The Perfect, the Good and Small Government

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Right now, American taxpayers subsidize institutions of higher education via the student loan process. We do this because we think it’s valuable to encourage people to improve their human capital. But many people who take out student loans end up defaulting, an indication that their human capital was not improved. At some institutions, default rates are extremely high indicating a systematic institutional failure. The Obama administration, as I’ve noted several times now, is trying to take this on by saying that the worst-performing schools will be denied subsidies. That should reduce wasteful spending and also create incentives for schools to improve quality.

So what’s wrong with that? Well, one fair critique you could make is that Obama administration isn’t actually denying subsidies to all of the worst-performing schools, it’s merely denying them to the worst-performing for-profit schools. But still, the policy is what it is—a step in the right direction that’s politically difficult to accomplish given the lobbying clout of the for-profit college industry. Adding non-profit schools might be a good idea, or it might sink the whole concept, and either way the limited reform on the table is worth doing.

That’s my take at least. The Cato Institute’s Neal McCluskey, on the other hand, is full of fulminating outrage that the Obama administration tried to do something useful rather than entirely privatizing college education in the United States. He points out that Historically Black Colleges and Universities also have high default rates, but won’t be targeted by this reform:

Why do I point this out? Not to pick on HBCUs, but to further illustrate the point that the attack on for-profit schools isn’t really about saving taxpayer dollars or protecting students, but going after the easiest target to demagogue – people honest about trying to benefit themselves as much as “the students.” It is also to illustrate, once again, that when we let government fund something, it is political calculus – not educational benefits, economic effectiveness, or what’s best for taxpayers – that ultimately drives the policies. Which is why government needs to get out of the higher ed business that it has made both bloated and, ultimately, a net drain on the economy.

That conclusion seems dubious to me, but even if you agree with it what’s the point of adopting this attitude? Obviously it’s true that “political calculus” enters into policymakers’ decisions. So is this Obama administration policy a good one or a bad one? I say it’s a good one. Is their political calculus that extending it to non-profit schools would be infeasible at this time right or wrong? I’m not sure, but my guess is that they got this right. Does McCluskey disagree that it’s a good policy? Does he disagree with their political calculus? How does he know it’s not “really” about protecting students? I know Deputy Undersecretary James Kvaal a bit and I’m pretty sure he’s really trying to make higher education better. And given that for-profit recipients of these subsidies are the “easiest target to demagogue” doesn’t it make sense to start there and hope that successful reform will pave the way for more ambitious efforts?

Right-of-center people are correctly outraged by the fact that there’s a lot of ineffective stuff happening in the public sector. But that doesn’t improve if you condemn every single person who tries to improve it as somehow running a scam. Quality of government varies a great deal from place to place and it’s very important.