Columbia University Funding Dispute Highlights Higher Education’s Dependence on Federal Taxpayers
Colleges face numerous issues -- should taxpayers still be footing the bill?
The recent spat between the Trump administration and Columbia University has highlighted an underlying issue with higher education—its dependence on the federal taxpayer.
Columbia University recently yielded to the demands of President Trump in exchange for restoring $400 million in federal funds. Yet, this figure is only the tip of the iceberg when it comes to taxpayer subsidies for colleges. Columbia University received more than $1.2 billion in government grants in both 2022 and 2021.
Columbia isn’t alone among the Ivy League universities in receiving large sums of government funding. The University of Pennsylvania received over $1 billion in government grants in 2022, while Yale and Harvard received $757 million and $657 million, respectively.
The billions of dollars in taxpayer support going towards colleges with multibillion-dollar endowments might not be so politically unpopular if it were not for the inherent issues that many colleges face.
First, there is the deeply rooted issue of antisemitism on college campuses that underlies the recent Columbia funding dispute. The second issue is underemployment—only half of college graduates secure employment in a college-level job within a year of graduation. Third, the explosion in taxpayer funding for higher education has coincided with significant tuition inflation.
Direct government funds to colleges are only one visible piece of a much larger system. Combined federal and state financial aid totaled almost $160 billion in 2023, up from less than $20 billion in 1990 (current dollars). Figure 1 below shows the growth in federal and state financial support since 1970 in current dollars.
As noted, the long-term uptick in government financial support has not been met with improvements in affordability. On the contrary, as figure 2 below demonstrates, average tuition and fees for full-time college students have been on an upward trajectory—in tandem with government financial support.
What’s more, the empirical literature finds that colleges react to increased government aid by decreasing their provision of institutional aid or by raising costs (such as tuition).
Aside from direct government funding and financial aid, colleges benefit significantly from special carve-outs in the tax code. Among the 170 tax expenditures in our overly complicated tax code, the government uses several provisions to create favorable treatment for colleges.
Take, for instance, tax-free municipal bond interest for colleges. While these are typically reserved for government public works projects, colleges issue tax-exempt bonds to raise money more cheaply than other sectors, allowing them to finance new buildings or expand administrative staff.
A Wall Street Journal article recently noted how Columbia University has become New York City’s largest private landowner through tax-exempt borrowing rates that are cheaper than those of the U.S. Treasury. This special exemption will cost U.S. taxpayers some $33 billion in the coming decade.
Other special tax carve-outs include the deductibility of student loan interest, which allows colleges to continue inflating the price of tuition, costing the federal taxpayer another $33 billion in the coming decade. College expense tax credits will cost the federal taxpayer a whopping $125 billion over the next 10 years, as taxpayers are forced to foot the bill for students’ textbooks and other expenses.
Whether policy experts are concerned about higher education as it relates to antisemitism, tuition inflation, or the education-skills mismatch, we might start by acknowledging that the disputed $400 million in government funds to Columbia is only the tip of the spear of a much larger dependency problem. The real question is whether continuing to funnel hundreds of billions of taxpayer dollars—directly and indirectly—into these institutions is doing more harm than good.