In a speech today at the University of Michigan, President Obama discussed his latest proposals to reshape higher education, which he outlined earlier this week in his State of the Union address. The proposals follow three key themes: innovation, transparency, and keeping tuition costs down.  

That the President is finally targeting the perpetually-skyrocketing tuition costs themselves, rather than just giving schools yet another green light to raise tuition in the form of raising Pell Grants is an idea that is well overdue, and heartily welcomed. Colleges and universities have done exceptionally little in the way of taking steps to reduce costs over the years, choosing instead to pass costs directly onto the students when legislatures refuse their demands for more money. Beyond that, schools have almost brazenly eschewed the cost savings that could be earned through innovation of any flavor—technological or otherwise—or have used those savings for things other than reducing tuition. 

Of course, the devil with such proposals is always in the details. While one certainly didn’t expect to get those details out of a stump speech, left unsaid is how exactly the funding formulas for programs such as Supplemental Educational Opportunity Grants (SEOG), Perkins Loans, and Work Study programs would be implemented. It’s notoriously difficult to codify measures that incentivize the proper spending of money without stumbling onto horrific unintended consequences. If the first attempt fails miserably—or is rendered so unworkable as to be without meaning—the realities of the political process and the power of the vast network of higher education lobbyists will likely make this the only attempt. 

At the end of the day, however, it does not stand to reason that a one-time award via Race to the Top will keep tuition costs down. Tweaks to federal funding formulas might do a little to change that, but the reality is that Pell Grants form the lion’s share federal funding for higher education. The SEOG, Perkins Loans, and Work Study programs combined (about $3.2 billion) only amount to less than 10% of the funding that Pell Grants (about $32.3 billion) provide institutions via students, and amounts to a paltry portion of their overall revenues. Any federal effort aimed at lowering college tuition has to begin with changes to the Pell Grants and other forms of federal financial aid if it wants to be effective.

Furthermore, doesn’t it seem a bit backward to offer a billion dollars in rewards for reducing costs? After all, if the argument goes that schools could keep tuition down, but they are just unwilling to do so for various reasons, how does offering more money help the situation? Let’s say the awards under the new Race to the Top were to be used strictly for capital improvements. Couldn’t the school have theoretically raised that money simply by cutting those aforementioned unnecessary expenses and simply left tuition in a state of stasis? There would seem to be an immense moral hazard lurking somewhere within these details, but we won’t know the full story until we know more about the rules of the competition. 

Then there are the efforts at improving transparency to students and parents. The proposed “College Scorecard” will hopefully look a lot like something we’ve proposed in the past. The President is also proposing to begin collecting earnings and employment information for colleges, which is another step in the right direction. Yet while the word “quality” gets tossed around quite a bit, absent are any proposals for actually measuring the education that students receive from an institution and reporting it to the public. 

The bottom line is simple: Keeping tuition low while keeping education quality high requires maintaining proper incentives for university presidents and trustee. At the end of the day, students want to go to great schools and donors want to give their money to great schools. The problem, of course, is that no one can currently define a great school by any objective standard. This creates all forms of perverse incentives to spend money wildly on things that have nothing to do with the quality of the education. If you want to improve educational quality, you first have to measure it. Only then will students make choices based on things other than whether or not the school has a rock climbing wall. Only then will donors realize that their contributions are being sent to a lackluster institution. Once those sources of revenue start drying up, only then will educational quality become a priority.

Finally, if the President really wants to ignite innovation in higher education, he doesn’t need to offer $55 million to accomplish that goal. He can simply start by allowing our for-profit institutions to do what they do best and to encourage the non-profit schools to follow their lead. Unfortunately, he continues to stifle these innovation engines through needless regulation, which is clearly a regressive approach. 

Overall, however, the President’s proposals could be a step in the right direction, if implemented carefully. On the other hand, until we know more, they could also amount to little more than throwing more money down a hole.