Obama aides call for more college subsidies, as costs soar

In a "White House Task Force on Middle Class Families" meeting in Syracuse, NY, today, Vice President Biden boasted the Obama administration is "tearing down barriers so that middle class families have the means to send their kids to college."

What are those barriers, and how does Biden want to tear them down? Biden laid this out in a 17-page report that found, in sum, that college is expensive, and getting more expensive. To deal with this, the report goes on, Obama has already produced a budget to "increase grants and loans," and now he and his cabinet are "thinking about ways to enhance Section 529 college savings plans."

Now for participants in the Pennsylvania 529 Guaranteed Savings Plan, that sounds like good news. For them, "enhancement" could mean rolling back this month's fee boost, which, as planned, will sock families that have set aside multiple children's education funds because they actually believed the state guarantee with as much as $1,500 a year in additional yearly charges.

But the federal government isn't suggesting that kind of relief. Instead, it wants to limit how much families can put in 529 plans without paying taxes.

According to a second, 43-page report rolled out by Treasury Secretary Timothy Geithner at Biden's event: "Per beneficiary limits would reduce the tax benefits to high income families and, by lowering federal tax expenditures for the program, would potentially free up federal resources for education aid that could be targeted to low and middle income families." (The report also suggests making it easier for 529 investors to pick other states' plans and to invest in index funds.)

In his report, Biden observes that public college costs have jumped 26%, after discounting for inflation, since 2000; private-school fees are up 17%. But instead of asking the obvious question - why? - he uses this to explain why we need more money to send middle-class kids to college.

That mystery deserves better explanation. Even in the past year, college costs are still going up by more than the rate of inflation, the Commonfund Institute reported simultaneously with Biden's speech. The institute is the research arm of the Ford Foundation-founded, Wilton, Conn.-based Commonfund that invests $25 billion for 1,900 colleges and other nonprofits, and studies what they do with their money.

According to Commonfund, college costs rose 2.3% in the year ended June 30. That doesn't sound like much when you consider the consumer price index was up 1.4%. But it's a lot when you reflect that energy costs fell 15%, other service costs fell 3%; supplies and materials rose less than 1%. What drove college costs up was salaries for university presidents and department heads - which rose 5.4%. Faculty salaries were up 3.4%. Benefits were up 3.6%. Clerical and service worker pay was up around 2.7%.

How is that possible for colleges to spend more while everyone else is cutting back? "It's very hard for these organizations to change course in midstream," Commonfund Institute managing director William F. Jarvis told me. The salary freezes that many colleges ordered when endowment values plunged last fall will hit this year's budgets, not last year's. 

And why do college administrators (Biden's wife, Jill, is a college administrator) get bigger percentage pay hikes than the workers? "They have contracts," Jarvis said. "Typically the contracts contain annual escalation provisions already baked in." 

Since Biden's study found that community colleges are up just 3% in real dollars since 2000, it's hard to escape the suspicion that a lot of schools are just soaking up government grants and tuition aid and using it to build fancy dorms and classrooms and hire expensive administrators.

As Jarvis put it when I asked him: "There are some who say educational institutions will spend all the money you give them."

I think some Democrats actually understand that throwing public money at privately-run colleges (like home mortgage lenders, defense contrators and health-care providers) without smart, effective controls is inflationary. Both Obama and Gov. Rendell, in their most recent fiscal budgets, boosted aid to community colleges and low-tuition schools while freezing it or rolling it back to well-funded institutions and those boosting tuition most rapidly. PA Treasurer Rob McCord made this explicit when he boosted fees the most on 529 accounts tied to the most inflationary colleges in Pennsylvania - Penn State and Pitt.

But Biden and Geithner didn't deal with government's role in financing college inflation in yesterday's "Middle Class Families" reports. Too subtle, maybe, for the folks they were trying to reach. So they mostly just said we need to spend more.