A huge reason the price of college is so high right now is government “help.” The federal government has subsidized students for decades, allowing colleges to raise their prices at rates far in excess of household income and even health care, and encouraging students to demand ever‐greater luxuries. Use other peoples’ money and your incentives to demand efficiency wither.
In just the last year studies from the Federal Reserve Bank of New York and the National Bureau of Economic Research have found that very large parts of college prices are attributable to federal aid expansions, and other research by the Bureau has suggested that all but the most academically oriented students put heavy value on “amenities” such as “student activities, sports and dormitories.”
So why not get states and the federal government to spend directly on colleges in exchange for schools charging less — or not at all? To different extents, that is what Hillary Clinton and Bernie Sanders have called for.
But subsidizing schools directly comes with even bigger problems than subsidizing students. While American higher education is wasteful and expensive, it is also the most vibrant, responsive higher education system in the world. Seventeen American universities are in the Times Higher Education World University Rankings’ top 25. None are from Scandinavia, which Sanders holds up as the ideal.
Similarly, the Center for World University Rankings puts 18 American institutions in the top 25, while the highest‐ranked Scandinavian school — Sweden’s Karolinska Institute — comes in at 71.
The United States is also by far the most popular destination for people studying outside their home countries. No wonder the Melbourne Institute of Applied Economic and Social Research in Australia has ranked the American higher education system the best in world.
Why is U.S. higher education so good relative to the rest of the world? Because almost every other country runs higher education on the “government provides, you go free” model. The result is often poorly maintained infrastructure, big classes, hard‐to‐access professors and languishing students.
There’s also rationing. In Sweden, universities get 2.5 applications for every one available slot. Germany is infamous for tracking students into or out of higher education by a test called the Abitur. In France, high school principals, essentially, decide whether a student gets to be on a college track, and the weeklong baccalaureate exam determines if they can go to a university.
The solution to these problems — our spiraling costs, just about everyone else’s moribund systems — is not more government money, but less. It is to phase out aid and have people pay with their own funds, or money they get voluntarily from others. Then institutions would be unable to raise their prices with impunity, students would demand fewer expensive frills, while the system would retain the freedom essential to innovate and respond to ever‐changing student needs.