Over the past quarter-century, average tuition has jumped 440%—four times the increase in general inflation and twice that of health care costs. To pay for these historic price increases, students and their parents have amassed historic debt. Student loan debt now stands at $1.3 trillion, for the first time ever surpassing total national credit card debt.
Increases in federal student aid lead to corresponding increases in tuition sticker price, in what is known as the Bennett Hypothesis. For example, each additional Pell Grant dollar to an institution leads to a roughly 40 cent increase in sticker price tuition. Federal regulations also raise the cost of higher education. Regulatory compliance accounts for 2% to 8% of a typical institution’s nonresearch expenditures, costing the higher education sector an estimated $27 billion annually.