Student View: Government Policy Created the Higher Education Bubble
By Shauni Holbrook, Kristin Tokarev and Dr. Alex Tokarev, Northwood University
Some say that public higher education has a funding problem. All the evidence, however, suggests that our colleges and universities have an incentive problem.
For decades, politicians promised that sending more students to college would create a more productive workforce and a stronger economy. Their solution was simple — financial aid for students. Washington subsidized demand through federally backed student loans and grants.
The result wasn’t cheaper education. What happened could have been predicted by any freshman who paid attention in Econ 101. Colleges raised tuition, hiring armies of administrators and building luxury amenities while students accumulated mountains of debt.
It’s not as if Americans haven’t been warned about this dynamic. Former U.S. Secretary of Education William J. Bennett argued in a 1987 New York Times op-ed that increases in federal student aid allow colleges to capture much of the additional money by raising tuition. The phenomenon is now commonly referred to as the Bennett Hypothesis.
More recent research has found evidence that federal lending programs can contribute to tuition inflation, particularly in graduate and professional programs. Rather than making college affordable, government intervention often shields universities from market discipline.
The financial problems facing higher education today are largely self-inflicted. Colleges built business models dependent on endless enrollment growth and unlimited federal subsidies. When demographics shifted, and students began questioning whether a degree in gender studies or critical race theory was worth the cost, the entire system started to wobble.
Universities now complain about fewer applicants, yet many have spent decades prioritizing their bureaucracies over actual instruction. According to analyses by the American Council of Trustees and Alumni (ACTA), administrative positions have grown substantially over the past several decades, often outpacing faculty.
As The Guardian points out, students are paying not only for professors but also for vice-chancellors, diversity experts, personal assistants, and many “empty activities.” That’s not to mention campuses with a climbing wall, movie theater, steakhouse, or resort-style lazy river!
Is it any wonder that tuition has consistently risen far faster than inflation? Sadly, instead of responding to competition by cutting costs, universities have largely passed those costs onto students, confident that federally guaranteed loans would ensure someone could pay the bill.
Even many colleges’ own financial officers acknowledge that the model is becoming unsustainable. As enrollment declines, institutions face budget shortfalls, prompting layoffs, program closures, or even institutional bankruptcy. Yes, some of those are the unfortunate consequences of falling birth rates. Mostly, they are the inevitable result of an industry insulated from normal market incentives for decades.
And the students are noticing. Increasing numbers of young Americans are asking whether borrowing tens of thousands of dollars for a bachelor’s degree in woke disciplines makes economic sense. Many conclude it does not.
If a campus is shrinking, it may also be because apprenticeships, technical certifications, trade schools, coding boot camps, and employer-sponsored training often provide faster entry into the workforce with little or no debt. That’s not a market failure. It’s how competition weeds out useless products.
Families are losing confidence in higher education because the administrators and faculty have drifted away from rigorous education and toward Marxist propaganda. Many campuses increasingly prioritize DEI initiatives and political activism over academic excellence and career preparation.
If an instructor is forced to sign a diversity statement to get the job, that school has lost sight of its core educational mission. As a result, businesses increasingly report difficulty finding graduates with strong work ethics, communication skills, quantitative reasoning, and problem-solving abilities.
You can fool some of the people some of the time, but the market will deliver its verdict at the end. Enrollment will continue to fall in many schools because global competition forces the customers to consider the return on their investment. As in every other market, consumers stop buying products they believe are overpriced.
The federal and state governments should resist the temptation to solve this problem by simply pouring more taxpayer dollars into the same broken system. Expanding student loan “forgiveness” or increasing federal lending may provide temporary relief to the borrowers, but it also reinforces the bad incentives that contributed to the waste and rising tuition in the first place.
Instead, policymakers should assist the market in restoring discipline. The government must make schools receiving any aid financially accountable for student outcomes, including loan repayment and academic outcomes. Such risks should not be shifted onto taxpayers.
Transparency about graduation rates, employment, median earnings by major, and total student debt would allow families to make better-informed decisions. If a degree delivers value, students will choose it. If it doesn’t, the institution should adapt or fail.
Competition, not subsidies, drives innovation in every successful industry. Higher education should not be exempt from the same forces. Colleges, like Northwood University, that focus on useful skills and efficient operations will continue to attract students. Those that produce administrative bloat and leftist brainwashing should not expect taxpayers to rescue them.
The higher education crisis is the natural outcome of a government-created distortion that protected universities from competition for decades. The solution is not more political intervention. It’s restoring incentives that reward value, efficiency, accountability, and educational excellence.
Markets are remarkably good at exposing waste. Higher education is finally being forced to face the same reality that every other industry has learned to confront. When the customers decide that a product isn’t worth the money, the answer isn’t a subsidy — it’s making a better product.
About this piece:
Shauni Holbrook, of Houghton Lake, Michigan, co-authored this piece with Northwood University alumna Kristin Tokarev and Professor Dr. Alex Tokarev. The essay is featured in the November 2026 edition of When Free to Choose, Northwood’s signature publication dedicated to exploring the importance of free enterprise and other tenets of The Northwood Idea. Click here to receive When Free to Choose in your inbox!