Does Obama Have a Solution for Rising College Costs?

I have one child in college (Wahoowa!), another set to start this September, and two more who will join them within the next four years. So my ears perked up during Tuesday night’s State of the Union address when President Obama said that once kids graduate from high school “the most daunting challenge can be the cost of college.”

The president isn’t kidding. As the chart below shows, the tuition and fees that colleges charge have skyrocketed over the past three decades, far more than inflation alone would explain.

Chart source: College Board.

If reading charts is not your cup of tea, the following statistic makes the basic point. If you enrolled at the University of Virginia in 1981 as an in-state student, you would have paid $1,146 in tuition and fees for the year. During the current 2011-12 school year, in-state students will pay $11,794 in tuition and fees. If UVA’s tuition and fees had risen in line with the inflation rate, in-state students today would be paying $2,836.

What makes matters worse is that the $11,794 doesn’t include the cost of room and board, books, and miscellaneous expenses. Throw those costs in and UVA estimates that the bill for the 2011-2012 school year for in-state undergrads comes to $24,344, or nearly $100,000 over four years. (Out-of-state students can expect to pay an additional $25,000 per year.) That $100,000 can buy you a three-bedroom house in Dubuque, Iowa.

Students (and their parents) have responded to the rising price tag at UVA and virtually every other college--the military academies are still free--by borrowing money left and right. As Obama noted Tuesday night, Americans now owe more in tuition debt than in credit card debt. The average student graduating college in 2011 had $25,250 in debt, and that number is expected to grow.  That trend is not sustainable, and as the economist Herb Stein once pointed out, things that are unsustainable tend not to be sustained.

Obama flagged the issue of the affordability of college because it is a critical factor in keeping America competitive going forward. Globalization has remade the world economy, putting a premium on highly skilled workers and leaving unskilled workers at the whim of the market.

Color me skeptical, though, that the president has a workable strategy for containing college costs, which are driven by a complex set of factors. Jawboning colleges as Obama did in the State of the Union to hold down their costs isn’t likely to work. Some college presidents actually argue that tuition should rise even more. Beyond that, while I am not an economist, Obama’s proposals to hold down the interest on student loans, make more aid available, and extend tuition tax credits would seem to make it easier for people to pay for college, which in turn should make it easier for colleges to charge more.

No, I don’t have any simple (or complex) solutions to propose. But I would love to hear your suggestions.