Diploma and Debt: How Washington Engineered the College Affordability Crisis It Now Promises to Fix

In 1970, the average annual cost of attending a four-year public university in the United States — tuition, fees, room, and board — was approximately $1,200 in nominal dollars. Adjusted for general inflation, that figure would represent roughly $9,400 today. The actual average cost of attending a public four-year institution today exceeds $27,000 annually. At private nonprofit universities, the average approaches $58,000.

The gap between what general inflation would predict and what students actually pay is not a mystery of market dynamics. It is the predictable consequence of a federal lending apparatus that removed the price discipline that would otherwise constrain institutional ambition.

The Bennett Hypothesis, Confirmed

In 1987, then-Secretary of Education William Bennett published an op-ed in The New York Times arguing that increases in federal financial aid were enabling colleges to raise tuition with impunity, capturing the subsidy rather than passing it to students as reduced costs. The higher education establishment dismissed this analysis for decades.

Subsequent research vindicated Bennett comprehensively. A 2015 study published by the Federal Reserve Bank of New York — not a libertarian think tank — found that for every dollar increase in subsidized loan availability, universities raised their tuition by approximately 65 cents. For institutions most exposed to federal aid, the pass-through rate was even higher. The mechanism is straightforward: when buyers can access credit regardless of price, sellers face no competitive pressure to contain costs.

This is not how markets are supposed to work, and it is not how they work in sectors where government has not intervened to sever the connection between price and consumer purchasing power. When a buyer must spend their own money — or borrow at market rates with personal risk — they apply scrutiny to what they are purchasing. When a 19-year-old can borrow $35,000 per year at subsidized rates with no credit assessment, no income verification, and repayment deferred until after graduation, that scrutiny evaporates. The university administration understands this calculus far better than the student does.

Institutional Bloat: Where the Money Actually Went

Tuition revenue did not flow primarily into classrooms, faculty salaries, or academic programs. It funded a remarkable expansion of administrative infrastructure that has no parallel in other service industries.

Between 1975 and 2015, the number of full-time faculty at American universities increased by approximately 50 percent. During the same period, the number of administrators and administrative staff increased by more than 200 percent. Today, many large research universities employ more administrators than faculty members. The titles populating university org charts — Vice Provost for Student Experience, Associate Dean for Diversity Initiatives, Director of Wellness and Belonging — represent positions that did not exist a generation ago and would not survive in an environment where institutions competed meaningfully on price.

Campus physical infrastructure tells a similar story. Universities constructed recreational facilities, residence halls, and student centers of a quality that would have been unimaginable to previous generations of students — not because students demanded them as a prerequisite for enrollment, but because institutions competing for students in a market insulated from price pressure competed on amenities rather than cost. The 18-year-old choosing between two universities of comparable academic reputation will often choose the one with the nicer dormitories. The federal loan program ensures she can afford whichever she selects.

The Debt Trap's Long Shadow

The consequences for borrowers have been severe and lasting. Total outstanding student loan debt in the United States now exceeds $1.7 trillion, a figure that surpasses both credit card debt and auto loan balances. Approximately 43 million Americans carry federal student loan balances, with the average borrower owing roughly $37,000 upon graduation.

For graduates who enter fields with strong earning trajectories — medicine, law, engineering, finance — this debt load is manageable, if burdensome. For the substantial portion of borrowers who studied in fields with limited labor market demand, or who attended institutions with low graduation rates, or who did not complete their degrees at all, the debt represents a generational financial penalty. Research consistently shows that student debt delays home purchases, suppresses retirement savings, and reduces small business formation among borrowers in their twenties and thirties.

The political response to this crisis has been, predictably, to propose further federal intervention. Loan forgiveness programs, expanded income-based repayment plans, and tuition-free college proposals all share a common characteristic: they address the symptom — unaffordable debt — while intensifying the underlying cause. If universities understand that federal programs will absorb whatever they charge, the incentive to contain costs does not merely persist; it strengthens.

What Markets Without Mandates Look Like

The assertion that higher education cannot function without government-directed financing is empirically refutable. Several countries with strong educational outcomes and lower per-capita higher education costs operate systems in which private lending, income-share agreements, employer-sponsored education, and institutional financing play larger roles than government loan programs.

Income-share agreements — arrangements in which students receive tuition financing in exchange for a fixed percentage of post-graduation income for a defined period — have gained traction in the United States despite, rather than because of, the federal loan program. ISAs align institutional incentives with student outcomes in a way that federal loans structurally cannot: an institution financing a student through an ISA profits only if the student earns enough to make repayments. An institution receiving federal tuition dollars profits regardless of what happens to the student after graduation.

Purdue University's Back a Boiler program and several coding bootcamps and vocational training providers have demonstrated that ISA models can function at scale. They have also demonstrated that when institutions bear some of the risk of their graduates' outcomes, curriculum and program design shift toward demonstrable labor market value.

The Federal Stranglehold and the Path Beyond It

Breaking Washington's grip on higher education financing requires accepting a politically uncomfortable premise: that the federal government's decades-long effort to make college more accessible has made college substantially less affordable, and that the solution is less federal involvement, not more.

A genuine reform agenda would phase out subsidized federal lending in favor of means-tested grants for students at accredited institutions — aid that does not scale with tuition and therefore does not incentivize tuition increases. It would remove the regulatory barriers that prevent new accreditation models from challenging incumbent institutions. It would eliminate the tax treatment that favors traditional degree programs over vocational training, apprenticeships, and alternative credentialing.

Most fundamentally, it would restore price discipline to a market that has operated without it for fifty years. When students and families must weigh the true cost of an educational choice against its expected return, universities will face the same competitive pressure that every other service provider in a functioning market faces. Some institutions will not survive that pressure. The ones that do will deliver education that is worth what it costs.

The federal student loan program was not designed to enrich university administrators or inflate tuition to levels that indenture graduates for decades. But intentions do not determine outcomes. Results do. And the results are unambiguous: Washington's attempt to make college affordable made it ruinously expensive. The free market deserves the opportunity to do better.