Obama Wants to Force Colleges to Reduce Tuition, but at What Cost?
In his State of the Union address on Tuesday night, President Obama “put colleges and universities on notice.” Find a way to stop tuition from going up, he told them, or risk losing federal aid money. Following up on that charge, Obama put forward a proposal on Friday at the University of Michigan that, if passed, would tie federal campus-based aid programs to tuition policies for the first time in history.
Under the plan, the Administration would shift aid away from those colleges that fail to keep tuition down in favor of institutions that “do their fair share” to keep tuition affordable. The plan would achieve this by targeting campus-based aid programs—work-study programs, Perkins loans and supplemental grants for low-income students—which accounted for $3 billion of the $142 billion distributed in federal grants and loans annually. The plan proposed increasing that total to $10 billion next year.
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Obama targeted campus-based aid programs, rather than much larger federal aid programs like Pell grants and Stafford loans, because those programs give money to students who can use it at any college, whereas Perkins loans go directly to colleges, where administrators can use the money as they see fit.
The plan also outlined a Race to the Top-style competition in which states would compete for $1 billion in prize money, a separate $55 million award for colleges that increase their efficiency, called for a doubling of work-study jobs and materials that will help families determine the true cost of college. The President also called on Congress to extend the interest rate reduction on subsidized Stafford loans as well as the opportunity tax credit, a $2,500 per year tax credit for working families with students who attend college.
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Incentivizing colleges to lower tuition sounds like a great thing on its face. College students are now taking on more debt than ever to compensate for tuition costs that are increasing twice as fast as inflation—even faster than health care costs. But at the same time, state funding for higher ed has just sustained record-high cutbacks. According to the annual Grapevine report from the Center for the Study of Education Policy at Illinois State University, 41 states cut funding for higher education in response to the slow economic recovery and the end of federal stimulus funds last year. Overall, in the past year alone, state funding for higher ed decreased by nearly 8%, or $6 billion. As state money declines, many have said the only way for colleges to compensate is for students to foot more of the bill. But if Obama’s plan were to pass, raising tuition wouldn’t be an option if states wanted to receive part of the $10 billion in proposed federal aid.