Mr. Vedder, age 72, has taught college economics since 1965 and published papers on the likes of Scandinavian migration, racial disparities in unemployment and tax reform. Over the last decade he's made himself America's foremost expert on the economics of higher education, which he distilled in his 2004 book "Going Broke by Degree: Why College Costs Too Much." His analysis isn't the same as President Obama's.
This week on his back-to-school tour of New York and Pennsylvania colleges, Mr. Obama presented a new plan to make college more affordable. "If the federal government keeps on putting more and more money in the system," he noted at the State University of New York at Buffalo on Thursday, and "if the cost is going up by 250%" and "tax revenues aren't going up 250%," at "some point, the government will run out of money."
Note that for the record: Mr. Obama has admitted some theoretical limit to how much the federal government can spend.
His solution consists of tying financial aid to college performance, using government funds as a "catalyst to innovation," and making it easier for borrowers to discharge their debts. "In fairness to the president, some of his ideas make some decent, even good sense," Mr. Vedder says, such as providing students with more information about college costs and graduation rates. But his plan addresses just "the tip of the iceberg. He's not dealing with the fundamental problems."
College costs have continued to explode despite 50 years of ostensibly benevolent government interventions, according to Mr. Vedder, and the president's new plan could exacerbate the trend. By Mr. Vedder's lights, the cost conundrum started with the Higher Education Act of 1965, a Great Society program that created federal scholarships and low-interest loans aimed at making college more accessible.
In 1964, federal student aid was a mere $231 million. By 1981, the feds were spending $7 billion on loans alone, an amount that doubled during the 1980s and nearly tripled in each of the following two decades, and is about $105 billion today. Taxpayers now stand behind nearly $1 trillion in student loans.
Meanwhile, grants have increased to $49 billion from $6.4 billion in 1981. By expanding eligibility and boosting the maximum Pell Grant by $500 to $5,350, the 2009 stimulus bill accelerated higher ed's evolution into a middle-class entitlement. Fewer than 2% of Pell Grant recipients came from families making between $60,000 and $80,000 a year in 2007. Now roughly 18% do.
This growth in subsidies, Mr. Vedder argues, has fueled rising prices: "It gives every incentive and every opportunity for colleges to raise their fees."