This article originally appeared in the Washington Post on February 6th, 2018. You can read the original article here.
Just for fun, let’s design an economic sector guaranteed to cost too much. Then you guess what it is. For openers, we will sell a product deemed a necessity, with little or no option for the customer to avoid us altogether. Next, we will arrange to get paid for inputs, not outputs — how much we do, not how well we do it. We will make certain that actual results are difficult or impossible to measure with confidence. And we’ll layer on a pile of complex federal regulations to run up administrative costs.
Then, and here’s the clincher, we will persuade the marketplace to flood our economic Eden with payments not from the user but from some third party. This will assure that the customer, insulated from true costs, will behave irrationally, often overconsuming and abandoning the consumerist judgment he practices at the grocery store or while Internet shopping.
Presto! Guaranteed excessive spending, much of it staying in the pockets of the lucky producers.
You say, “Oh, sure, this is American health care.” As soon as we took the fatal misstep of untaxed health insurance — compounding the error of World War II-era wage and price controls with a greater mistake — we were doomed to a future of overly expensive medical care.
Your answer is correct but incomplete. It worked so well in health care, we decided to repeat the formula with higher education. Some sort of postsecondary education is, in fact, necessary for a fully productive life in this economy, but by evading accountability for quality, regulating it heavily, and opening a hydrant of public subsidies in the form of government grants and loans, we have constructed another system of guaranteed overruns. It is the opposite of an accident that the only three pricing categories that have outpaced health care over recent decades are college tuition, room and board, and books.
Health care has been crab-walking its way toward a modicum of consumerism through higher co-payments, deductibles and health savings accounts. Foolishly, the federal government has generally thrown obstacles in the path of these adjustments, but it has tried in its own clumsy way to effect some cost reduction by putting providers at some risk for poor performance and results.
In much the same manner, a promising movement is advancing in education to put some of the risk of lousy results — students who do not graduate or who graduate without having learned enough to earn their way in the world — on the institutions that “educated” them. It is about time. This game has been skinless far too long.
Various approaches are being examined as Congress advances a long-overdue rewrite of the Higher Education Act. As a condition of participating in the federal student aid programs, universities could be required to either guarantee a percentage of the dollars loaned to their students, or be penalized a specified amount based on default rates. Or be charged a yearly premium for an insurance fund that would, at least partially, protect taxpayers against what has turned into the latest massive driver of national debt. With more than $1.4 trillion in student debt, and nonpayment rates climbing past 45 percent, the multibillion-dollar write-offs we have seen already are just the leading edge of what is coming.
All these approaches have merit, and any of them would be a huge improvement over the built-for-excess model under which we’ve been operating. Just as health-care spending can be adjusted for the health status of a given population, schools’ exposure or premiums could vary with the characteristics of their student bodies.
My guess is that even a small degree of risk-sharing in higher education would cause significant behavior change. While the hydrant gushes unimpeded, schools have been free to duck hard choices — or even modest priority-setting. Most practice “incremental budgeting,” an unintentionally self-indicting term that indicates that each year’s budget spreads additional funds around evenly, with no serious thought given to ending obsolete or useless programs, and no meaningful prioritization among existing activities. Even a small charge, plus the embarrassment of its public announcement, would probably jar many schools from their complacent ruts.
Better counseling of students and their families, more attention to reducing the time it takes to earn a degree and, most straightforward of all, controlling how much is charged in the first place would all likely become more common. Progress is not impossible; at Purdue University, these actions in combination have reduced total student debt by 37 percent over the past five years.
Some of my higher-ed colleagues have recently described themselves as “blindsided” by growing criticisms of our sector. In the case of student debt, everyone should have seen the issue coming. An important secondary feature of the at-risk reforms is that they have attracted a unique level of support across our fractured political spectrum. Members of Congress and think-tank scholars from both sides are actively advocating these changes in one form or another. These days, when a proposal leads people to lay down their partisan cudgels and cooperate, it must be an exceptionally good idea.