By Watson Scott Swail, President & CEO, Educational Policy Institute/EPI International

Last week, I discussed the President’s proposal for cost cutting and keeping colleges on task and on budget. Yesterday, the Senate held a hearing on college affordability that basically showed how the government is handcuffed from finding a way to get colleges in line, fiscally or otherwise.

Senate Democrats and Republicans lined up and basically sound-bited (now a verb in a dictionary near you!) what we expect. Democrats said the government should do whatever they can to make college more affordable (according to Barbara Mikulski, D-MD). Republicans said they should let free markets take care of this (it wouldn’t be so funny if we didn’t know that the Republicans took the Democrats position back in 1998. Now it’s hilarious).

But I was taken by what North Carolina Republican Richard Burr said:

“Higher education is a great example of how the market place works.  When tuition gets too expensive, he said, “people choose to go somewhere else.” (InsideHigherEd.com)

I apologize, but this comment shows either naiveté or gross ignorance. I’m betting both.

First, higher education is about as far from free market as you can get. If you want free market, take away every government subsidy, from student loans, to core government funding, to federal and private research grants. Eliminate all of those, and THEN we can start talking about how this market really works. But we can’t, because most of higher education is highly subsidized by federal and state governments.

Second, when tuition gets “too” expensive, I don’t believe that most students go away, because we have conditioned them to take on massive amounts of debt that, according to Senator Mikulski, they have to take a mortgage for when there isn’t necessarily the ROI. I’ll ask the Senator to define “too” expensive, when we have national rhetoric saying that if you don’t go to college, you fail in the United States of America.

Think of this from an economic level and talk supply and demand. We have pushed the demand curve for post-secondary education so far out­—almost entirely on speculation—that the system has become completely unbalanced. We are asking for students to pay for way above market price for a return on investment that is starting to look south. This is true at public four-year institutions, and unbelievably true at private four-year institutions.

What we are doing in higher education isn’t so far off selling derivatives on Wall Street. We are telling taxpayers, or future taxpayers, that this is the risky investment you have to take, but please, don’t worry about the cost. The return on investment is phenomenal. Not a problem. Speculation, ladies and gentlemen. This type of analysis brought the current recession on.

The rhetoric is abusive on both sides. It is true that government can’t solve all these issues in higher education. Even Senator Enzi (R-WY) said that the feds should not increase student aid because it doesn’t work or at least isn’t cost effective (and he isn’t ALL that wrong; albeit a bit wrong, for sure; economists would support much of that argument). But at the same time, colleges have shown they are completely incapable of doing it themselves without some external force.

For instance, this week it was found that Claremont McKenna College admitted that they falsely report their SAT scores to the federal government and to US News and World Report. Why? So they rate better. They inflated the scores by approximately 10-20 points each so that they would go up in the rankings. Surprised? Do you think they are the only one?

Why does this matter? Because it goes to show that we can’t trust colleges, including university presidents and their boards, to do the right thing. Colleges and universities are becoming more like private corporations, where the focus is increasingly about institutional ROI, not student ROI. And that’s when the system falls down. And it is falling in a serious way.

As stated last week, I’m not sure exactly what the government does that will have any significant impact on college “costs,” but we are at that point that something has to be done. Senator Burr would love to leave the free market higher education system alone, but I’ve already said how stupid that is. But finding the balance of when government comes in? I’ll be the first to admit it’s a tough one.

It’s right of the Administration to bring this up for discussion, especially during an election year. But I, like countless others, will be interested in seeing what they really plan on doing and how they will do it. The discussion in the Senate yesterday shows that it won’t be an easy legislative path. The cynic in me says this will come and go and in another decade, when the average cost of attendance of a four-year public university is about $35,000/year (at least), maybe I’ll just pull this column up again. Let’s hope not.