Conservatives have long argued that the primary driver of higher education inflation is federal subsidies, most prominently subsidized federal loans. Now that President Donald Trump’s One Big Beautiful Bill Act is taking effect, this hypothesis is being proved as schools lower net tuition costs to meet the new law’s subsidy limits.
Unlike many other goods and services, which have seen prices modified over the last decades, higher education tuition has risen faster than inflation. President Ronald Reagan’s education secretary, Bill Bennett, was one of the first Republicans to make the case that government efforts to make college tuition more affordable through subsidized loans actually had the opposite effect, as schools raised tuition to match students’ increased capacity to borrow.
In a less regulated market, such subsidies might have caused less harm as new schools entered the market to keep tuition costs down. But higher education is a heavily regulated market, and new entrants face steep barriers, most prominently the regional accreditors, which incumbent institutions functionally control. Without any new competition to keep prices low, schools are free to raise prices to match students’ ability to borrow more, thanks to federal subsidies. This thus sends prices for everyone higher and forces those who could only afford school through federal loans to graduate even deeper in debt.
For decades, graduate students have been able to borrow unlimited amounts of money directly from the Department of Education through the Grad PLUS program. There is no financial need requirement; applicants must only pass a background check and be enrolled at least half-time in a government-approved program. The interest rate is set by Congress, not the market, and students can have their loan payments capped by government “income-driven repayment” plans or even totally forgiven through Public Service Loan Forgiveness. There is a broad economic literature showing that programs similar to these drive up the price of tuition.
Trump’s One Big Beautiful Bill Act, however, capped the amount each student could borrow at $50,000 a year and $200,000 in aggregate. Many higher education institutions lobbied against this provision, arguing that lower-income students would be cut off from higher education opportunities they could no longer afford. Tuition cuts to help students attend graduate schools were allegedly out of the question.
Now that the loan caps are about to be enforced, however, some schools are magically finding ways to lower tuition fees. Santa Clara University Law School, for example, recently announced that it would offer all admitted students a renewable and guaranteed $16,000 annual scholarship. Coupled with the school’s $63,000 tuition sticker price, this new scholarship means students can still borrow right up to the new $50,000 limit and still afford to attend. The scholarship isn’t exactly a price cut to the new borrowing limit, but it is functionally the same thing. Expect to see other graduate programs take similar measures.
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For the first time in decades, Washington has done something that might make college more affordable. It has forced schools to live within the means of their students rather than the other way around. By capping federal borrowing, the new law has reintroduced market discipline into higher education. Schools that once relied on limitless federal credit must compete on price, value, and outcomes. If this pattern continues, institutions will no longer be able to raise tuition with impunity and hide behind government loans to justify it.
The Bennett Hypothesis, long dismissed by the academic establishment, is now being vindicated in real time. The solution to runaway tuition is not more subsidies but stronger incentives for efficiency, transparency, and competition. Only when universities are forced to cut costs instead of passing them on to students will higher education become truly affordable again.