Obama Proposes to Link Aid for Colleges to Affordability of Institutions

Saying “we just can’t keep on subsidizing skyrocketing tuition,” President Barack Obama proposed to have the government, for the first time, link federal aid to a college’s ability to control tuition costs and maintain education quality.

“We are putting colleges on notice -- you can’t assume that you’ll just jack up tuition every single year,” Obama said today at the University of Michigan in Ann Arbor. “If you can’t stop tuition from going up, then the funding you get from taxpayers every year will go down.”

For institutions that control costs, the administration is proposing to increase campus-based aid to about $10 billion a year, up from $1 billion. The bulk of the money, about $8 billion, would be devoted to Perkins loans for students, with other aid set aside for work-study grants and Supplemental Educational Opportunity Grants.

Obama said higher education today is “an economic imperative” instead of a luxury. “College is the single most important investment that you can make in your future,” he said.

The administration’s proposal calls for $1 billion to entice states to help keep costs down at public colleges while encouraging an overhaul of state programs that help finance education.

Obama is also proposing $55 million for individual colleges as an inducement to improve education quality.

Congressional Approval Needed

Congress would be required to approve the changes, which will be spelled out in greater detail when the president submits his fiscal 2013 budget to lawmakers on Feb. 13.

In his Jan. 24 State of the Union address, the president said that states need to make “higher education a higher priority in their budgets.”

As part of the package, the administration is urging Congress to block an increase in government-subsidized Stafford loan interest rates that would affect 7.4 million borrowers. Rates are set to double this summer to 6.8 percent.

Obama’s proposal would double work-study jobs on institution campuses, and he is urging Congress to extend beyond 2012 the Opportunity Tax Credit program, which offers as much as much as $10,000 in credits for four years of college.

In 2008 Obama won Michigan by 16 percentage points. Tuition and fees at the University of Michigan rose 6.7 percent in the 2011 school year after a $47.5 million decrease in state funding.

Lower State Investment

The president said he wants the U.S. to have the highest number of college graduates by 2020, though the weak economy has lowered state funding for education and stymied his calls for more investment in education.

Jack Jennings, president of the Center on Education Policy, a Washington-based group that advocates for public education, said Obama doesn’t have as many “power levers” when it comes to regulating higher education.

The president has more influence on policies affecting elementary and secondary education because the federal government’s money for higher education goes not to the institutions, but to students in the form of student aid, tuition tax credits and Pell grants.

“He’s got to deny Johnny Jones his loan in order to put pressure on the state legislature,” Jennings said. “Johnny Jones isn’t going to appreciate that very much.”

One-Third of Revenue

In the 2010-2011 school year, about one-third of the revenue of U.S. colleges and universities -- $170 billion -- came from federal student aid, according to an estimate by the Washington-based American Council on Education, which represents more than 1,600 college presidents.

Over the last decade, tuition and fees at public four-year universities increased at an average rate of 5.6 percent above inflation, according to the New York-based College Board. At private nonprofit colleges, that figure jumped 3.8 percent annually above that measure.

Including room and board, private colleges charged an average $38,589 a year -- and approached $60,000 at the most expensive institutions. Students who borrow for their education now graduate with an average of more than $25,000 in debt, twice the amount they were saddled with in 1996, according to the Education Department.

‘Price Control’

Colleges and universities would probably resist any attempt by the federal government to impose a kind of “price control” by tying federal aid to how much they charge, said Terry Hartle, senior vice president at the American Council on Education.

“The government would be telling you how you could price your product,” he said in a telephone interview. “Any industry would be unhappy with that idea.”

F. King Alexander, president of California State University, Long Beach, was one of a dozen university professors and higher education leaders at a Dec. 5 White House meeting with Obama and Education Secretary Arne Duncan to discuss ways to tamp down rising rates.

About a month ago, Alexander said, administration officials asked if he would consider coming to the State of the Union address on the condition that he pledge to freeze tuition rates for a year. He said he refused and told the officials: “We will be there if you make the 50 state legislatures and the 50 governors take the pledge first that they’re going to maintain their investments. It’s not up to us.”

State Legislatures

State legislatures must be “punished” for reducing their funding of higher education, Alexander said of his message to the president.

“The primary reason tuition has been going up so rapidly throughout the United States is because state legislatures have been abandoning their investments and commitments in their public institutions,” he said.

Alexander said he is meeting with White House officials on Jan. 30 to help develop a plan that would reward institutions that keep tuition rates low.

Holden Thorp, chancellor of the University of North Carolina at Chapel Hill, also attended the Dec. 5 meeting with the president and Duncan and said he and other university heads clearly delivered the message that “strained state budgets are a big part of the reason why tuition has gone up” at public universities.

North Carolina’s legislature has cut more than $100 million in state appropriations for the school in the 2011 school year.

‘Bully Pulpit’

“The president has the bully pulpit the way no one else in the nation does, and I think when he calls for certain actions to be taken, people take them seriously,” said Brit Kirwan, chancellor of the University System of Maryland, who was also at the White House meeting.

“There are regulations and the moral imperative to ensure that colleges remain affordable, and putting the onus on both the state government and universities is in my mind exactly the right way to go,” Kirwan said.

Universities can’t be “let off the hook,” said Kirwan, who oversees the University of Maryland, Towson University and several other schools with more than 150,000 students and an operating budget of $4.5 billion for fiscal year 2012.

In the 2013 budget, Maryland Governor Martin O’Malley, a Democrat, is calling for a 3 percent tuition increase and a 2.2 percent increase to the university system’s operating budget.

To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net; Kate Andersen Brower in Washington at kandersen7@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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