India's Bold Solution to the U.S. College Crisis: Federal Universities

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A system of national universities would fight the rise in tuition, accommodate millions of low-income and immigrant students, and boost national research spending

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Reuters

What if we could attack three major national challenges with one government program? That would be a major coup. And in fact, I have an idea for exactly such a program: A system of federal universities.

Much has been written about the explosion in tuition at American universities. Actually, this rise has been exaggerated; much of the increase has been in the "sticker price" of college rather than the "net price," which is what students actually pay (need-based financial aid and merit-based scholarships make up the rest). Still, according to the College Board, the inflation-adjusted net price of public universities has gone up by over 30% in the last 15 years, while for private universities it has gone up by 22%. Those are not the enormous rises that have been advertised in the press, but they are substantial. And much more worrying is the rise in student debt. Increasingly, students are paying for college with debt instead of with their parents' money or with their own earnings. As a result, student debt increased by over 500% from 1999 to 2011. If there is anything that recent economic history should teach us, it is that household debt is a very dangerous thing.

So the price of college is high. And attendance has been growing, especially among Hispanics. When you have increasing price and increasing quantity sold, Econ 101 tells you that what you're seeing is a shift in the demand curve. Lots more people want to go to college, and they are willing to pay more. The reason for the increase is not surprising -- it's the college wage premium, combined with low unemployment among people with a college degree. No wonder everyone wants to hop on that gravy train, even if it means shelling out big bucks up front.

And we can only expect demand to increase, especially if we do what we ought to do and let in a lot more high-skilled immigrants. Those immigrants will be great for the economy, but their kids are going to be competing with native-born kids for college spots. Unless we do something, that competition could cause a xenophobic backlash among the high-skilled native-born, as well as driving up tuition even further.

What do you do when you have a big increase in demand for a product? Well, if you're a company, you probably ramp up supply. That will increase quantity sold, and bring prices down. But how can the supply of college seats be increased?

The private sector has had a devil of a time providing quality college education. Sorry, University of Phoenix, but you haven't managed to command the prestige of the University of Arizona. It may be that college is just something that nonprofits are better positioned to provide than for-profit firms. Another effort to bring college to the masses is online education. This is more promising. But while online courses can be great for transferring specific skills (like coding), they inherently can't provide many of the essential kinds of "human capital" offered by real, in-person college -- human networks, career ideas and perspective, one-on-one mentoring, and of course personal growth. It is no coincidence that "college" comes from the word for "community."

So here's my idea for increasing the supply of college: A system of federal universities. Currently, we have no such system, but it is not unconstitutional. After all, the federal government runs the United States Military Academy at West Point. My idea is simple: The federal government provides start-up funding for a large number of new universities, offering attractive salaries to professors.

Why federal universities instead of state universities? State spending is likely to focus on the existing state university systems. But that will have a limited impact on total college availability, for two reasons. First, increased state funding for existing universities may simply displace alumni funding or tuition funding. That could lower the net price of college, but would have a limited impact on enrollment. Second, there are many geographic areas that don't yet have elite universities, or only have a few (Ohio comes to mind, as well as much of the Southwest and the Pacific Northwest). Federal universities could fill these gaps. Finally, it's very difficult to coordinate policy between states, and if we want to create new universities on a large scale, only federal government can do it.

WHERE FEDERAL UNIVERSITIES HAVE WORKED: INDIA AND JAPAN

Federal university systems have been very successful in other countries. One prime example is the Indian Institutes of Technology (IIT), a system of 16 engineering schools that have produced a startling number of superb graduates in technical fields. The best IITs rival MIT and CalTech in quality. Another example is Japan's federal university system. Top federal universities such as Tokyo University, Osaka University, and Kyoto University rival the Ivy League in quality. The "proof of concept" is there.

A system of national universities would (1) fight the rise in tuition, and (2) accommodate all those smart second-generation kids whose parents we should be recruiting to our country in droves. But it will also help the nation in a 3rd way by giving us an outlet for higher research spending. The U.S. has been spending less and less on R&D as a percentage of our GDP, even as R&D becomes more and more important. In part because of this, there are legions of PhDs being forced to take private-sector jobs in which they have no expertise. These trends need to be reversed in order to maintain America's status as the leading technological nation. And a system of federal universities is the perfect vehicle to increase research spending and provide an outlet for all those PhDs.

At this point, some of you may be rolling your eyes: "Another budget-busting federal program?" Well, as any chief executive will tell you, it takes money to make money, and higher education is what America does best. A federal university system is an investment in a key public good. But also, comfort yourself in the knowledge that federal universities will rely less and less on federal funding as time goes on - as they build up prestige and alumni networks, the federal universities will eventually become self-funding nonprofits, much as our state universities are becoming. Federal universities are an idea whose time has come.

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Noah Smith is an assistant professor of finance at Stony Brook University. He writes regularly at Noahpinion.

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