The Good, The Bad, and the Ugly

By Richard Vedder

The House Education Committee has come up with a major piece of higher education legislation. It still needs to be voted on, but House approval is highly likely. It is provocative and has a few good things in it, some bad things, and some really ugly things. It is not over until it is over, and lots of changes will occur when the Senate looks at the bill, but let us make a few comments on the legislation as it now stands, based on news accounts.

As to the good, the bill does call for more reporting of easy to understand data on college expenditures, dropout rates, etc., which in principle is good, although if it is a costly mandate that has little real impact on consumers (because it is not easily accessible information to the public), the provision is more dubious in value.

As to the bad, where do I start? The increase in Pell Grants is a way to increase our commitment to access for all, but this legislation does not cut the ties between college financial aid offices and the grant provider, does not convert the program into a full voucher system, and may merely increase incentives for colleges to raise tuition. The cutting of fees for private lenders is a populistic move, a typical "rob the rich to give to the poor" effort. Ideally, fees should be set through a competitive bidding process, not mandated by legislation (more ideally, the Feds should get out of the loan business). The loan forgiveness provisions for people who take public service jobs distorts labor market decisions and says some jobs are "good" and worthy of subsidy, and other jobs, notably in the greedy and nefarious private sector (which creates virtually all our nation's wealth) are less good. That is bunk.

Downright ugly is the bonehead notion that LEAP funds provided to various states for higher ed should be reduced if state governments do not not keep up higher education appropriations. Matt Denhart and I have spent the day running regressions showing state appropriations have nothing to do with college graduation attainment rates. Jonathan Leirer and I have made a similar argument regarding appropriations and economic growth --indeed, the relationship may well be negative. State appropriations for higher ed arguably are too high, not too low. There is also a broader political principle involved. Why should the Feds tell states what to do? It undermines federalism, leads to distortions in political decisions, etc.

The one provision that is particularly interesting at CCAP is the idea of tying Pell Grant aid, etc., for colleges to their willingness to keep costs down. I have mixed feelings about it. College presidents yell "price controls," and "interference in markets" when government tries to control tuition increases, and these are arguments that usually evoke sympathy from me. Yet higher education is NOT a free market, and is filled with government interferences. If you are going to be a public supplicant, you have to put up with some controls. Putting pressures on schools to reduce tuition increases is not a bad thing, although I worry about increased federal interference in an already highly inefficient enterprise, higher education. The system of colleges has benefited from its diversity, its relative freedom from central control, and reducing that freedom comes at a potentially high price.