In a recent post I mentioned the spiraling cost of higher education, and suggested one option to meaningfully cut costs. This triggered some interesting threads; some agreed, some pushed back, and a few pointed fingers at administrative bloat, athletics spending, fancy dorms. All of those are real. But they're symptoms, not the cause.

The actual cause? Student loans.

And more specifically: The near-unlimited availability of student loans, which has given universities every incentive to raise prices indefinitely and zero incentive to stop.

The logic isn't complicated. If a student can borrow whatever it costs to attend, universities will charge whatever they want. Why wouldn't they? The check clears because the federal government guarantees it. And it's remarkably easy to look a 17-year-old in the eye and say "just take out a loan - it's an investment in your future."

There's actually a name for what happens when someone else is picking up the tab: the third-party payer problem. When the bill doesn't come due for years, you stop asking whether the price is reasonable. We've watched this play out in healthcare for decades - insurance shields patients from the real cost, nobody pushes back on prices, and prices keep going up. Student loans do exactly the same thing for tuition. Same dynamic, different industry.

This didn't happen overnight. It happened gradually, in steps, and each step left a mark on tuition.

This next bulleted section is long, I know, read or skim, or jump to the summary, your choice, but here goes:

  • 1965: Lyndon Johnson signs the Higher Education Act, creating the Guaranteed Student Loan program. The goal is access - let students who can't afford college borrow to attend. Average public university tuition: about $240 a year. Loans are modest, need-based, limited. Through the late 1960s and into the 1970s, tuition rises roughly in line with inflation. The spigot isn't fully open yet.
  • 1972: Sallie Mae is created to purchase and securitize student loans, injecting more capital into the system. More money available to lend. Tuition notices.
  • 1978: The Middle Income Student Assistance Act opens federal loans to all students, regardless of family income. Loans stop being a safety net for the needy and become standard financing for everyone. This is the inflection point. In the decade that follows, tuition rises 151% in nominal terms - the steepest decade on record, nearly triple general inflation.
  • 1980: Parent PLUS loans arrive. Now parents can borrow on top of whatever students already owe. Average public 4-year tuition that year: $2,387. By 1990 it had roughly doubled in nominal terms. The entire decade saw a 36% real increase. The household borrowing ceiling went up, and tuition followed it all the way.
  • 1986: The Higher Education Amendments raise Stafford loan limits, increase PLUS loan limits further, and - critically - repeal the cap on first-year student borrowing entirely. Tuition that year is rising at 8.1% annually. General inflation is running around 2%. It stays that way for the rest of the decade: tuition up 7-8% every year, inflation up 2-4%. Not a one-time spike - a gap that was baked in and showed no signs of closing.
  • 1992: The Higher Education Amendments remove annual and aggregate borrowing caps on PLUS loans entirely, and make unsubsidized Stafford Loans available to all students - no financial need required, no income test. The share of bachelor's degree recipients taking out loans jumps from 49% to 66% over the next 15 years. Tuition in the 1990s rises 26% in real terms. In the 2000s, another 32%.
  • 1993: The Direct Loan Program launches, with the federal government now lending directly to students, cutting out the middlemen and making the whole thing even easier. Tuition that year jumps 6% in real terms - above inflation, as it had been every single year of the previous decade. Between 1989 and 2000, average public 4-year tuition grew at 6.5% per year.
  • 2010: Private lenders are eliminated entirely. The government takes over all federal student lending, removing the last remaining friction from the pipeline. At the same moment, states slash higher ed budgets in the wake of the recession - so universities face less public funding and more easy federal money simultaneously. The result: public university tuition rockets from roughly $7,000 in 2008-09 to $10,400 by 2012-13, nearly 50% in four years. Annual loan volume, which was $7.6 billion in 1970, is now over $120 billion.
  • 2026: Total outstanding student debt today sits at $1.7 trillion, owed by more than 40 million Americans.

That's a lot of detail, I know, so let's summarize. There is a clear pattern. Every time borrowing got easier, tuition went up. Every time loan limits expanded, universities expanded their prices to match. The correlation isn't subtle - it's a 60-year chase, with loans always leading and tuition always following.

This pattern even has a name. In 1987, Secretary of Education William Bennett wrote that federal aid had enabled colleges to

"blithely raise their tuitions, confident that Federal loan subsidies would help cushion the increase."

The Bennett Hypothesis, as it's called, has been argued about ever since. Some studies find little connection. But a 2015 Federal Reserve Bank of New York study found that for every dollar increase in subsidized loan limits, tuition went up about sixty cents. At private schools and more expensive programs, even more.

Sixty cents on the dollar. That's not a rounding error. That's a business model.

Universities aren't evil. They're rational. If you can raise your prices and enrollment holds because the federal government will finance the gap, well duh!, you raise your prices. You upgrade the facilities. You add administrators and deans. You build the climbing wall. You remodel, well, everything. The money is there. It will always be there. Because for decades, there was no ceiling.

So here's the thought experiment I keep coming back to: What would happen if student loans were capped? Not eliminated - capped, as in the federal government setting a hard limit on how much any student could borrow.

Suddenly, universities face a real constraint. They can charge whatever they want above that cap, but students will have to pay the difference out of pocket. And how many students can actually do that? About 2/3 of bachelor's degree recipients currently graduate with debt, and roughly 1/3 manage without loans. That's it. The affluent, the heavily scholarshipped, the ones whose parents saved diligently for 18 years. The rest would be priced out.

A university that wants full classrooms, not just a skeleton crew of trust fund students, would have to make a choice: lower costs, or watch enrollment collapse.

That's the pressure that's never existed. Your grocery store can't charge $40 for a loaf of bread because you'd stop buying bread. A university can charge $40,000 a year because the loan officer will smile and hand you the forms.

Student loans were designed to make college accessible. Instead, they made college unaffordable for anyone who doesn't take one out - and then left a generation with six-figure debt to prove it. We didn't just create a system where students borrow to attend. We created a system where universities borrow students' futures to fund their own growth. And we've been doing it for sixty years.

So what's the quickest way to lower the cost of higher education? Congress capping loans. That's it. Pick a number - maybe start at $5K per year of school, $10K at the most, that's what higher education will have to work with.

Will they push back? Of course they will! But they'll also have to adapt, and do so quickly. But hey, they quickly adapted to raise costs as loans became more readily available, I'm pretty sure they could do the opposite, too, if forced to.

Now all we need is a Congress willing to take this on.