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Markets—Not Price Controls—Will Reduce College Costs and Improve Quality

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Unread 02.06.12, 05:55 PM
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Markets—Not Price Controls—Will Reduce College Costs and Improve Quality

On 02.06.12 11:40 AM posted by Lindsey Burke

Education entrepreneurs are about to do what President Obama’s proposed price controls on higher education never will: dramatically reduce the cost of attending college.

In fact, the soaring cost of college could soon go the way of the once-bloated housing market, fulfilling the predictions of many that the higher education cost “bubble” is about to bust. As the cost of attending college continues to soar, private entrepreneurs are beginning to harness the seemingly unlimited power of digital education to democratize access to college coursework.

The pricing strategy of the top universities could be on the brink of collapse as companies such as Udemy disaggregate the college product and offer low-cost prices at high volume, a disruption not unlike that which shook the traditional newspaper industry.

Inside Higher Ed reports:
Udemy, a company that allows anyone to create and sell courses through its online platform, has announced a new area of its site, called The Faculty Project, devoted to courses by professors at a number of top institutions, such as Colgate, Duke University, Stanford University, Northwestern University, Vanderbilt University, the University of Virginia, Dartmouth College and Vassar College. While Udemy is a for-profit enterprise, the Faculty Project courses will be free.… There are no caps on course enrollment. “It could be 10 people, it could be 100, it could be 1,000,” says Ben Ho, the Vassar College economics professor who is teaching the course on water and humans.

While Udemy is currently designed to provide access to students across the country to lectures by some of the nation’s top professors, other budding companies, such as Udacity, created by Stanford professors and launched in late January, aspire “to administer quizzes and grade its anticipated droves of students, which may number in the tens or hundreds of thousands.”

It’s a sign of what could be, and a necessary disruption to the traditional higher education system, which has grown too expensive while not always making good on its promises of providing degrees of high value. These new market forces placing pressure on ossified colleges are exactly what needs to happen to drive down costs over the long run and increase access and quality for students across the country.

By contrast, President Obama’s proposal to reduce college costs, outlined in his recent State of the Union address, will likely have the exact opposite effect. President Obama “put colleges on notice” in his remarks, stating that his Administration would link access to federal higher education subsidies to colleges’ ability to reduce tuition and costs. Sounds like a reasonable plan; after all, shouldn’t taxpayers be able to hold colleges accountable for the dollars they receive from Washington?

But President Obama’s approach encourages states to increase spending on higher education and increases federal Perkins loan spending to $8 billion (from $1 billion, annually). So while President Obama might have “put colleges on notice” to reduce costs in order to have access to federal subsidies, his overall plan includes significant new spending increases—just the type of increases that have led to price hikes for the past several decades.

The cost associated with attending college has exploded over recent decades. Since 1985, the cost of attending college has increased 439 percent. And continual increases in federal subsidies have not alleviated the problem. Pell Grant funding has increased 475 percent over the same time period. The University of Virginia’s Keith Williams writes: “Ironically, these financial concerns come at a time when the cost of basic knowledge is lower than ever before.” And as Heritage’s Stuart Butler writes in National Affairs:
If this transformation does come to pass, it could have profound and beneficial implications. It could significantly increase the international competitiveness of American workers in a world in which we need higher skills and productivity to compete. It could sharply improve the employability of those on the bottom rungs of America’s income ladder, giving them the tools they need to move up. And it could do much to restore the American Dream for those who have begun to believe that opportunity in this country is disappearing. In other words, such a change could hardly come too soon.

Down the road, it’s entirely possible that students could earn a college degree of comparable—or even better—value for one-tenth of the current price. But it won’t be price controls from Washington or more federal subsidies that improve quality or lower costs. It will be the growing online learning industry coupled with the innovation of the free market, which has worked to reduce costs and improve services for every other sector of American life.

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