State of the Union Speech Leaves Many Questions Unanswered

January 25, 2012

President Obama's State of the Union address Tuesday night was as remarkable for what it included as it was for what it left out.

The speech, which focused on jobs and the economy, put higher-education front and center, casting colleges as both engines of economic opportunity and contributors to the affordability crisis. It included calls for increased spending on community colleges and student aid, as well as a threat to withhold some federal aid from colleges that continue to raise tuition.

For a speech that often hovers around the 30,000-foot level, President Obama's third State of the Union address was surprisingly specific, containing concrete policy recommendations aimed at expanding worker retraining and keeping college within reach of the middle class.

But Mr. Obama said nothing about how he would pay for his proposals, which include extending the $2,500 American Opportunity Tax Credit; doubling the number of Federal Work Study jobs, to 1.4-million; and keeping the interest rate on subsidized student loans at 3.4 percent.

Enacting just those three proposals could cost at least $10-billion a year, according to Mark Kantrowitz, publisher of FinAid, a Web site offering student-aid advice. Coming up with that kind of money would be difficult in the best of budgetary times; finding it when Congress is preparing to slash $1-trillion in domestic spending over 10 years will be next to impossible.

Mr. Obama also made no mention of Pell Grants, the cornerstone of the federal student-aid programs and their biggest-ticket item by far. Over the past three years, the cost of the Pell Grant program has doubled, forcing Congress to cut borrower benefits and other student-aid programs to keep it afloat. Though the program is expected to run a slight surplus in 2013, it faces a financial cliff in 2014, when supplemental money provided by Congress will run out. Nearly everyone agrees that the Pell Grant program is unsustainable in its current form, yet the president offered no prescription for fixing it.

He also failed to note that the interest rate on student loans was set to double this July; in 2007 the Democrats passed a bill that cut the rate in half over five years. At the time, Republicans warned that the reduction was unsustainable, with Howard P. "Buck" McKeon of California, then the top Republican on the House education committee, calling it "a trap that will ensnare either students or taxpayers, and possibly both." While Democrats no doubt hoped to have the money to extend that lower rate beyond 2012, the fact that it is due to double this July is hardly a surprise.

What's the 'Or Else'?

But the biggest holes in Mr. Obama's speech came in his call for colleges and states to take steps to slow tuition growth.

"We can't just keep subsidizing skyrocketing tuition. We'll run out of money," he said. "States also need to do their part, by making higher education a higher priority in their budgets. And colleges and universities have to do their part by working to keep costs down."

In a "blueprint" released just before the speech, the president said he would withhold some federal aid from colleges that "don't keep net tuition down and provide good value." He did not say which programs he would use as leverage, however.

Nor did he say how he would pressure cash-strapped states to prioritize education. One possibility would be for the government to impose "maintenance of effort" requirements on grants to the states, similar to what it did with the federal stimulus funds.

More details of the president's plan are expected Friday, when Mr. Obama speaks about college affordability during an appearance at the University of Michigan at Ann Arbor.

The State of Michigan has cut spending on higher education by 30 percent over the past decade, making its 14 public institutions "ground zero for funding cuts," according to an open letter that the university's president, Mary Sue Coleman, sent to Mr. Obama last month. In the letter, she called for states to "reinvest in their public colleges and universities," writing that "there is no stronger trigger for rising costs at public universities and colleges than declining state support."