In piece for the New Republic that I missed when it came out, Kevin Carey provides a compelling diagnosis of the cost problem in higher education that's worth quoting at length:
[H]ighly-profitable lower division courses in common subjects like Economics, Calculus, and Psychology have similar curricula at most colleges and rely on many of the same nationally-marketed textbooks. They are often taught by people with no formal training in teaching. These courses are, in the education context, commodities....
Non-profit colleges don’t pay taxes, even when they have billions of dollars in the bank. People can use their publicly-financed college vouchers—and, increasingly, claim lucrative tax credits—for private college tuition. Because nobody really knows which colleges provide the best education, consumers have been trained to think of colleges like a luxury good: The best are the most expensive, by definition.
Non-profit colleges also don’t have shareholders demanding that they maximize the difference between revenues and expenses. Instead, they’re run by administrators and faculty who are most interested in competing for status with other colleges, which is determined by the size, expense, and ornateness of the academic greenhouses in which basic research and scholarship are produced.
For-profit colleges, on the other hand, do have shareholders, and the for-profit sector has expanded rapidly in recent years. But most have made the very rational decision to get in on the subsidy scam....
In other words, everyone currently in the four-year higher education business has a host of strong incentives to raise prices and hardly any incentives to lower them. Unsurprisingly, prices often go up and almost never go down. In the long run, this will badly undermine the legitimacy of higher education and weaken the case for public subsidization. College will become a private good affordable only to the minority subset of the population that can afford it. America’s aggregate level of human capital will suffer and our competitive position relative to other nations will decline. According to the OECD, many other industrialized countries are already increasing their levels of college attainment faster than we are.
Colleges have a strong collective interest in preventing this from happening. But each college has a strong individual interest in mainlining student tuition hikes for as long as they can. After all, if only rich people can afford to attend your college, that means you have a selective-admissions college full of rich people—which is what most colleges want to be. It’s mathematically impossible for all colleges to win this game, but they all think they can be among the winners. And the people running them today are concluding, correctly, that they’ll likely be long gone before the day of reckoning comes.
All of which is to say that college tuition addiction, like any serious dependency, can’t be cured by gentle moral exhortation. College won’t kick the habit of raising prices until the things they care about—money and reputation—are seriously threatened by competitors. Therefore, federal policymakers should help create those competitors by helping establish many brand-new colleges and universities.
I think he goes a little too far in ascribing a particularly selfish and short-sighted mindset to college administration leadership, but that's really irrelevant to his argument. At its heart, he is claiming that we have a tragedy of the commons situation. As long as you assume that the individuals making the decisions are rational economic actors, then their personal attitudes don't really matter. And I think he's right about the fundamental dynamic.
His answer, which he saw echoed (or at least hinted at) a few weeks later in President Obama's State of the Union address, is to use the power of Federal Pell Grants to do an end run around existing accreditation processes, unbundle the degree, and empower non-traditional providers to compete. He writes in the original article:
Congress and the Obama administration should create a new policy framework under which organizations can become officially recognized providers of higher education. Note, I do not say “officially recognized colleges or universities.” That’s because one of the things that makes college so expensive is that colleges (and the college experience these institutions provide) are expensive and currently people can only receive government-subsidized higher education services from colleges. Under the new system, any provider could receive payment via Pell grants, federal loans, or other current and imagined federal aid systems if they agree to a few baseline conditions.
First, they would be subject to strict price regulation. They would be free to offer courses for less than the maximum allowable amount per credit, but not more. Second, they would have to be extremely transparent about quality. They would be required to provide public information about how much their students learn, and have their access to federal aid rescinded if students are not learning enough [emphasis added].
These new providers would not have to be approved by independent accrediting bodies run by existing colleges and universities, as recipients of federal aid are today. In fact, they wouldn’t have to be colleges at all. InsideHigherEd recently reported that a pair of well-known Stanford professors are currently teaching an Artificial Intelligence course to about 200 Stanford students—and more than twenty thousand students around the world, online. The non-Stanford students won’t receive credits from Stanford, but they will receive official documentation from the professors as to how they scored on course tests and their overall rank. Under this new system, those professors would be free to set up their own business teaching Artificial Intelligence over the Internet, and students would be free to pay them with federal aid. Other providers might take advantage of the fast-growing body of open educational resources—free online courses, videos, lectures, and syllabi—and add value primarily through mentoring, designing course sequences, and assessing learning.
Students, of course, won’t want to pay for these courses if they can’t receive college credit that can be translated into a degree. So as part of the new system, any existing colleges that want to continue receiving federal financial aid will be required to accept any credits granted by participants in the new system in transfer. Because these new providers will have the imprimatur of United States government approval, they will be able to compete for students who want degrees backed by sufficient reputation. And because they will be inexpensive and attached to verifiable data about how much students are learning, they will make a compelling value proposition when competing with traditional colleges that have no such data, charge more money, and are weighed down by legacy expenses and change-resistant cultures [emphasis added].
I like the general idea of opening up opportunities for new entrants and changing the financial dynamic to break the tragedy of the commons vicious cycle, but there's a bit of magical thinking regarding the verification of quality. How would we do that? What would it look like? Frankly, we're not very good at verifying the quality of even traditional programs. There's a certain amount of social capital that these institutions earn through their long histories, reputations and, above all, their alumni. As Kelly points out, this system doesn't work very well. But dismantling it without a clear sense of what would replace it is dangerous, and I see no indication that he (or anybody else) has good ideas about quality verification in an unbundled system. I'm not throwing up my hands and giving up on that question or saying that it should be an excuse to justify the status quo. But I don't think we should ignore it either.