Obama on Tuition: An Educated Consumer Is the Best Customer

President Barack Obama speaks about affordable college education during a town hall meeting at Binghamton University, Friday, Aug. 23, 2013, in Vestal, N.Y. Obama is on a the second day of his two-day bus tour in upstate New York and Pennsylvania. (AP Photo/Mike Groll)
Mike Groll/AP

If Obama's long-term plan to transform higher education in America ultimately passes Congress, it may fundamentally change the relationship between universities and the federal government. But in the short-term, he's using a method that should be familiar to observers of his administration: he's attempting to educate the market -- and allow it to make its own decisions.

The President's ultimate plan, for which he's suggested a tentative 2018 date, would tie student loans to university outcomes. Students who wanted to attend schools with good educational outcomes and a high return on investment would be able to get more government loans and grants, and would pay lower interest rates. On the other hand, students who wished to attend schools with poor educational outcomes and a lower return on investment could do so, but would have to pay more of their own costs. Effectively, Obama's long-term plan would make it cheaper for students to go to schools with high graduation rates, high post-graduate salaries and greater economic diversity.

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For anyone wondering how the President's political opponents would respond to this plan, the reactions to Obamacare give a hint: the health care program has been attacked as a market interventionist, price-fixing, socialist attack on private enterprise. Not surprisingly, some of the President's harshest critics have already started down a similar path in their response to his education plan.

Given the predictable attacks on Obama's long-term plan -- and the inevitable army of lobbyists who would be sure to water down any substantive changes that it included -- it isn't surprising that the core of his proposal involves educating the market. Setting up a ratings system, after all, would not require congressional approval, which would make it harder for lobbyists and special interests to get their grubby fingers on it.

Not surprisingly, the market emphasis in Obama's educational proposal also mirrors Obamacare. As analystshavenoted, by making consumers more responsible for their health care decisions, Obamacare will force them to become more knowledgeable about their insurance coverage. Similarly, under Obama's education plan, students would have the tools for educating themselves about their college choices.

Admittedly, it's not like there isn't already a wealth of information on colleges and universities; but, as David Leonhardt notes in The New York Times, it is scattered across numerous websites, and many students and their families don't necessarily understand which factors are most important when it comes to determining the return on investment from education spending.

Obama's ratings would likely put this information in a single, centralized place, and would organize it into a more easily-understood ratings system. For prospective college students -- especially those facing economic hardship -- this could be a game-changer.

Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

Originally published