Growth in Government Subsidies

by Daniel L. Bennett

I'm working on an empirical study of educational inequality in the U.S. Part of the analysis is exploring the effect that governmental subsidies for postsecondary education (in addition to K-12 education) have had on inequality. While that analysis is still in the works, I have put together a chart below that shows real government subsidies by level, on a per student basis, over the past 90 years for postsecondary education.

As the chart reveals, federal subsidies were relatively constant for the first half of the 20th century before exploding as the second half of the century began. This coincides roughly with the birth of the federal government's financial aid system (beginning with the GI Bill in 1944 and later expanding to all students with the 1965 HEA).

State subsidies were relatively modest prior to the mid 20th century and experienced some volatility in the latter half of the century and beginning of the 21st century. Local government subsidies have traditionally been relatively modest, but have become increasingly more prevalent in recent years.

Interestingly, the more that we have subsidized college, the more expensive it seems to have become for students. This is a classic example of the unintended consequences that often result from public policies that artificially stimulate demand. See my colleague Andrew Gillen's paper on financial aid for an excellent read on this theory.

Note: Source of Data is National Center for Education Statistics (NCES). 2006-07 was latest year with complete data. It is not known to what extent local or state subsidies originated from a higher level of government to be distributed at the lower level. This limitation in the data could underestimate federal and/or state , and overestimate state and/or local subsidies in recent years.