Traffic Jam on the Road to College Affordability

UV Letter - Volume II, #10

President Obama has hit the road to talk to America about college affordability. Two weeks ago the President did a “slow jam” with Jimmy Fallon on late night television to demonstrate his support for keeping subsidized Stafford loan rates at 3.4%. Since then, in speeches delivered at UNC Chapel Hill and the University of Iowa, the President has talked about his own experience with student debt and how the nation can ill-afford further increases in the cost of higher education.

While some pundits have characterized this as a campaign tactic to reestablish his credentials as a regular guy and rally the President’s base around a simple concept (“don’t double my rates”), others say this is the rare occasion when federal action (or inaction) will actually impact how much students are paying for college. In the past, government efforts have focused on highlighting schools with the highest rates of tuition growth and convening White House meetings to brainstorm ways to restrain spending growth – a lot of talk, but no action.

Unfortunately, the current political skirmishing over maintaining the 3.4% rate and how to pay for it is a distraction at best. First, this low rate has only been in place for the last year – the result of legislation at the start of the financial crisis that lowered the subsidized Stafford rate gradually over the past four years and sunsetted in 2012. Second, a higher rate only impacts new loans (i.e., for the 2012-13 academic year and beyond). Third, not every college student qualifies for subsidized Stafford loans – about 30% of undergraduates do. Finally, for those who are impacted, the monthly increase in payments (per year of loans) is estimated to be $8. So the notion that inaction leads to a cataclysmic doubling of everyone’s rates is a stretch.

Much more pertinent, as the President has noted, “It’s not enough just to increase student aid; we’ve also got to stop subsidizing skyrocketing tuition.” There’s no question that federal policy has contributed to tuition increasing at double the rate of inflation over the past 20 years. Federal spending on higher education increased nearly 400% in real dollars from 1985 to 2010 – all of which bolstered college and university budgets and supported exorbitant tuition increases.

But in recognizing that past federal policy has subsidized tuition hikes, the Obama Administration is at least on the road to college affordability. Where this road must lead, of course, is increased productivity in higher education – better or equivalent educational outcomes at a much lower cost.

In our last University Ventures letter, we suggested 10 innovations that should bend the cost curve in higher education, making it much easier for institutions to provide affordable degree programs. Seven of these 10 trends involve technology to a greater or lesser extent. The good news is that we’re seeing a blossoming of technology for higher education. The bad news is that most of these innovations are occurring outside the framework of accredited degree programs. Companies like Coursera, Udacity, Udemy and Code Academy are highly innovative, but are not lowering the cost of obtaining a degree.

In April alone, over $100M was invested into 13 education technology companies, many in Silicon Valley. But only one – Straighterline – offers courses that can be recognized for credit, thereby potentially reducing the cost of college. Certainly, Harvard and MIT’s announcement last week that they would jointly invest $60M in “edX,” a not-for-profit platform to offer massive open online courses (MOOCs) on a not-for-credit basis, may be a PR coup for these elite institutions, but it does not get us any closer to our destination.

One reason these investments are steering clear of accredited degrees is higher education’s allergy to change. But another, we submit, is the Obama Administration’s approach to private sector involvement in higher education.

Following the controversial negotiated rulemaking process that concluded last summer and yielded a series of rules reigning in private sector colleges and universities, the Administration continues to attribute base motives to the private sector. Two weeks ago, at an announcement of a new executive order concerning military recruitment, the President himself said of private sector institutions: “They’re not interested in helping you find the best program. They are interested in getting the money. They don’t care about you; they care about the cash… They are trying to swindle and hoodwink you.”

Using the bully pulpit in this way sends a clear anti-private sector message to officials and decision makers in the Department of Education, at accreditors, and at the state level. The result is a need to be “more Catholic than the Pope,” and innovative programs from or in partnership with private sector operators are less likely to be approved. Traditional higher education has caught the same bug; at last week’s Harvard-MIT announcement, MIT’s Provost questioned Coursera’s for-profit structure: ““We feel very strongly that that data should be available for research under the governance of a not-for- profit structure.”

It’s no wonder that the innovators are playing around the edges – steering clear of core higher education where innovation is most needed. True college affordability will only come from meaningful innovation within degree programs. And since most scalable innovation in this country comes from the private sector, demonizing the private sector and the profit motive for whatever reason – even a good one, as is the case with military recruiting – is a surefire way to forestall the innovation we need.

So while the President’s “slow jam” may be slowing traffic on the road to college affordability, continued attacks on private sector involvement in higher education have the potential to cause a major traffic jam.

We're on the right road, Mr. President. But with all due respect, please get your motorcade out of the way!

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.

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