Nixon Returns

Congress is currently working on a new version of the federal Higher Education Act, and the issue of rising college costs is predictably front-and-center. As Scott Jaschik reports today at InsideHigherEd, politicians on both sides of the aisle seem to like the idea of a federal "watch list" comprised of those colleges and universities that post the largest annual tuition increases, in percentage terms.

This is a bad idea. It smacks of Nixon-era federal price controls, which I think everyone agrees seem pretty wacky in retrospect. It's flaws are obvious: a college that jacked up tuition a few years ago and is now just maintaining inflated costs would look good, while a college that waited until this year to increase prices would be identified as a bad actor--even tough the former would end up charging students more over the same time period.

Moreover, while the overall trend of increasing college costs is clearly a problem, a yearly increase in tuition at an individual college isn't necessarily a bad thing. Maybe all the money is being poured back into student services or targeted for financial aid for low-income applicants. Blunt-instrument policy levers like a simple tuition increase "watch list" can't make that distinction.

The real issue Congress should be worried about isn't price but value. If price was rising 6 percent a year while quality was increasing by 10 percent, I'd be thrilled, as long there was enough need-based financial aid to maintain access and keep student debt burdens managable. (Of course, need-based aid programs are expensive, one reason Congress is drawn to non-solutions like watch lists, which are free.)

The problem is that value is ratio--quality divided by cost--and we lack data for the numerator of that equation. This is one of the reasons why proposals to generate more comparable, institution-level data about student outcomes are so important. Indeed, the lack of value information is one of the main reasons prices are rising in the first place, because when there are no real independent measures of quality, the market tends to assume that price and quality are the same, giving institutions incentives to raise prices more than necessary.