Speeches & Floor Statements

Floor Remarks of U.S. Senator Lamar Alexander (R-Tenn.) -- Lowering Tuition Costs

Posted on February 9, 2012

Mr. PRESIDENT, since his State of the Union Address, President Obama and Vice President Biden have been talking about their efforts to help students afford to go to college, which is something we are all in favor of. 

 

The President's proposals include what he calls a higher education race to the top.  It has a familiar sounding formula. Though, in this case, it will impose new rules and mandates and price controls on colleges and universities in States.  Unfortunately, this race to the top is headed in the wrong direction. 

 

The President should turn around his higher education race to the top and head it in the direction of Washington, DC, to help the federal government compete for ways to stop adding mandates and costs on States that are soaking up dollars and driving college tuition through the roof. 

 

Let me be specific and offer three examples of how a race to the top headed toward Washington, DC, could actually help students by saving them money on their tuition.

 

First, Washington could stop overcharging students on their student loans.  They are doing that now by borrowing money at 2.8 percent, loaning it to students at 6.8 percent, and using the profit to help pay for the new health care law and other government programs.

 

Second, Washington could help students with lower tuition by repealing the new Medicaid mandates on States that take effect in 2014. These new Medicaid mandates will further reduce State funding for higher education and raise tuition at public colleges and universities, which is where approximately 75 percent of students go to college. 

 

Third, Washington could stop prohibiting States from reducing spending on Medicaid at a time when State revenues and expenditures are going down.  That forces States to spend money on health care that otherwise would be available for higher education. 

 

Let me talk about each of those three ideas. 

 

First, this business of overcharging on student loans.  I think it would come as a big surprise to most students to know that Washington is borrowing money at 2.8 percent and loaning it to them at 6.8 percent, and using the profit to pay for the health care law and for other government programs.

 

We have roughly 25 million students attending 6,000 colleges and universities in America today, and approximately 16 million of those have Federal loans that allow them to spend that money at the school of their choice.  Approximately 70 percent of the Federal funding made available for our higher education last year -- about $116 billion -- went for those student loans.  Under the new health care law, the Department of Education is going to be borrowing money from the Treasury at 2.8 percent and then loaning it to the students at 6.8 percent. So, the government is actually overcharging 16 million students and taking that profit and spending it on new government programs, including the new health care law.

 

According to the Congressional Budget Office, over the next 10 years, here is where the profit goes, approximately:  $8.7 billion goes to pay for the new health care law; $10.3 billion goes to pay down the Federal debt; and $36 billion goes to support other Pell grants.  So if we really want to help students pay for tuition, why would we not use this profit to reduce the interest rate on student loans?  CBO says we could have reduced the rate from 6.8 percent to 5.3 percent and let the students have the savings instead of letting the government have the savings.  By reducing the interest on student loans that much, students would save an average of $2,200 over 10 years.  That is a lot of money for the average student borrower who has approximately $25,000 in debt.

 

I have proposed the idea of legislation that puts a "truth in lending" label on every one of the 16 million student loans, saying this:  Beware: Your government is overcharging you on your student loan to help pay for the health care law and other government programs. 

 

Here is a second way Washington could help lower tuition rates.  Washington could repeal the Medicaid mandates imposed on States that take effect in 2014 and will inevitably drive up tuition rates.  This is how that works.  The new health care law requires States to expand and help pay for Medicaid coverage.  This in turn requires Governors who are making up budgets to take money that, otherwise, would likely go for higher education and spend it instead on Medicaid.

 

According to the Congressional Budget Office, this new expansion of Medicaid will cost States an additional $20 billion over 10 years and add 16 million more people to Medicaid programs.  The CMS Chief Actuary says it may add 25 million to the Medicaid Program, costing States even more.  We know this is going to happen because it has already happened.  For years Medicaid mandates have been imposing huge costs on States, which in turn soaks up money for colleges, and in turn causes tuition to go up to replace that money. 

 

According to the Kaiser Family Foundation, average State funding this year for Medicaid increased by 28.7 percent compared to the prior year.  Where did the money come from?  In Tennessee, which had a 15.8-percent increase in State spending on Medicaid last year, at the same time there was a 15-percent decrease in State spending for higher education.  That is a real cut, not a Washington cut; that is 15 percent less money.  That did what?  There was a 7.3-percent increase in tuition at public universities and an 8.2-percent increase in tuition at community colleges to make up for the cuts.

 

In California, where the state enrolls 8.3 million Medicaid beneficiaries, they are expected to gain 2 million more when the new health care law is implemented in 2014.  Just over the last year, there has been a 13.5-percent decrease in State support for higher education in California, along with a 21-percent increase in tuition and fees at State universities and a 37 percent increase in tuition at community colleges.  Most of those students probably do not know that the principal reason their tuition is going up is because of the Federal health care mandates on the State. 

 

From 2000 to 2006, spending by State governments on Medicaid increased by 62.6 percent.  This has been going on long before President Obama came into office.  I balanced it as Governor in the 1980s.  Every year I tried to keep education funding at 50 percent of the State budgets.  In those days the State paid for 70 percent of the cost of operating the University of Tennessee or the community college and tuition paid for 30 percent of the cost.  We had an implicit deal with the students that if we raise tuition, we will raise State funding by about the same amount.  Those days are long gone.

 

Medicaid costs on States are the most insoluble part of the budget dilemma we have here in Washington.  I believe Medicaid either should be run 100 percent by the Federal Government or 100 percent by the States.  I came to Washington and suggested that to President Reagan in the 1980s.  He agreed, but many did not.  So it is not new.  We should not blame President Obama for the fact that this has gone on for 30 years, but we ought to hold him responsible for making it worse.

 

Here is how he has made it worse in a third way -- by a so-called maintenance of effort requirement on States as a condition of continuing to receive Federal payments under Medicaid.  The 2009 stimulus bill prohibited States from imposing new eligibility standards, methodologies, or procedures as a condition of receiving Federal Medicaid payments.  The new health care law extends the maintenance of effort requirements through 2014.  So for 5 years, throughout this recession, while State revenues are going down, the Federal Government in its wisdom has been imposing billions of new dollars in Medicaid mandates on States requiring them to spend more on Medicaid.  And what happens?  They must spend less on something else. 

 

In 2010, New York Lieutenant Governor Richard Ravitch, a Democrat, eloquently talked about that problem.  He said Medicaid is "the largest single driver of New York's growing expenditures," making up more than one-third of the State total budget.  New York spends twice as much on Medicaid as California.  He said this spending is expected to grow at an annual rate of 18 percent over the next 4 years but that the Federal stimulus and health care expansions have made it harder for States such as New York and California to cut expenditures because of the strings attached.  He said: These strings prevent States from substituting Federal money for State funds, require States to spend minimum amounts of their own funds, and prevent States from tightening eligibility standards for benefits.

 

So while the Federal Government is burdening the States with hundreds of billions of dollars in Medicaid liabilities, the President has made it worse by forbidding States from tightening their eligibility requirements as their economies shrink.

 

The administration and Congress have left Governors with little choice but to cut in other areas, and that usually turns out to be public higher education, where 75 percent of students go to school.  So why is tuition going up?  The biggest reason is us -- Congress, Washington DC.  Instead of pointing the finger at States and colleges, we ought to look in the mirror.

 

There is another problem with the President's proposals.  His proposals are not likely to affect many students, and if they do they are more likely to hurt them than help them.  Here is why that is true.  Ninety-eight percent of all Federal money made available to college students goes directly to the students to spend at one of the 6,000 institutions of their choice. 

 

The President's proposals would only affect three programs of campus-based aid that eventually affects about 2 percent of all students and impacts about 2 percent of all the federal money available for higher education.  What the President would propose doing includes putting price controls on colleges offering those programs and saying that students could not go to the institution if tuition goes up too much.  So if a low-income student wants to go to the University of Tennessee or North Carolina or Michigan and tuition goes up more than the Federal Government says it should, mostly because of Federal policies, what happens?  The student cannot go to the University of Michigan or the University of Tennessee or the University of North Carolina.  Those schools have plenty of applicants.  They are going to get their students anyways.  So the effect will be to make it harder for a low-income student to go to the college of his or her choice.

 

What should we be doing?  I think it is pretty obvious.  The taxpayers already are generous with support for students going to college.  The average tuition at a 4-year public institution is $8,200.  At a 2-year community college, it is $3,000.  At private institutions, it may be closer to $28,000 or $30,000 a year.  To make it easier, there are 16 million student loans -- $116 billion in new student loans last year.  There are 9 million Pell grants, supported by $41 billion in taxpayers' dollars. So half our 25 million college students have a Federal grant or loan to help pay for college, and they spend it at one of 6,000 institutions of their choice. 

 

Still, the rising cost of tuition is a real problem for American families.  Tuition and fees have soared over the past 10 years above the rate of inflation by 5.6 percent a year at public 4-year institutions.  This adds up to about a 113 percent increase in tuition over the decade. 

 

Colleges and universities need to do their part to cut costs.  I have suggested that well-prepared students ought to be offered 3-year degrees instead of 4.  The president of George Washington University has suggested ways that colleges could be more efficient.  He said he could run two complete colleges with two complete faculties in the facilities now used half the year for one.  That is without cutting the length of student vacations, increasing class size, or requiring faculty to teach more.  Requiring one mandatory summer session for every student every 4 years, as Dartmouth College does, would improve institutions' bottom line.  The GW president said his institution's bottom line would improve by $10 to $15 million a year.  Those are just two good ideas.

 

There is nothing wrong with President Obama's proposal to encourage ideas like that, even to give grants and put the spotlight on colleges that are trying those things.  The Malcolm Baldrige Award for Quality Control years ago did a lot to improve quality in business and government without spending very much.  But mandates and price controls on 6,000 autonomous colleges and universities is not the right prescription.  They are more likely to hurt students than help.  They are more likely to drive up tuition than lower it.  And they are more likely to diminish the quality of the best system of higher education in the world.

 

The reason we have the best system is, for one reason, because generally the Federal Government keeps its hands off those autonomous collages, and the second reason is that students can choose among those 6,000 institutions with the money we make available to them in grants and loans.

 

Rather than creating new price controls, new mandates, and new regulations of the kind that have already pushed tuition higher, I suggest the President turn his race to the top around.  Instead of heading it towards the States and colleges, head it towards Washington DC.  Stop overcharging students for their student loans, stop requiring States to spend more State dollars on health care at the expense of public colleges and universities, repeal the new Medicaid mandates that in 2014 will take already-high tuition and drive it even higher, and let the Federal agencies compete to see how they can stop adding costs that are the main reason college tuition is rising.  That would be the real race to the top.  That is the real way to help students afford college.