How and why did college become so expensive?
The answers may unnerve you.
How did colleges and universities, particularly the state-subsidized kind, become so expensive?
According to the editors of The Washington Post, it’s not for the reasons you think.
For a long while the conventional wisdom has stipulated that the cost of public education has soared because of cutbacks in government funding. Legislatures reduced their appropriations (or so the argument went), and colleges raised tuition to cover the loss.
The Post brands that account a pure myth, and it cites a recent study from the Cato Institute.
Andrew Gillen, author of the inquiry, gathered forty-six years of data on state funding and tuition at public institutions of higher learning. Adjusting every figure to constant dollars, he then asked whether the so-called “disinvestment” narrative survives the actual data.
It does not.
In 1980 the states, Gillen discovered, provided public colleges with $7,677 per student. In 2025 the figure was $12,081, a 57.4 percent increase.
Funding did not fall. Over the long run the states added some 63 dollars per student each year.
The disinvestment thesis forecasts the reverse. If tuition merely replaces lost subsidies, then rising state contributions should lower tuition.
Instead, tuition revenue per student climbed from $2,029 to $7,459. The two ledger entries grew in tandem with each other.
Gillen measured the link directly and found it weak. A dollar of lost state funding lifts tuition by two to 29 cents, not by a whole dollar.
A state-by-state comparison proved to be even more startling still. Oklahoma, Virginia, Maryland, Massachusetts, and Illinois changed their funding by wildly different amounts, and yet the outcomes were similar.
Gillen drew four conclusions, and tout ensemble they all make sense. The correlation between state funding and the price tag on a four-year college degree is weak and for the most part inconsequential, regardless of the angle from which one comes at it.
State governments cannot guarantee lower tuition simply by writing a more sizable check. How, therefore, does the myth of public disinvestment persist and stay so durable over the decades?
Gillen names two culprits, and both have to do with how we read the numbers. Or as Mark Twayne famously quipped, “there are lies, damn lies, and statistics”.
Advocates of the disinvestment thesis, according to Gillen, start counting at 2001 when state funding for higher education peaked, and halt the stopwatch at 2012 during the trough that followed the Great Recessions of 2009-2011..
Within that interval funding did indeed decline by some $2,720 per student. But afterwards it rebounded much faster than it dropped.
The second culprit is the very metric commonly deployed to track state investment. Many studies deflate old dollars with the Higher Education Cost Adjustment (HECA), an index built from the sector’s own input costs such as faculty salaries.
Gillen argues that the index inflates the ostensible value of past funding and conjures a decline where any ordinary price index shows growth. He himself prefers the Personal Consumption Expenditures index, the gauge the Federal Reserve itself trusts.
Gillen’s argument is persuasive. But it serves mainly to dispel the most egregious of the numerous “urban legends” concerning why college has been unaffordable for so many.
The Cato report only scrutinizes state-supported higher ed. It does not account for why tuition at private schools has also soared for decades as well.
Per the College Board’s latest data the sticker price at a private non-profit four-year institution currently averages $45,000 over against $11,950 for an enrolled in-state student in a public college of university.
If public disinvestment in higher education as a whole were a serious exacerbating factor in the price spiral, the difference would show up in the cost spread between state-supported and privately endowed post-secondary institutions.
It does not.
So where have all the dollars been flowing? Follow the money trail inside of the university and you will be rather taken aback.
Less than half of core spending now is set aside for instruction at all. The remainder is absorbed by research, student services, and above all by the proliferation of administrators and their outsize paychecks.
Benjamin Ginsberg gave the phenomenon its descriptor in his 2011 book The Fall of the Faculty. He called it “administrative bloat”, referring to expanding regiments of deans and “deanlings” whose ranks burgeoned while the faculty itself thinned out.
Ginsberg writes that “every year, hosts of administrators and staffers are added to college and university payrolls, even as schools claim to be battling budget crises that are forcing them to reduce the size of their full-time faculties.”
Between 1976 and 2018 full-time faculty grew ninety 2 percent, whereas the tally of administrators swelled 164 percent, creating what Michael McKinnnon characterizes as “multiple management layers that have no instructional purpose” whatosever.
During that same period other professional staff burgeoned 452 percent. By one tally colleges hired more than half a million administrators and professionals between 1987 and 2012, some 87 for every working day. Administrative expenses rose from $13 billion in 1980 to $120 billion by 2019.
Outlays on faculty, including adjunct instructors, did not bend that curve in any meaningful manner.
But the bureaucracy did.
Another disquieting element that has driven college budget tumescence is both student and parent insistence on enhanced creature comforts.
A team of education researchers examined what students actually bundle into their expectations about the “college experience” and concluded that they tend to value inordinately the sorts of cushy amenities their grandparents at least would have never imagined as relevant to the educational process — the climbing walls, the lazy rivers, and the stadium suites.
Market pressure thus push colleges to spend on pleasure rather than rigor, following what economist Howard Bowen hypothesized as far back as 1980 — a university does not fix a budget and then attempt to disburse its finances within the parameters it sets. On the contrary, it scurries up whatever money it can and then expends it in a fashion that is relentlessly in pursuit of prestige and glory.
According to what has come to be known as Bowen’s “revenue theory” of college financing, tuition rises to whatever level the market and the aid system will bear.
The one indisputable takeaway from much of the more recent literature on the cost drivers in higher education is that student loans, designed at their inception to make college more affordable for many, have had the opposite downstream effect.
If the “Bowen thesis” is accurate, then the multi-decade ascent of college costs can be blamed on the indefeasible revenue appetite of higher ed itself and to the federal credit pump that has sustained it from the very outset.
William Bennett, education secretary during the Reagen administration, alleged four decades ago that federal aid lets colleges raise prices without resistance. Thirty years later researchers for the Federal Reserve Bank of New York in a little known paper empirically confirmed Bennett’s charge.
The most rigorous test of Bennet’s claim comes from the Federal Reserve Bank of New York, where researchers David Lucca, Taylor Nadauld, and Karen Shen disclosed a passthrough of close to sixty cents on the dollar for subsidized loans, especially at private non-profit and for-profit schools.
Authors Gordon and Hedlund built a model from which they could reach a parallel verdict whereby credit expansion and the rocketing “earnings premium” for a college degree, as opposed to any significant “productivity” variable, together explain most of the sticker-price surge for tuition in recent generations.
Another key factor surprisingly is the intense competition among institutions for students.
In the for-profit sector competition normally keeps prices lower. Yet in the world of non-profit higher education the reverse happens to be true.
National Bureau of Economic Research fellow Caroline Hoxby has argued that as the American college market went national, colleges ceased to serve a captive local population and began competing for talent across the entire country.
Competition boosted quality, and quality hiked the price. Nevertheless. Hoxby has estimated that this single dynamic explains roughly half of the real escalation in tuition levels at selective private colleges since 1950.
Top-tier institutions such as those in the Ivy League became — absurdly — the aspirational bullseye for the whole of higher education, and the nation has paid dearly for an “arms race” in brand-building ever since that era.
At the same time, the debate over college funding is no longer a strictly academic one.
The One Big Beautiful Bill Act, signed into law by President Trump in July 2025, rewires federal lending for the first time in a generation. Beginning next month it eliminates the Grad PLUS program, which let graduate students borrow up to the full cost of attendance.
In addition, two more comprehensive forces now press on the larger enterprise of higher ed, and both spell trouble.
The first is demographic. The number of American 18-year-olds year olds reached its zenith in 2025 and has begun a long descent. Births fell dramatically after 2007 and never fully recovered.
The economist Nathan Grawe projects the college-age population to shrink some 15 percent by 2029, a decline of almost 576,000 students, with a second shortfall setting in thereafter. What college officials have anticipated for years as the “demographic cliff” will eventually become a canyon wall.
The Federal Reserve Bank of Philadelphia modeled the consequences for higher education of the looming “cliff” and found that a sharp 15 percent enrollment drop could result in as many as 80 additional college closures, more than double the current rate.
A second form of pressure is the perceived value of a college education itself. The wage premium for acquisition of a degree — the growth engine that warranted student loan borrowing in the first place — has flatlined.
By the most recent reckoning the overall college premium hovers near 55 percent, roughly where it sat in the late 1990s, even as the real cost of the degree rose some forty percent across the same time span.
The supply of graduates swelled from 31 percent of the workforce in 2000 to 45 percent by 2025, whereas employers counterintuitively responded by demanding the credential less frequently.
Online postings that once required a degree have grown scarcer, and the underemployment of recent graduates is trending upward. The college “premium” is still there, but it no longer commands the awe and respect it previously did.
Historically higher education has been the passport to attaining the American dream. It has now become the credit card that can easily lead to a life sentence of onerous and unrewarding debt.
The irony is that what passes for “higher” education is more critical than ever in our twenty-first century “knowledge economy” to the future of general American prosperity. As the Office of the University Economist at Arizona State University proclaims on its website:
Economic activity in the global economy has become increasingly knowledge based, and the distribution of income is shifting in favor of educated and skilled workers, innovative firms, and regions with clusters of high-technology firms. The importance of knowledge is apparent in the earnings premium received by college-educated workers, which is now at a historic high. To sustain a competitive advantage in the global economy, firms must constantly innovate and differentiate their products or lose market share to low-cost developing countries. Intangible assets such as intellectual property are increasingly visible in the balance sheets of corporations. After a century of convergence, levels of prosperity are diverging across regions, with the most prosperous locations being home to agglomerations of innovative firms and succeeding in attracting highly educated workers and their families.
Artificial intelligence threatens to undermine the basic knowledge “supply chains” and credentialing machinery that colleges and universities have traditionally provided.
Yet it also promises to revolutionize the production of knowledge in which radically redesigned institutions of advanced learning can take the lead, if only sheer political inertia can be overcome and cavernous chambers of scholarly self-entitlement can be scoured out.
The hallowed halls of ivy may well in relatively short time follow the fate of suburban shopping malls.
But the staggering opportunities for knowledge “entrepreneurs” are only beginning to scintillate in the light of day.