We provide massive college subsidies at both the federal and state level. This paper explores the justifications for these college subsidies, subsidy design considerations, and evaluates the main subsidy programs to assess whether they are well-designed. Our evaluation discovers reasons to eliminate some subsidies and ways to improve other subsidies.

Key points:

  1. Subsidies for higher education have a long and evolving history in the U.S.
  2. This paper explains the most common subsidy justifications, including historically important but now obsolete justifications such as promoting favored religions and reducing the size of the labor force, as well as more modern justifications such as strengthening national defense, redistribution, paternalism, generating positive externalities, and boosting economic growth.
  3. When implementing a subsidy, there are several subsidy design choices to consider, including: targeting (universal or selective subsidization), distribution (whether to fund students or institutions), the appropriate size of the subsidy, and unintended consequences.
  4. In light of these subsidy justifications and design considerations, we offer recommendations to improve and, in some cases, eliminate existing higher education subsidies.