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

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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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."

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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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