Target skyrocketing college costs, not student loans: AEI

Student loans part of the problem: AEI
Student loans part of the problem: AEI

President Barack Obama's decision to expand the government program to help students pay off debt is targeting the symptoms of the problem and not the root cause of skyrocketing college costs, Andrew Kelly of think tank American Enterprise Institute told CNBC on Monday.

"The more we make it easier for borrowers after the fact to pay off their loans, the less incentive colleges have to rein in their costs on the front end," Kelly said in an interview with "Street Signs."

"It's going to get even worse in some cases, allowing this problem to fester even further."

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President Barack Obama applauds a speaker after his introduction before signing a memorandum on reducing the burden of student loans on June 9, 2014 in the East Room of the White House.
Mandel Ngan | AFP | Getty Images

Obama announced Monday he's expanding the existing student loan law. The current plan caps repayments at 10 percent of income, with the balance forgiven after 20 years if the loan is not paid off. It's only available to those who took out loans after October 2007. Obama's presidential memorandum targets those who borrowed before October 2007—affecting about 5 million people.

"As the federal government gets more and more involved in loan forgiveness programs … we as taxpayers are going to be footing the bill for these huge tuition bills increasingly," Kelly said.

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Instead, he believes colleges should be held accountable. Things like staff salary increases are a fact of life. However, there are things the institutions can control like "spending on amenities, lavish campuses, adding administrators that they may not need," Kelly said.

"Colleges can do all these things and then roll the cost of them into the price of tuition because, in part, they can always have confidence that students can pay the out-of-pocket costs because they have access to federal loans."

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—By CNBC's Michelle Fox.