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The Washington Times Daily - - Metro - By Paul E. Peter­son

e are putting col­leges on no­tice,” Pres­i­dent Obama said on the foot­steps of the Univer­sity of Michi­gan a few weeks ago. “You can’t as­sume that you’ll just jack up tuition ev­ery sin­gle year.”

Bizarre as it sounds, those who will ben­e­fit most from a pres­i­den­tial tuition cap are the wealth­i­est few, not the strug­gling mid­dle class. When gov­ern­ment in­ter­feres with the mar­ket­place, the out­come is of­ten quite the op­po­site of what is in­tended.

The pub­licly re­ported tuition price Mr. Obama wants to cap is just a sticker price — to which a onethird dis­count typ­i­cally is ap­plied. Ac­cord­ing to the Col­lege Board, pri­vate col­leges col­lect just twothirds of the rev­enue they would re­ceive if stu­dents paid the of­fi­cial tuition.

Even high-priced uni­ver­si­ties dis­count their prod­uct line. “The more ex­pen­sive and pres­ti­gious the school,” says fi­nan­cial con­sul­tant Mar­cia Sul­li­van, “the more likely it is well-en­dowed and can meet 100 per­cent of need.”

The two-tier pric­ing sys­tem in higher ed­u­ca­tion is as per­va­sive as Fourth of July sales at re­tail stores. Those who can af­ford the high price skip the sales, while the more fi­nan­cially strapped, by shop­ping at the right time, get the same prod­uct for less.

Un­like the re­tail-store sav­ings, the dis­count in higher ed­u­ca­tion is given only if you can prove you are in need. To get fi­nan­cial aid, col­leges in­sist on see­ing a fam­ily’s fi­nan­cial state­ment. Those in the top 1 per­cent must pay full price.

But if gov­ern­ment puts a tight cap on tuition, col­leges will bal­ance their bud­gets by cut­ting the schol­ar­ship fund. To fill their fresh­man classes, they will ad­mit more stu­dents will­ing to pay full price: stu­dents from over­seas and less able chil­dren from wealthy fam­i­lies liv­ing in ex­clu­sive ZIP codes out­side New York City, Chicago and Washington, D.C.

Keep­ing tuition rates low while cut­ting fi­nan­cial aid has been tried be­fore. Years ago, the Univer­sity of Chicago de­cided that much of its two-tier pric­ing sys­tem should be aban­doned in fa­vor of a com­mon, lower tuition for all stu­dents, a strat­egy that has worked for Wal-mart, which has ev­ery­day low prices all the time.

But this one-price strat­egy has sel­dom worked in higher ed­u­ca­tion. The Univer­sity of Chicago soon gave up its one-price ex­per­i­ment when it dis­cov­ered that stu­dents like be­ing told they have won a schol­ar­ship. It’s even bet­ter than get­ting over­priced choco­lates for half price at Macy’s on Valen­tine’s Day.

But if Mr. Obama caps the of­fi­cial tuition rate, col­leges and uni­ver­si­ties surely will cut schol­ar­ship as­sis­tance. State uni­ver­si­ties will mod­ify their strat­egy of of­fer­ing a dis­count price to in-state res­i­dents, while boost­ing rates charged to for­eign and out-of-state res­i­dents. Last year the Univer­sity of Washington sharply raised its tuition for for­eign stu­dents and out-of-state res­i­dents to $28,058, while in-state stu­dents were given the dis­count price of $10,574. Had a tuition cap been in place, the univer­sity bud­get would have been bal­anced on the backs of the in-state stu­dents.

The higher-ed­u­ca­tion sys­tem in the United States is highly com­pet­i­tive. Thou­sands of schools are try­ing to at­tract stu­dents who con­stantly com­pare prices, course of­fer­ings and on-cam­pus ameni­ties. The ma­jor fac­tor driv­ing prices up­ward is not greedy ad­min­is­tra­tion but the ris­ing cost of well-ed­u­cated pro­fes­sional work­ers in an in­dus­try that has a lot of them. Col­leges com­pete by claim­ing to of­fer small classes. That costs money. Cap­ping tuition does not change that re­al­ity.

If the Obama ad­min­is­tra­tion re­ally wants to solve the dropout cri­sis in higher ed­u­ca­tion, it would not cap tuition but put the fed­eral Pell Grant and stu­dent loan pro­grams on a merit ba­sis. Ad­mit­tedly, many young peo­ple need higher-ed­u­ca­tion loans at a time in their life when they have lit­tle cap­i­tal, and grants for low-in­come stu­dents can equal­ize ed­u­ca­tional op­por­tu­nity. But there is lit­tle ra­tio­nale for hand­ing out vast amounts of fed­eral dol­lars with lit­tle re­gard to stu­dent ac­com­plish­ments in high school. If gov­ern­ment as­sis­tance were limited to those who demon­strate col­lege readi­ness on val­i­dated ex­ter­nal ex­am­i­na­tions — the Ad­vanced Place­ment ex­ams or the In­ter­na­tional Bac­calau­re­ate, for ex­am­ple — stu­dents would be mo­ti­vated in high school to pre­pare them­selves for col­lege-level cour­ses.

As it is, Mr. Obama’s pro­pos­als may ap­peal to a core con­stituency of young vot­ers, but ef­fects will be other than what has been promised.

IL­LUS­TRA­TION BY GREG GROESCH

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