American universities have a spending problem

Preston Cooper -

Colleges and universities in the United States spend more money per student than schools in any other large, developed country, according to new data supplied by the Organization for Economic Co-operation and Development (OECD). American colleges spent $36,172 per student in 2020, against an average of just $17,578 in the European Union.

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Among 41 countries with data available, only tiny Luxembourg outspent the United States. America's closest competitor among large countries is the United Kingdom, which spent $29,534 per student, still nearly $7,000 less than the United States. (The OECD has adjusted these figures to account for differences in purchasing power across countries.)

America's title as the most profligate large country holds even if we only look at public universities, which tend to have more modest budgets. American state schools still spent $32,196 per student, more than any other large OECD nation. Private schools are even more extravagant, spending $45,927 per student.

These figures lend themselves to a few takeaways:

  • High college tuition in the United states is ultimately a cost problem. A common narrative implies that students pay little or no tuition in many European countries because their governments invest more in higher education. But the OECD data suggests instead that at least part of the explanation for higher tuition in the United States is universities’ higher underlying costs.
  • High underlying costs in the United States are not separable from the funding structure for American colleges. Cheap, government-backed loans with no controls on tuition have driven up the price of college in America. Other tuition-charging countries with national loan programs, such as the United Kingdom, cap tuition charges. This keeps prices—and, by extension, underlying costs—to a more reasonable level.
  • Free college in the United States would require significant cuts to university budgets. Universities in continental European countries with zero or nominal tuition spend much less than tuition-charging American schools. The free-college country with the most profligate universities (Sweden) still spends $10,000 per student less than America does. Tuition allows universities to raise more money than governments alone can afford to give them. Take tuition away, and university budgets must shrink.

American students are right to complain about the high tuition they must pay compared to their counterparts in the rest of the developed world. The proper targets of their ire are university administrators who have allowed college costs to get out of control, and the myopic government policies which failed to keep tuition inflation in check.