currently the federal graduation rates "include only first-time, full-time students (though a more-inclusive rate is being developed)," according to The Chronicle of Higher Education.

(That would exclude me: I attended college from age 18 to 19 and then dropped out. Three decades later and on the other side of the country I returned to school on a full-ride university scholarship and graduated magna cum laude -- not that the government would know that.)

These and other details will have to be worked out over the next two years, although the program would not go into effect until 2018. Again, that's assuming that Congress goes along with the plan.

In other words, don't stop looking for scholarships yet.

More on MSN Money:

Aug 27, 2013 2:36PM

President Obama needed to speak a shorter sentence like this: "The United States should stop subsidizing schools."


He is creating another channel of political favoritism.  The cost of education shall continue to rise.  [The cost of education shall also continue to not be counted much at all in the Consumer Price Index.  After all, the Commerce Dept wouldn't want Americans to think that there is price inflation, would they?]  Subsidies enable universities to raise tuitions, confident that the government will make the taxpayer assist students.


We need to borrow the phrase from the teen anti-drug campaign, Just Say No!  Young people who are not willing to give up social life to study hard should not go to college.  When Obama proclaims, "College for everyone!" he is causing millions of young people to take on huge debt that often doesn't result in a good paying job after graduation.  Trade school would be better.  Unpaid internships allow people to learn skills important to the employer.


Unfortunately, America is doing all the wrong things:


---Inflation-driven stimulus that enriches the very rich while driving up the cost of doing business.  Small to medium sized businesses can afford to hire less people.


---Many of those who do find jobs find them in bureaucracies: government, insurance companies, medical admin, aerospace admin, and yes, university admin!  Ordinary people would not pay you to work such a job directly from their own pockets.  When ordinary people are compelled to pay, they can't afford things they really want and their standard of living goes down.  America needs to go back to emphasizing goods production, but the path is difficult and painful!


---Lawsuits are trashing unpaid internships.  Increases in minimum wage are leaving teens in the street.  Having government provide job training makes employers not want to provide it.  I have heard factory owners with machines requiring specific skills bemoan that they cannot find qualified employees because the government doesn't train these specific skills.  Employers need to RELEARN that it is their responsibility to train new employees.  We haven't nearly enough new factories!


The culture of sending as many young people to college as possible, while saddling them with huge debt, and having many of them fail to get good jobs after graduation is part of this LOSING STRATEGY.  President Obama's performance-based subsidy program shall worsen the existing problem.

Aug 28, 2013 10:37AM
A portion of the higher costs is the simple fact the colleges aren't on the hook for anything.  They know most students will need financial aid, mainly through loans.  The school doesn't care how much the loans are or if they will ever get paid back: the college gets paid no matter what.  So why not raise tuition?  The college isn't taking on any risk and gets all the benefits ($$$).  People are fighting to get in no matter what the cost.  Its easy money for the colleges.

Another piece is the structure or administration of the colleges themselves.  Tenure is a terrible and outdated idea.  You land a collegiate teaching job and bust your **** for a few years.  They grant you tenure.  Lucky you.  Now you are guaranteed a position and salary no matter what your results are until you die or leave voluntarily.  Only 25% of your students pass or finish your classes?  Oh well, here's your check.  How many other businesses have that security (besides a gov't job)?  Removing the parachute of tenure gives the schools the flexibility to remove ineffective teachers or eliminating ineffective subjects altogether.

And do we really need hundreds of 'administrators' at every college?  When I went thru school, there were all kinds of other school officials or upper-level administrators that had their own little fiefdoms.  All this overhead creates extra costs and reduces effectiveness.  Streamline the college management, then you can reduce tuition costs.
Aug 28, 2013 10:50AM

Our experience has been the fast clip at which tuition has risen being the biggest problem with colleges. We live near a state college. When our oldest son began attending in fall of 2006, tuition was just under $1800 per trimester for a student (and state resident) living at home. A journalism major, he was required to do a trimester internship at a local TV news station, but otherwise no post-grad job assistance was available. Our youngest son is now beginning his third year at the same college, and tuition is just under $3000 per trimester. He has switched his major to engineering, having watched his older brother struggle to find a job in his chosen field.


Fortunately neither son has had to take out any student loans. They've been working part-time since high school, are careful with their money, and study hard, in part, I think, because they aren't getting a free ride. Each of them however, is very concerned about rising costs and the job market.


While learning a trade vs. getting a degree sounds like a solution, there still must be jobs available within that trade... jobs that will offer medical insurance and 401k plans. Many, many folks in the construction field (including plumbers and electricians) were out of work here during the recession.


And while Obama's plan might sound like a solution, it isn't going to cap the rate at which tuition and other expenses rise for college students, even if it does pass (which is unlikely). Why? Washington D.C. has a serious disconnect from the people our leaders are supposed to represent. Possibly because they have free housing, free transportation, multiple fully staffed offices, etc. You'll never see the First Lady pushing her own shopping cart while leaving a discount grocery store, nor any member of the senate or congress. And their children will never have to worry about tuition costs.

Sep 2, 2013 7:44AM

You want to save a fortune on the cost of college if you're not an athlete getting a free ride? Look no further than our northern neighbors. The cost of a four year university education in Canada is equal to one year at virtually any college in the states. Canada doesn't waste money on 25 different sports teams and pay some coaches a ridiculous amount of money to have a winning team. Athletes actually join teams because they want to play and are expected to get a degree, too.

The quality of education is world class but you'll have to get your degree in a real subject- no basket weaving 101. You don't have to jump through ropes to gain admission either. A simple high school diploma with a decent grade average and the cost of tuition is all that's required. There are no race or deserving poor quotas although the needy have access to grants and loans. You won't come out of school in debt for the next ten years.

Just as an aside- you'll be able to afford the medical too should you ever get sick. And you'll be safe. No getting shot or mugged on the way to class. You already speak the language so enroll now and beat the rush.

Sep 2, 2013 7:57AM
How much money is spent on the various sports teams in American schools. It starts in the middle schools and continues through university. The full boat students get everything for free- tuition, housing, books, the uniforms and training facilities money can buy contingent on the level of play in that category. Every sport has a series of coaches and assistant coaches with locker rooms and training facilities to rival any pro team. Some of the stadiums are ridiculously huge. The salaries are enormous even at the high school level. Teachers get paid a pittance but not the sports gods. No one seems to think it odd there are bowling and Ping-Pong scholarships. Imagine playing golf as a way to get a free ride? The regular academic pays for this and is expected to actually pass too.
Sep 2, 2013 9:47AM

A major reason for the high cost of college for many individuals is that they are 'entitled.' They won't live in anything less than they did at home. Consequently, we are building expensive dorms and student apartments to entice them where they have private rooms, private bathrooms, workout centers, parking, etc. They are drinking expensive lattes and eating out a lot. Many students don't work because they know they can finance the lifestyle on loans. Those of us who graduated without student loans, lived in less than plus housing, shared bedrooms and baths, packed our lunches and coffee, commuted and pinched pennies. 


BTW, I work for a major university and the area around our campus is filled with new, expensive high-rise apartments with all the amenities. Low-rent student housing is being bulldozed as developers know that the loan money will fill the expensive rooms. Nice, reasonably priced housing a little further out is sitting vacant as any commute is an inconvenience--even though the students get free bus passes.


Take your time and pay for your education as you can afford it.

Sep 2, 2013 12:41PM

I'm very leery about the Government setting up a 'value' based system for collages such as proposed. Government tinkering hasn't worked too well with No Child Left Behind, has it? So 'success' is to be judged by how much graduates get paid after graduating? So business and engineering schools will get graded well while art and liberal arts will be defunded? Because students are too dumb to figure out for themselves that a BS in business usually will usually net higher pay then a BA in English? A college should be accredited but beyond that let the students and their parents figure out where to go and what to take. Yes, performance metrics are a good thing, so have colleges provide 'performance' relevant statistics that help students and parents decide - maybe even require a standard set of metrics that support apples to apples comparisons. But let society at-large do the social engineering, not Government defined, dollar-weighted metrics.

Not that I don't think government at some level should support higher education more - they should. If a BS or BA is needed for most good jobs nowadays, the state or federal government should do more to fund it, like countries that compete with us do. A high school education is totally inadequate nowadays, and that should be reflected in Government policy and funding. A good student should be subsidized more and need to borrow less, at least through the BS/BA level. When they do need to borrow the low amount that can be borrowed through the Government is a joke - causing students to revert to private lenders that destroy their lives later on. My daughter's PhD level education caused well over $100k in loans, despite TAs and RAs. If I hadn't been able to help pay on them her financial situation would be terrible, even though she has a 'good job'. I'm not whining about that, we are among the lucky few that could pay for much of the education of our daughters. What about those families that couldn't?  What does it mean to our society, if talent is left undeveloped for millions of people?

My second daughter is a school psychologist in a public school system at the HS level. She sees first hand the human waste in a city full of drug users, etc. She deals with students that have probation officers, and parents that are gang members. Wasted lives that our country can't afford to waste. Our society including education in this country needs a big boost, and I certainly don't have the answers, but I am not impressed by the President's solution to boosting college education.

Sep 2, 2013 1:44PM
Puleeeeze. This  president has no plan, on anything. 100 million Americans are out of work? I encourage anyone to post anything form a reliable source pointing to any semblance of economic growth in this economy the last 5.4 years yet you folks still listen to him? Knock yourselves out. I'm 24  and I voted for him twice, my fault. I'll be looking at other ideas outside the Democrats this next election. If they weren't satisfied and voiced this I'd hang around a bit longer but they're not and continue to defend bad performance without any reasoning. 
Sep 2, 2013 8:27AM
Obama's plan (?) would dictate that most federal monies earmarked for education assistance will go to Stanford, Harvard, Yale, Cal Poly, Duke, etc., students.  Equally, it means that Grambling, JCSmith, Shaw and all of the other black schools' students would get nothing.  Right. 

Aug 30, 2013 1:30AM

Rating school is pure gimmick and insulting to intelligence of most Americans.


Some kids are slackers. Putting anything into this child until he/she has probably produced 2-3 kids and parents got into financial problems themselves, then this kid will start to find 'homelife' harsh and he may get a part-time retail job for discount on his favorite hobby stuffs.


The kids raised with corporal punishment will bust their butts to keep their own homes...the coddled kids remain with their parents until middle-age. I'm not advocating emotional abuse, verbal abuse and mild corporal punishment but you have to admit, it worked out better to produce adults.

Sep 2, 2013 3:31PM
He's not going to reduce college costs.  he's just going to pump more federal taxpayer money into them so we will all end up picking up the tab for everyones kids.  Then, the colleges will just slowly start raising up the costs again, and the dems will keep increasing the subsidies through the programs and so on and so on.  Typical democrat waste spending.
Sep 2, 2013 11:03AM
 Take your zombie freak socialist  college and stuff it you slacking losers! Your schools are nothing but Nazi democrat corruption scams like every thing else these scum bags touch.
Sep 2, 2013 6:01AM
Sounds good, how ever not going to happen because the people who teach and the students that go to those schools are Obama supporters
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