RAY SUAREZ: Now, The White House calls for changes in college financial aid tied to improving the affordability and value of higher education.

At the University of Michigan in Ann Arbor today, President Obama said an improved educational system will help build a stronger American economy.

PRESIDENT BARACK OBAMA: This is going to be one of the most important issues that not just you face, but this entire country faces, because in this economy, there is no greater predictor of individual success than a good education.

RAY SUAREZ: The president specifically targeted the rising cost of college, and the student loans often needed to cover the hefty price tag.

The College Board reports the average in-state tuition at four-year public institutions rose 8.3 percent last fall, much faster than inflation. Together with room and board, the total exceeds $17,000 a year. By comparison, at private institutions, that number jumps to more than $38,000 per year on average.

In the spring, the average college graduate left school with about $24,000 in student loans to pay off. And last October, for the first time ever, Americans owed more on student loans than on credit cards.

Today, as he did at his State of the Union earlier in the week, the president said he's putting colleges on notice.

BARACK OBAMA: You can't assume that you'll just jack up tuition every single year. If you can't stop tuition from going up, then the funding you get from taxpayers each year will go down. We should push colleges to do better. We should hold them accountable if they don't.

RAY SUAREZ: Mr. Obama also proposed a billion-dollar grant program that would provide more funding to states that help bring college costs down as well.

In addition, the president pushed for action from Congress on measures that would extend a tuition tax break, and keep the rate of the most common type of student loan from doubling in July.

For more, we turn to two people whose institutions were on the receiving end of the president's remarks today. Mark Yudof is president of the University of California, a system of 10 campuses serving 235,000 students. And Richard Vedder is professor of economics at Ohio University. He also runs the Center for College Affordability and Productivity.

We invited the Department of Education to join our conversation, but they declined.

President Yudof, let me start with you.

At basic level, do you agree with the president's observation that the fast-rising cost of getting a college education is harming access?

MARK YUDOF, University of California: Well, I think it is harming access, primarily for the middle class.

You have to remember the president didn't mention that there's been systematic disinvestment in higher education. Our budget was cut $750 million in a year, about 25 percent. And Professor Vedder probably disagrees with this, but we are creating fairness that the president is seeking in the tax code.

A third of our tuition goes back into financial aid and is distributed to low-income students—55 percent of our students pay no tuition—39 percent of the students are Pell-eligible, relatively low-income families. That's the reality.

So I welcome this. I think it's a constructive dialogue, but there are a lot of nuances.

RAY SUAREZ: Professor Vedder, let's hear from you. President Yudof was predicting you wouldn't agree. What did you think of what the president had to say, as a general observation, that the fast-rising cost of tuition is hurting access at a time when we need more educated people?

RICHARD VEDDER, Ohio University: Well, I certainly agree that the cost of education is rising rapidly.

And I also agree that the president, in telling colleges that there will be consequences if they don't do something about reducing tuition cost growth, is making a—is showing some recognition of the problem and making a constructive suggestion.

But the reality is, we have had a vast increase, particularly at the federal level. I agree with President Yudof. There's been a large decline in state funding. But there's been an absolute explosion at the federal level in grants and loans over the last decade.

By the way I calculate, using the College Board data that you talked about earlier, those aid expenditures have been rising more than 10 percent a year. And that's after adjusting for inflation.

And if you drop money out of airplanes—or the equivalent—over students' houses, they're going to take that money and the colleges are going to be aware of that and they're going to raise tuition fees a good bit. So, I'm not sure that we're dealing with the root cause of the problem.

RAY SUAREZ: Well, President Yudof, Professor Vedder just observed that it's the access of money that fails to restrain upward pressure on tuition prices. They went up last year more than two-and-a-half times the rate of inflation.

MARK YUDOF: I don't—you know, you keep saying two-and-a-half times the rate of inflation. This is like the co-pay at your drugstore.

Our costs are actually down 15 percent per credit hour over the last 10 years. That's the reality. The states don't want to pay. So it's like you go to your drugstore, the insurance company doesn't want to pay, your co-pay goes from $10 to $20. That doesn't mean the cost of the drug has doubled. It just means your costs have doubled.

So there's a misnomer that it's all going into rock climbing walls and other things. That's not the problem. The problem is there's a shift from the taxpayers to the families in terms of education.

I also don't think for the nonprofit sector that there's much evidence that there's overconsumption. We've been pretty flat in terms of our enrollments and the like. I understand that's a point of view. And I do agree with Professor Vedder that the trajectory we're on, on many of these programs in Washington, they are getting so expensive, that I'm very worried about it. I'm not sure they're sustainable.

RAY SUAREZ: Professor Vedder?

RICHARD VEDDER: Well, I certainly agree with the latter point.

You know, here we have a nation that has got an enormous broader macro debt problem. As a nation, we have huge future liabilities dealing with elderly and so forth. And what we're really doing with, say, the student loan program is, we're borrowing money, often from overseas folks like Chinese investors, who lend money to the U.S. government, who in turn then lend it to often middle-class and even upper-middle-class students—25, 30 percent of the loan money of the federal government goes to people from families with relatively high incomes, well above the median income.

RAY SUAREZ: Well, what about President Yudof's point that, you know, it's really hard to restrain price increases, that really what students are seeing is something closer to the real price of providing an individual a four-year education?

RICHARD VEDDER: President Yudof is quite correct in stating that, particularly for state universities, that more and more of the cost is being picked up by the student, rather than by state governments. There's no question about that. The evidence is clear.

But it is also clear that universities in the United States over the last generation or so have enormously increased their staffs, for example, administrative personnel, student service personnel. There are climbing walls. They're not in and of themselves all that important, but the cumulative effects of a lot of spending on things outside of the core missions has contributed somewhat to the inflation in college costs.

RAY SUAREZ: So, President Yudof, if the government says, we are not going to pay, we're part of this triangle, or we're on one corner of it, we don't want to keep shelling out money, will that put downward pressure on these annual price hikes?

MARK YUDOF: Well, of course it will.

And, frankly, our students are fed up with the price hikes. I don't like it much myself. I'm trying to find someone who wants quality and is also willing to pay for it. And everyone wants to pass the buck to someone else. But, of course, it will put pressure on to keep it down.

And then at least in the case of the University of California, classes will get bigger, class access may suffer, time to degree may grow. I agree with Professor Vedder. We have to do a better job of cutting our budgets. If we have too many administrators, let's reduce the number.

So I'm not saying things are perfect, but at the end of the day, I think we will see that downward pressure. And for a great research university like the University of California, you know, inevitably, that will have a negative impact on the quality of the institution.

RAY SUAREZ: So, bottom line, Mr. President, you can't hold the line on prices without reducing the quality of the service you're providing?

MARK YUDOF: Well, we're going to try. And we will do our cuts and we will have our common IT system.

But I'm very—I would say it's not a certainty, but I'm fearful about it. That's what I would say.

RAY SUAREZ: And what about you, Professor Vedder? Can colleges hold the line or even reduce costs, with these new federal incentives to do so, without undermining the quality, as the president says he has to?

RICHARD VEDDER: Colleges are in an unsustainable trajectory right now with respect to the cost of education.

The cost of something cannot go up faster than people's incomes forever. At some point, the burden becomes too large. I think we've filled the gap for many years with increased student loans. We're clear that that is no longer sustainable. We've got to move to a new model, and that is going to have find—involve new ways of doing things. Necessity is the mother of invention.

RAY SUAREZ: Well, Mr. President, this proposal needs congressional approval. Will the University of California system's spokesperson in Washington be contacting the California delegation and urging them to vote no on any change in the way the federal government oversees loans and transfer payments to higher ed?

MARK YUDOF: No, we won't be doing that. We'll get into a constructive dialogue on this.

You know, I agree we have to change how we're doing business. The president has some tremendously able people working on this. You know, I look forward to that, to an extended conversation, but I'm not going to tell them to weigh in and sort of in a knee-jerk fashion oppose the president's agenda. That's not going to happen.

RAY SUAREZ: Joining us from California, President Yudof, thanks for joining us.

Professor Vedder, good to see you as well.

RICHARD VEDDER: Glad to be with you, Ray.

MARK YUDOF: Thank you.