Room full of students listening to a lecture.

The Economics of Tuition: Why Hillsdale Makes the Cut

Written by Michael Ragan

Over the last thirty years, tuition prices for higher education in the United States have drastically increased. According to the National Center for Education Statistics, the average annual cost of going to an accredited four-year institution has risen from just over $8,700 in 1980 to well over $21,000 in 2010 after inflation. This 247% increase in tuition represents an unprecedented growth in costs paralleled by few other sectors of the economy. What is the cause of this massive price inflation, and what is the cost to students?

While many seek to blame overall national inflation as the reason tuition is skyrocketing, in reality, the fault lies elsewhere. Though it may seem counterintuitive from a surface perspective, one of the major causes of recent skyrocketing tuition prices is the ever- increasing government subsidy and loan program available to students. Looking at it from an economist’s point of view, a government subsidy (or to a lesser extent, a loan) serves only to increase a student’s willingness to pay for higher education. For example, a student ready to pay $5,000 for a semester of college might receive a government subsidy payment in the amount of $3,000. This will increase the student’s willingness to pay and therefore his/her demand by the amount of the subsidy; in this instance, the student will now be willing to pay $8,000 per semester as opposed to the pre-subsidy amount of $5,000.

Again, this subsidy program may sound ideal if only explored at the surface level; few would deny that giving students the tools they need to combat rising tuition costs is a bad thing, but what if the supposed solution was the problem? Despite their status as educational institutions, many colleges are run like for-profit organizations; they seek to maximize their revenue at all times. As rational actors, colleges and universities are able to gauge their students’ increased willingness to pay resulting from government subsidies; they will simply raise tuition by an amount equal to prospective students’ additional ‘income.’

The unintended consequences of tuition subsidies are understood by few, and without researching the topic further, it’s difficult (at best) to discern the overall effects of throwing money at such programs. This line of reasoning acts as yet another feather in Hillsdale’s cap in the school’s decision to deny government funding. While tuition at Hillsdale does continue to rise due to market forces which necessitate increased costs based on what other higher education institutions are doing, the donations of generous benefactors and alumni serve to do more than offset the hole left by lack of government funding. A student attending Hillsdale College will generally find himself/herself paying drastically less than he/she would at an equivalent school.

Hillsdale’s experiment in self-government is one based on both higher truths and economic realities. Though it may seem odd, the decision to refuse government funds is one of the best decisions yet made in regards to keeping the college affordable. By refusing to partake in the government’s artificial inflation of tuition costs, Hillsdale makes yet another stand for liberty and the free market.


Michael Ragan is a member of the class of 2015 at Hillsdale College. A resident of Toledo, Ohio, Michael is majoring in Economics and minoring in Music. He is a member of the Beta Kappa Chapter of the Alpha Tau Omega fraternity, the club golf team, and the Aliaga Foundation on campus.