Will Obama’s Plan for Colleges work?

Across the Western World further education funding is a real problem as costs for students are increasing, making the experience unaffordable for many. So, just like healthcare, Obama declared that he thought there was a real issue and that he had a plan to fix the problems:

“To create a better bargain for the middle class, we have to fundamentally rethink about how higher education is paid for in this country,” Mr. Obama said. “We’ve got to shake up the current system.”

Yet, if his plans are anything like his healthcare plans, it’s not really going to solve anything. Yes, the Obamacare plans will make it easier and cheaper for some people to get healthcare coverage, but it really isn’t tackling the root cause of the problem. Healthcare and education are expensive, but Obama just seems to want to gloss over the problem. Both ideas are good in principle, but it just ends up transferring the cost from the individual, and potentially family savings, to taxpayers. Now, this doesn’t always make a difference – the UK’s new funding method will likely see many unable to pay back the higher loan within 30 years, meaning that taxpayers are still on the hook. But, Obama’s method, in both healthcare and education create additional problems – there is a moral hazard as colleges know it’s the government’s “free money” instead of the money price sensitive individuals. For example, in the UK, we’ve seen a drop in applications are many believe it isn’t worth it at the higher prices (in fact, it’s probably not worth it for a large minority of people).

There’s also the potential that it might not get cheaper: with healthcare, many are seeing heavy insurance increases over the next few years until the caps come into force.

Now, Obama has announced his college plans, and as expected, they probably won’t improve much.

The president will call for rating colleges before the 2015 school year on measures such as affordability and outcomes, including graduation and transfer rates.

A rating system is a bad idea. It likely won’t fix anything, and will ensure that the colleges have an incentive to try and boost leaderboard and rating scores rather than targeting the issue or trying to provide the best education.

Mr. Obama also will urge innovation in higher education, encouraging colleges to pursue ideas including three-year accelerated degrees and massive open online courses. The president will return to some familiar ideas as well, calling for an expansion of his pay-as-you-earn program that caps student loan payments at 10% of monthly income and re-upping his funding requests for the Race to the Top program, which is focused on state higher education reforms.

These changes will probably mean that just like the UK, many won’t actually repay the cost, increasing the burden on the state.

Students at top-performing colleges could receive larger federal grants and more affordable student loans. The plan is expected to spur pushback from some colleges.

This is another problem. Not everyone can get into the top-performing colleges, and there is the problem of how these will be ranked and chosen. It’s possible that just as with the ratings system, that colleges just try and meet these targets, rather than trying to help the students. This would mean that people are actually worse off. In addition, you can also have the problem where some colleges are average overall, but have leading programmes in other subjects.

To fix the cost problem, I think it’s best to eliminate the monopoly that universities have on creating what is seen as workforce-ready professionals. This could be done through more apprenticeships, but also through disruption. Further education hasn’t changed in a long time. It’s usually just a case of a lecturer standing in front of students and providing the same lecture and coursework, year after year. ECON 101 wouldn’t have changed in a long time. Thus, you could become a lot more efficient by recording the lectures, saving time and money – meaning that they can be provided online at little cost. Online university courses from places like Stanford and Harvard are in many cases exactly the same as the course at the university – except that only one set of the students is paying a high fee just to sit their in person.

Of course, online education isn’t there yet. It’s a long way until the whole exam and coursework issue gets sorted, as well as the fact that standards need to be set to ensure that the online degree is worth a similar amount to the traditional degree. To solve this, it’s likely that a hybrid system could be used. However, eventually disruption will take place and we will have a real solution to the cost problem – not just politicians trying to patch things up. Employers might not get the value of a “hybrid” degree straight away, but with proper standards, and with universities wanting to protect their reputations, things will catch up.

There are also problems in that too many people just go into further education because they have nothing better to do and culturally it’s seen as acceptable, but for many people it’s not the best solution. Some things aren’t really worth further education. I’ve seen courses in Golf Course Management – what’s wrong with just joining a golf club as a trainee and working your way up? However, that’s an article for a different day.

It’s disappointing that Obama’s plan won’t change anything, but disruption will probably sort things out in the end.