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.

Romney claims that when Obama "nationalized the student loan market," he "drove away private lenders and moved a trillion-dollar obligation to the federal balance sheet." This simply isn't true. The government was already on the hook for that money -- that's what it means when to guarantee a loan. If it goes bad, you pay. Other than that, Romney makes some noise about private lenders offering students more information and choice. Again, this is nonsense, unless you believe the banks were doing a fabulous job informing 18-year-olds about the risks of taking out debt before 2010. The long and the short of it: This idea looks like a give-away to the banks, or possibly a way to weaken the federal direct lending program.

Maybe not the greatest idea, unless you think recruiting at homeless shelters is OK. 

Romney would like to see less regulation across the economy, and higher education is no exception. He specifically singles out the "gainful employment" rule, which cuts off federal financial aid for vocational schools that fail to place enough of their graduates in decently paying jobs. The for-profit college industry fought an all-hands-on-deck lobbying battle against the regulation and would still love to see it disappear (It's probably no coincidence that two Romney's education advisers previously lobbied for Apollo Group, corporate parent of The University of Phoenix).

There are many smart people who believe the for-profit colleges are helping push higher education into the 21st century, especially through their pioneering role in online learning. There's certainly no reason to strangle the industry in its cradle. But the gainful employment rule was aimed at scaling back the sector's worst excesses, like recruiting hopeless students at homeless shelters and halfway houses, then encouraging them to load up on debt. Unless you truly in your heart of hearts believe that all regulation is bad regulation, there's no reason to eliminate it.

Now we're talking!

Of course, there are some regulations that do stifle innovation. Consider the government's decision in 2010 to formally define a credit hour. That appears to be the rule Romney is suggesting we eliminate, when he argues that colleges need more leeway to award degrees based on demonstrated skills rather than the time spent in a classroom.

As the country's major education lender, the Department of Education is interested in making sure degree programs meet certain standards, and since schools are accredited partly based on the amount of time students spend studying in and out of a classroom, the agency felt compelled to issue a formal rule.

The problem, which Romney's paper articulates rather well, is that time is an expensive and ineffective way of measuring achievement. Here's his take:

The current emphasis on time to degree, rather than measured competency, discourages more innovative learning solutions and continues the frustration of employers who are unable to fill high-skilled positions. Forcing students to complete a fixed term of study also drives up the costs for those who might need less time, while graduating those who have not yet obtained market-ready skills. Federal regulations and aid rules must change to facilitate instead of obstruct models that recognize and address this reality.

Exactly. If schools can figure out ways to graduate students faster and cheaper without compromising the quality of their education, there's no reason to let the government get in the way.