Quickly on the heels of the release “Love Gov”—the Independent Institute’s satirical videos series on meddlesome government—a new study from the Federal Reserve Bank of New York concludes that federal aid to college students raises the cost of higher education.


Many observers have been puzzled by the relentless increase in tuitions charged by private and public schools alike—at a growth rate greater than that of any component of the consumer price index, including health care. Some blame the price increases on the greed of campus administrators. But that assessment is an unfair oversimplification that fails to ask: what has enabled schools to hike tuitions so much?

Most U.S. colleges and universities, whether public or private, operate as not-for-profit entities, but that doesn’t mean they are run like charities indifferent to the bottom line. If the tuition at a school is, say, $10,000 per year, and some third party finances half that amount by providing a scholarship or low-interest loan, it’s wishful thinking to believe that the student will then pay only $5,000 per year. That conclusion would follow only if the tuition charge remains unchanged – and that outcome is only a pipe dream.

An economically rational college administrator will want to raise the tuition sticker price to as much as $15,000 per year, so as to capture some or all of the third-party payment, while leaving the student’s out-of-pocket cost the same. That way the school gets the extra money that has become available, but it doesn’t risk driving away cost-conscious applicants for admission.

Where does that extra $5,000 go? If history is any guide, precious little goes to current faculty salaries or the hiring of additional teachers (which would reduce average class sizes). Instead the money is allocated to expanding the school’s administrative staff – more assistants to the president or provost, and to more college bureaucrats with little or no classroom teaching responsibilities. Although these staffers surely will defend their positions vigorously, they contribute indirectly at best to the instructional, research, and service missions of their institutions.

All of this is made possible, of course, by the prevailing (and unquestioned) assumption that public subsidies of four-year post-secondary degrees are essential for young people to succeed in an ever more technical, globally competitive economic environment. In reality, the modern workplace does not necessarily need all of its workers to possess a baccalaureate degree. Warehouse workers and retail employees, for example, no longer need to be especially literate or numerate to parse paper manifests or maps. They instead can rely on bar codes and GPS devices to deliver customers’ orders.

Public policies that promote ever wider access to America’s colleges and universities, which remain among the world’s best, also have opened the door to students unprepared by our failed K-12 public schools to meet the academic demands necessary to earn a college diploma. Remediation of those educational deficiencies now absorbs inordinate college faculty attention, leads to the offering of degrees in undemanding majors, and threatens to devalue undergraduate educations to the level of high-school diplomas.

Many students meanwhile leave school laden with mountains of debt. Because much of the more than $1 trillion in outstanding loans is federally guaranteed, taxpayers are on the hook for repayment if the borrowers default.

The time is long past to end taxpayer subsidies to institutions of higher education and to restore market pricing and market discipline to America’s colleges and universities. A post-secondary education is a privilege, not a right for which everyone qualifies or merits.