Tuesday, February 22, 2011

College costs

An interview with economists Robert Archibald and David Feldman related to their book on college costs.

I think they are generally correct about the diagnosis, I am less pleased with their suggested treatments. Three points:

1. I agree with them that the federal student aid institutions are designed remarkably poorly. They are too complex and the results often get revealed after students have to make their enrollment decisions. These things are "easy" to fix and my understanding is that they are to some extent being fixed, partly as a result of research by my Michigan colleague Sue Dynarski.

2. I think they are too kind to Georgia's HOPE scholarship program. It has led to all sorts of strategic behavior around grading and course-taking, both in high school and in college. David Mustard at the University of Georgia has written some nice papers on this. One could argue about HOPE is better or worse than subsidizing tuition, but it is not any sort of general solution as it still represents a huge transfer to upper-middle-class people from those below them in the distribution of income.

3. I think they understate the possibilities of additional competition. There is no reason, for example, for there to be differences in tuition between in-state and out-of-state students at state universities. Canada doesn't have provincial differentials of this sort. The feds could end these instantly by making their grants and loans useable only at schools without such differentials. This would enhance competition, especially for students from small states.

4. Not unrelated to the preceding comment, I would like to see all the funding go through the student rather than the school. Schools would charge what they want to charge, students would have a voucher incorporating their need-based and merit-based subsidy from the taxpayers, and things would sort out in an open market. I expect that a side result of such a system is that states would get out of the day to day business of operating universities, which I think would be a salutary development, as states have no obvious comparative advantage in this activity.

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