Romney's Plan to Save Higher Ed: Let the Private Sector Handle It

The candidate believes that limiting federal dollars and letting the for-profit sector loose, the free market will bring down costs. 


Mitt Romney has released his plan for bringing down the cost of higher education, and although it's not extensive, it is enough to tell us where his heart is on the issue. And, unsurprisingly, his heart is in the private sector. 

This is the bullet point version of Team Romney's agenda. As president, the candidate would: 

  • Loosen restrictions on for-profit universities
  • Get banks back into the federal student loan game
  • Streamline (or possibly just cut) government aid programs
  • Give colleges more flexibility when it comes to how they award degrees

In other words, it's a very conventionally conservative blueprint, beginning with the core presumption that the main culprits behind rising tuition are a lack of competition and the limitless amounts of student aid that schools can simply pocket as they raise their rates. As Romney's position paper puts it, "a flood of federal dollars is driving up costs and burdening too many young Americans with too much debt and too few opportunities." It assumes that tightening the money hose and encouraging more companies to get into education will bring down prices. It's about unabashed faith in the free market.  

Here's a point-by-point rundown of the good, bad, and irrelevant in the plan.  

Interesting idea in theory. Painful, and maybe pointless, in practice.  

Although it tends to elicit a knee-jerk reaction from some liberals, the idea that student aid contributes to the rising cost of college is not crazy. Far from it. Econ 101 says that when you subsidize something, it increases demand and prices go up -- especially when there isn't stiff competition in the marketplace. But studies on the effect of student aid on college costs suggest that the link might be much more subtle and complicated than the basic logic would imply. The research suggests that the growth of loans and grants has in fact led to some tuition inflation, but there's little agreement about what kinds of aid are responsible, what schools are most likely to hike up their rates when the government's dollars come rolling in, or how significant the effect is. Basically, the details are hazy. 

Nonetheless, the notion that aid fuels college costs has become an article of faith on the right and is gaining currency on the left. President Obama himself embraced it a few months ago, when he declared that "if colleges and universities can't stop their costs from going up, then the funding they get from taxpayers, it should go down." Romney, for his part, promises that under his administration, "the federal government will no longer write a blank check to universities to reward their tuition increases, and by supporting institutions that are pursuing innovative operating models to drive down costs." 

Unfortunately, Romney doesn't detail exactly how he plans to do that. He does pledge to eliminate "duplicative, inefficient, or ineffective" aid programs to save administrative costs. As for Pell Grants, which help low-income students pay for school, he plans to "refocus" them "on the students that need them most and place the program on a responsible long-term path...." In other words, he'd cut the Pell budget and the number of loan programs the government runs. Would that pressure colleges into keeping down costs? Maybe. Or it might just drive students into the private loan market. It would certainly make paying for school more difficult for the neediest families, and without an explicit mechanism that punishes schools for tuition hikes, its hard to predict how college administrators would react. 

There is no good reason for this. No, really. None. 

Romney's suggestion that banks should once again play a larger role in student lending might be the only portion of his platform without a shred of good public policy rationale. One of the bonuses tucked inside Obama's health care reform bill was a provision that finally put the kibosh on the Family Federal Education Loan program, which slapped a government guarantee on private student loans issued by private banks. The program was an awful vestige of the 1960s, when Congress realized that, thanks to a bit of budget gimmickry, backing private loans would appear cheaper than making them directly. In reality, it turned out to be vastly more expensive, to the tune of billions of dollars a year by the time Obama nixed it. Today, the government makes all federal subsidized loans straight to students. There's no more middle man. 

Presented by

Jordan Weissmann is a senior associate editor at The Atlantic.

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