Obama Lobs College Affordability Bomb as Congress Gears Up for Budget Talks

Obama will seek ‘a better bargain for the middle class’ as Congress calls for belt tightening this fall

President Barack Obama hit the road last week with a two-day bus tour of New York and Pennsylvania to promote his new college affordability plan as he gears up to face the next round in the U.S. budget battle when Congress convenes for its new legislative session starting Sept. 9.

Over the back-to-school weeks in late August and September, Obama is targeting rising college costs as part of a series of speeches that seek “a better bargain for the middle class” in terms of education, jobs, housing and health care. Not surprisingly, the speeches blame Republican lawmakers for hurting the middle classes with a growing U.S. wealth gap — and Republicans, for their part, have responded by calling Obama off the mark.

President Barack Obama (Photo: AP)“At a time when a higher education has never been more important or more expensive, too many students are facing a choice that they should never have to make,” Obama said in his kickoff speech on college tuition at the University of Buffalo on Thursday. “Either they say no to college and pay the price for not getting a degree — and that's a price that lasts a lifetime — or you do what it takes to go to college, but then you run the risk that you won’t be able to pay it off because you've got so much debt.”

Obama rightly stated that college has never been more expensive, stating that over the past three decades, the average tuition at a public four-year college has gone up by more than 250% while a typical family's income has only gone up 16%. The average student today will graduate with more than $26,000 in debt, he said.

Obama’s plan would rate colleges before the 2015 school year based on measures such as tuition, graduation rates, debt and earnings of graduates and the percentage of lower-income students who attend, according to The New York Times. “The ratings would compare colleges against their peer institutions. If the plan can win congressional approval, the idea is to base federal financial aid to students attending the colleges partly on those rankings,” The Times reported.

At the same time, the president took a dig at his opponents in Congress, accusing them of throwing up obstacles to U.S. economic recovery and blocking the attempts of average Americans who are trying to keep up with the rising cost of living.

“Rather than keeping focus on a growing economy that creates good middle-class jobs, we’ve seen a faction of Republicans in Congress suggest that maybe America shouldn’t pay its bills that have already been run up, that we shut down government if they can’t shut down Obamacare.”

After its five-week recess, Congress on Sept. 9 will renew talks on three financial issues: 1) a stopgap measure to fund the government in the first few months of the fiscal year that starts Oct. 1; 2) raising the government’s $16.7 trillion debt limit; and 3) replacing about $1 trillion in the across-the-board spending cuts of sequestration.

Already, Obama’s college plan has received much press and commentary nationwide, not all of it good.

Republicans on Capitol Hill were quick to criticize, The Washington Post said, with Sen. Lamar Alexander of Tennessee, the top Republican on the Senate Health, Education, Labor and Pensions Committee, calling the proposal a form of government overreach and suggesting a state-by-state approach would be preferable.

“Washington needs to be careful about taking a good idea for one state and forcing all 6,000 institutions of higher education to do the exact same thing, turning Washington into a sort of national school board for our colleges and universities,” Alexander said.

A story in The Wall Street Journal, meanwhile, estimated that a debt forgiveness part of the Obama plan would cost the government $6 billion over a decade. And in a Journal weekend interview, Richard Vedder, Ohio University’s director of the Center for College Affordability and Productivity, says the Obama plan doesn’t deal with the fundamental problem of government subsidies. Vedder places blame for skyrocketing tuition on the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans, saying they have encouraged colleges to splurge on cushy classes and lush amenities.

Also paying close attention to the viability of Obama’s plan are groups that focus on helping students and their parents save for college.

Joseph Hurley, founder of SavingforCollege.com, which analyses 529 college savings programs, said he applauds any plan to tie financial aid funding to student outcomes, but he wonders whether the Obama plan would be bogged down by red tape or politicking.

“Why should institutions that are not doing a good job receive the same federal resources as those institutions that are doing a good job?,” Hurley wrote in an email. “However, creating the ranking system proposed by the president will become very unwieldy and most likely will become watered down in the design and implementation process. The colleges will probably be hiring special consultants to find ways to improve their rankings under the system, without necessarily improving their educational processes, much as they hire enrollment consultants now.”

Eleanor Blayney, consumer advocate for the CFP Board, said Obama’s plan to use a competitive marketplace among colleges and universities to determine which get the most federal funding for student loans “makes at least conceptual sense,” though the devil is in the details and logistics of a rating system.

“What would not make sense, in my judgment, is a system that allows the ‘Pay as You Earn’ loan repayment plan, without corresponding reduction in tuition costs,” Blayney wrote in an email. “The ‘Pay as You Earn’ plan allows a much longer payback period than do the standard student loans: 25 years versus 10 years.  The problem with this is that borrowers can still find themselves paying these loans back well into their forties, even fifties, when there may be a lot of other financial demands that they should be addressing. The higher the amount borrowed (as a result of uncontrolled tuition amounts), the more of the debt burden shifted to later years.”

Read 8 Back-to-School Planning Tips for Advisors (and Their Clients) at ThinkAdvisor.

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