WASHINGTON — President Obama’s budget proposal on education would for the first time index student-aid Pell Grant to inflation, guaranteeing low-income college students a stable grant amount, and pay for that expensive shift by eliminating $4 billion in annual subsidies to private banks who make student loans.

“The president has proposed the biggest change in the federal programs that help students finance a college education since the main higher education law was written in 1965,” said Terry Hartle, a vice president at the American Council on Education, which represents hundreds of colleges and universities.

Student Loans, SAM DILLON, February 26, 2009

The Reagan Era made stupid ideas seem ordinary and t encouraged us to not think too carefully. There are so many dumb ideas circulating that it’s impossible to know where to start the critique. Why, for example, were loans the primary form of student aide? And why were private banks involved?

A loan doesn’t make an education affordable, it puts off the costs of the education until after graduation. It’s a classic conservative short-term thinking confidence game. Don’t worry about the loans, the argument goes, you’ll be making more than enough money (thanks to your degree) to afford it.

Meanwhile, conservatives argue for increases in tuition and make enormous profits on textbooks while trying everything possible to drive down wages and salaries. And if that were not enough, they make the loans impossibly expensive (and profitable) by adding the costs of profit and administration.

It would make much more sense to cut if not eliminate tuition and fees. Schools, including universities, should be a ubiquitous and expected as fire departments and highways. In any case, taking private banks out of the equation can help free up a lot of money and potentially reduce the abusive of students via these loans.

Evolve or dissolve. That advice, from a recent report on virtual universities, played out in two news stories this past week. The University of Texas’ online division is staring down a deep budget hole as it loses a longtime subsidy. And in Utah, budget cuts have killed a 10-campus online consortium.

Those and other predicaments reflect the growing pains of public online education. As programs mature, their business models have come under more scrutiny. The Texas and Utah cases speak to difficult questions facing states: What role should those programs play? How should states pay for them? Or should they?

Technology growth in the 1990s prompted a surge of online-learning collaborations. The groups prodded member colleges to put classes online, pooled courses into collaborative degrees, and supported online programs with promotions. Some became little more than state- or systemwide online catalogs.

News Analysis: Online Education Grows, but Painfully, By MARC PARRY

This story caught my eye because just this week the corporate entity that I work for celebrated enrolling 25,000 students for the first time. So while proprietary online education continues to grow, at least in some of its manifestations, public online schools continue their prolonged retrenchment.

I think the reasons are very obvious. The public schools thought they could leverage their reputations and already existing student bodies into a cash cow that would require little investment. They believed their own hype and invested very little of their own resources– financial and social– into developing a viable model.

Not surprisingly this model failed– or, rather, it has gone through a decade long rolling failure as one insitution after the other abandons projects that, as they sheepishly admit, turn out to not be very profitable after all. (The “Open Course” model, on the other hand, continues to thrive; that’s a separate story.)

I don’t mean to imply that the proprietary schools are doing a better job, or that they are in some sense less focused on the bottom line. That’s far from true. I think the proprietary online model is going to fail in the long run too, if that model continues to be conceived as a replacement for traditional education.

In the long run, I think, distance education is not going to be hugely profitable or broadly applicable. It’s a niche market. Once the public schools realize that and begin to search out and target their niches, the programs will run on the same model as traditional education: not a cash cow, but not a drain either.