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Two things should go without saying: people are more efficient with their own money than with anyone else’s, and the more you subsidize something, the more you get out of it. Both of these things are essentially true of American higher education, a rickety ivory tower that has been simultaneously elevated and bloated by federal taxpayer money.

We would all be better off if the government withdrew from higher education and the ivory tower’s inhabitants were forced to rely not on the money of unwilling third parties – taxpayers – but on the money of students, lenders and research funders who use their own money to buy what the tower sells. This would make higher education more efficient, more effective and better for society.

“Better” doesn’t mean that colleges and universities are getting richer or more luxurious. That’s what most institutions would probably prefer, but those characteristics have little to do with the fact that ivory towers are much more focused on what they’re actually supposed to do: efficiently teaching students the knowledge and skills they need and want, and producing new knowledge through research. Extras like on-campus water parks, shiny new buildings, and gourmet food may give the impression that institutions are becoming more attractive — like a cruise ship adding more and more shows, bars, and water slides — but when it comes to colleges’ core missions, they’re redundant.

How much has the government invested in higher education over the years?

Since 1965 – the first year for which data are available – inflation-adjusted federal spending such as Pell Grants, aid to institutions and research funds has risen from about $25 billion to $620 billion, nearly 25 times higher. Much of the increase in recent years includes “relief” funds for the impact of Covid-19, but in 2019 – the last year before the pandemic – the total was about $165 billion, nearly seven times higher.

(Expenditure chart)

While direct spending is the largest source of federal funding, the discussion of late has been dominated by money that must be repaid — particularly student loans. Since 1970, this “off-budget support” has grown from about $6 billion to $84 billion, a 14-fold increase. That’s down from a peak of nearly $138 billion in 2011.

(Off-budget diagram here)

Overall, government support rose in real terms from about $45 billion in 1970 to $267 billion in 2019, the last year before Covid-19.

What has all this generosity accomplished?

Certainly many more degrees. In 1960, 7.7 percent of Americans age 25 and older had a bachelor’s degree or higher. By 2023, that number had risen to 38.3 percent. And growth wasn’t just at the bachelor’s level. In 1995 – the first year for which federal data was available – 4.5 percent of Americans age 25 and older had a master’s degree or higher. By 2023, that figure had more than doubled to 10.6 percent.

Of course, this inflation of qualifications is only beneficial if all qualifications demonstrate that the holders have acquired valuable knowledge that can be most efficiently acquired at a university, rather than through practical training, external reading or other, less expensive, educational routes. But this is often questionable.

Consider whether a college degree will pay off in the end—whether it will at least provide a break-even return on investment that would indicate sufficient labor market value. A recent analysis found that after deducting costs such as tuition fees, lost earnings during college, and the possibility of not completing the degree, 31 percent of all students are enrolled in programs that are likely to provide a negative return on investment. By degree type, this figure is only 23 percent for bachelor’s, doctoral, and professional graduates, and 43 percent for master’s and associate’s degrees.

That’s a lot of education that doesn’t pay off, and it’s a vicious cycle. A big reason so many pursue risky degrees is because the federal government, which is providing incentives for people to go to college, is increasingly flooding the market with documents that represent less and less education and make one potential employee less and less different from another. That has led employers to demand more and more degrees for jobs that didn’t require them before. That puts more pressure on people to pursue a degree…

People are forced into a hamster wheel where they have to run faster and faster just to stay in the same place. This helps no one except the universities that get paid for all the wasted time and energy.

And how about funding research? Surely that makes more sense than producing a ton of sheep’s clothing. Research enables humanity to uncover things we don’t yet know and thus makes all of our lives better, right?

Research that inspires innovation is indeed important for progress. But there is not much evidence that it needs to be government-funded or concentrated in universities. The National Science Foundation has estimated that nearly $886 billion was spent on research and development in the United States in 2022. Nearly $693 billion of that, or 78 percent, was funded by business. About $160 billion, or 18 percent, was funded by the federal government. Of that, an estimated $42 billion—or less than 5 percent of the total—went to universities.

Of course, much of all research and development is practical in nature, focusing on things that can be brought to market in the short to medium term. Much of government funding goes to what is known as “basic research”: the discovery of things that have no obvious or immediate market applications, such as studying the age of the universe or the migration patterns of orangutans. Given the lack of financial incentives for such work, many fear that without government funding, no basic research would be done.

This is not a far-fetched conclusion. Perhaps some of this research would not actually be done without government funding. If taxpayers kept their money, they could certainly use it for more concrete purposes, such as buying a new car, starting a business, or taking a much-needed vacation. The question is, why should the interests of scientists, or perhaps just curious people, be more important than the needs and desires of individual taxpayers? There is no clear reason why this should be the case.

However, the end of state research funding at universities does not mean that basic research must be abandoned. Private individuals and organizations are welcome to finance such projects. with their own money. The NSF reports that “nonprofit organizations” provided about $21 billion for research and development in 2022. A federal government withdrawal from the research business would open up many more opportunities for private companies to fund research without duplicating efforts or simply assuming that the federal government will take care of it.

Nor should one assume that increased funding always leads to more research. At least one study has found that increased government support for R&D largely leads to higher research salaries, not more and better research. And then there are the overhead costs: university researchers tend to bill the government for much more overhead than corporations and foundations are willing to pay. That’s almost certainly a loss for taxpayers and more unhealthy fat for higher education.

Given its fluctuating scope, the Ivory Tower would certainly be a much better neighbor if federal funding were eliminated. The evidence suggests that fewer skills are needed at significantly lower prices, while the importance of federal funding for basic research may be overestimated.

There is good news.

As federal funding exploded, higher education prospective customers began cutting funding starting around 2011. That year, total federal off-budget spending, funded primarily by student loans, peaked at about $138 billion and has since fallen to less than $84 billion. Evidently, more prospective students decided to stop taking on large amounts of debt at exorbitant prices. This inspired many schools to move from their old pricing model—high prices, high discounts—to something more reasonable: lower prices. This was possible because, unlike our elementary and secondary school systems, much of the federal funding comes to colleges through student choice, and colleges are not “free.” Dissatisfaction with schools can trigger market-like reactions, although these are greatly tempered by subsidies.

Unfortunately, the Biden administration is working on comprehensive student debt forgiveness that would eliminate even these limited market forces. If successful, Biden would send the message to all future students: “Don’t worry about exorbitant prices. You won’t have to pay back much of your debt.” And what would Biden’s plans cost taxpayers? Up to $559 billion, or more than the gross domestic product of Ireland.

We would all be better off with a leaner, more efficient higher education system. To achieve this, we need to get rid of the government.