College Cost Reduction and Access Act, Part 3

On September 27, 2007, President Bush signed the College Cost Reduction and Access Act into law. I previously blogged about this very significant piece of legislation here and here. Several additional points come to mind about this legislation, so I am setting them out here.

First, the act does seem to address the problem of spiraling higher education costs in a fairly head-on manner. I should note that as Kiplinger's Personal Magazine reported in an article on 9/28/07, the act is being funded, at least in part, by reductions in federal subsidies to student loan companies. So that puts some of the bill sponsors' statements about this being "no-cost" legislation in better (and somewhat more accurate) perspective. (See my previous posts for more regarding that point.)

Second, while I think this act is a welcome development, it is worth pointing out that being in favor of education is sort of like being in favor of Mom and apple pie. People generally are not against education per se. So that explains much about the bill: popular subject + big problem = grand legislative solution. That's not a criticism; it's just an observation. Hopefully the impact of this new law will be positive and it will help many in need of student debt assistance. An Associated Press article that ran nationwide on 9/30/07 highlights the problem quite well.

Third, as astonishing as it may seem to people outside academia, tuition costs at most universities do not cover the cost of education. Does that help explain the rapidly rising cost of higher education in recent years? I think in large part it does. True, state colleges and universities receive state subsidies--but in many cases those subsidies have been reduced in recent years. Also, both private and public universities look to private donors for donations to build up their endowments, and those monies are used to fund school programs. And, of course, colleges and universities also obtain state and federal grant money for many of their programs.

But the fact remains that tuition increases are sometimes hard to resist. For example, what happens when a school has little endowment--or even rich endowments but still needs more capital? Neither situation is uncommon. If students are willing to pay more, and if the school is able to charge more (many states limit or cap public institution tuition rates by statute), then there is strong temptation for schools to raise tuition rates or tack on special fees. And it's a really tough choice, I think, because the students pay either way: either schools raise tuition, and students bear the brunt of it, or schools do not, and therefore cannot fund many much-needed educational programs. To give just one example, higher educational literature puts a great deal of focus on the importance of "active" learning (as opposed to passive lectures in big halls)--but active learning is often more expensive. So sometimes the choice might boil down to providing better and more costly education versus controlling costs at the expense of educational quality. Again, either way, it's the students who pay.

I fully realize, of course, that more money does not in all cases equal better education. Yet sometimes it does. And as schools offer more innovative programs like clinics and externships, focus on reducing faculty-student ratios, and invest in technology to make the classroom more interactive, someone has to foot the bill. The College Cost Reduction and Access Act hopefully means that students will foot less of it over time. But if it does not completely solve the problem--and I don't think it will--then we are back to the question of who pays. If rich donors come forth voluntarily, that's great, but there will be some institutions left out in the cold. If we decide to federally subsidize higher education that might be great too, but it also likely would be fraught with problems.

Like any good (bad?) law professor, I am doing a far better job of posing questions and framing issues than I am of offering answers. For me, at least right now, the answers are unclear. What is clear, however, is that in today's information economy, education is of paramount importance for the nation's economic well-being. Reducing the debt burden of students is an investment worth making.

PS: Education is a service, and I blogged about the rapidly rising cost of services last year in two posts on the subject of Baumol's Cost Disease (here and here). Those discussions are relevant to this topic too for those who are interested. The gist of Baumol's Cost Disease is that the cost of services often rises faster than the overall rate of inflation, because while we can automate many processes or make them more efficient--and thus hold the price (and rate of inflation) down--it's harder to automate certain services like teaching. Which from a purely self-interested point of view is not necessarily a bad thing.