Make Sure U.S. Universities Remain the World’s Best

(Bloomberg Opinion) -- The U.S. university system isn't broken. Far from it: It’s still the best in the world. But it has some serious problems, and if these aren’t addressed, it could follow health care and infrastructure onto the list of dysfunctional American institutions.

Fixing what's wrong requires a broad perspective of what universities do for the country. Many people think of universities chiefly as schools, but higher education is only one of their crucial functions. Universities are also key engines of scientific and technological progress. Much government research spending, and an increasing amount of private spending on research and development, gets channeled through university labs. The discoveries and innovations those labs generate benefit all of humanity, but they also help to preserve U.S. technological leadership, making sure that high-value industries remain in the country.

There’s a dawning realization that universities are also crucial for local economies. Although universities tend to lose most of their graduates to other cities, they draw in plenty of skilled workers, making a town more attractive for business investment. Universities are often the only way that struggling towns in the Midwest and South can compete with glittering coastal metropolises for talent and investment. And a small college can serve as the anchor of a flourishing town in an otherwise declining region.

But it’s universities’ role as institutions of higher learning where problems are cropping up. The huge increase in student debt, coupled with a rise in tuition that has outstripped incomes, is making college much more of a burden. And there’s growing realization that the college system offers grossly unequal opportunities to kids depending on what class their parents belong to:

Fixing universities will require re-establishing their role as vehicles of opportunity for more young Americans, rather than as agents of inequality and debt. But this must be done in a way that doesn’t threaten universities’ jobs as engines of research and local economic growth.

The first step is simply to forgive a substantial amount of student debt. This should be a one-time measure; in the future, colleges should make loan repayment contingent on earning enough to do so. Government aid should also shift from offering low-interest loans – which can trap unsophisticated teenage borrowers into a lifetime of peonage – to offering tuition waivers or other grants.

Loan forgiveness will allow educated young people to start businesses, switch jobs and take other risks. It won’t cause any bank failures, since the vast majority of student debt is now owned by the U.S. government. In order to make a loan-forgiveness program more equitable, it can be based on income, as in Senator Elizabeth Warren’s plan. It can also involve some rebates to people who already paid off their loans.

Another important measure is to make college more accessible to people from low-income backgrounds. Plans to eliminate tuition at public universities are more likely to help those with higher income, since less well-off students already tend to pay little or nothing in tuition:

A better idea is to help with room and board costs, which are the biggest financial cost for low-income students. But beyond the cost factor, there’s the fact that students from lower-income backgrounds aren’t equipped to navigate the expensive and complex process of college application – and even worse, they often underrate their own chances of admission and don’t even try. The solution is to create a unified free application process for state universities. This application would be made in high school, and would allow students to apply simultaneously to several colleges without filling out multiple forms.

The U.S. should also recognize that four-year universities aren’t the right path for all kids. Community colleges and apprenticeship programs can provide an alternate path for the less academically inclined.

Simply equalizing opportunity, however, will leave the number of university spots little changed. To truly expand access to higher education, the number of spots at good schools must be increased. First, the quality of lower-ranked institutions should be boosted, by spending more money at the state level and by giving them more federal research funding. Second, good schools can enlarge their student bodies and open new branches. Third, the federal government can build a new system of national universities, similar to the one that exists in India. Finally, universities can admit more international students, charging them high tuition and using that money to subsidize additional spots for native-born kids.

This approach – increasing supply, equalizing opportunity and reducing the burden of debt – can keep the U.S. university system on top of the world.

To contact the editor responsible for this story: James Greiff at jgreiff@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.

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