The benefits are actually much larger than I've just described. There's a snowball effect as the industries of the state move up the ladder. America is currently benefiting from past state investment in education. (There's intangible benefits too, but for these purposes let's just talk about the benefits the state accrues.)

That's if you accept the higher-education-as-training model. Under the higher-education-as-signaling model, the primary effect of education is to choose how to allocate a fixed set of high paying jobs. If there's 100 slots for new lawyers this year, then the difference between sending 150 and 151 students through law school is an additional unemployed lawyer.

Basically state governments off-loaded the burden of funding on the students while reaping the benefits of said investments.

Further, financial aid makes nameplate number less meaningful. If someone has rich parents or wins a full ride then schools want to milk that for as much as possible. Otherwise they can always add discounts down to whatever someone can pay.

http://slatestarcodex.com/2017/02/09/considerations-on-cost-...

My observations from attending and then later working at a large southern public university is that a bunch of things happened:

1) The financiers got in bed with the financial aid office, figuratively and possibly literally.

2) The campus went on an inexplicable building boom the likes of which no one had ever seen before. The state funded those projects, but they were clearly handouts to construction companies and pork spending. Sickening, really.

3) The quality of the average student plummeted. I blame the financiers for this, too--asses in seats is a thing.

So while it may be generally good that more people had access to higher education, at the same time the quality dropped, and I seriously doubt the outcomes for many of those people actually improved over attending community college or perhaps no college. Their debt loads had to be tremendous, after all.

It's also possible that states where education was valued have pulled back funding. There is actual hard data to indicate this is the case, but I'm also trying to avoid dismissing your claims out of hand.

The rise in college tuition is the most baffling, as this industry refuses the amortize costs. The buildings have been built, the books have been written, the intro courses have been handed down to graduate students, the handouts are sometimes the same handouts that were used a decade ago.

Yet the costs keep on rising.

Asking young humans with incomplete information to make a decision with long term financial impacts is a good gig, especially when "all their friends" are doing it.

"We find a pass-through effect on tuition of changes in subsidized loan maximums of about 60 cents on the dollar, and smaller but positive effects for unsubsidized federal loans."

Then you have to realize that tuition increases at private schools are misleading. You have to look at what people are actually paying not what the sticker prices.

At Harvard, for instance, 70% of students receive financial aid, so they are paying $12k a year on average (not the $60k sticker price). That's tuition, fees, and room and board. Harvard has generous financial aid, but it's not unusual among elite schools. Most private schools worth going to are going to have very good financial aid packages.

And even at lower tier private schools most people aren't paying sticker price unless you're talking about for profit institutions.

How long does it take to build and staff a private school? How long to get it into US News top 500?

Even something like increasing the number of students admitted to existing private schools is tricky because they are tracked on their admission percentage.

All that has to happen is for EXISTING colleges to realize that they can make a ton more money by expanding in size.

Obviously, this doesn't happen overnight. You have to hire new employees, buy more land, and build more buildings.

But I'd argue that this process would happen a lot, lot quicker than "create new college". Colleges are already expanding all the time.

If a single college doubles in size, the effect on total college supply is minimal.

You double the amount of quantity sold, for You, while only slightly decreasing price, because Total college supply has only barely increased.

It is simple supply and demand in a competitive market.

Harvard and Yale are ranked so highly that they could get away with it. But they won't do it for other reasons. Mainly that they don't need the money coming in from tuition. If you take a private school a bit further down the list though, their rankings would tank if they accepted twice the students.

Also there are other limiting factors. Many colleges don't have the physical space to just double in size. Their isn't land for sale within walking distance of their current campuses. Adding satellite campuses is one way around that, but that adds logistical problems that will reduce desirability. In addition to satellite campuses not always inheriting the reputation of the main campus.

Additionally you can't simply double the student to faculty ratio b/c that would tank rankings, and hiring double the faculty takes time.

You also don't know which departments you need to scale beforehand. If you decide to double your enrollment in the next 5 years, which majors will the new students choose? It's unlikely the ratios would stay the same. Good programs don't always scale well either. If a department worked hard over the last 20 years to build a good reputation, they can't just hire 20 new faculty members and teach twice the number of students without impacting quality.

Schools do expand all the time, but it is a very slow process that by its nature can't keep up with a constant growth in demand.

For decades the private sector has been feeding off the gravitas created by Stanford, Harvard, Yale and other superb private institutions. Maybe time has helped, maybe the Internet made comparisons easier, but it's pretty clear that private schools can be separated into three tiers, with tier one (Stanford, Yale) still being top notch, tier two being a questionable proposition for most people, and tier three (U of Phoenix, Trump U) being borderline fraud.

70% of Harvard students receive financial aid from the institution, and they pay an average of $12k a year total. Harvard clearly isn't charging a market rate for tuition.

Also government backed loans aren't nearly enough to cover tuition plus housing at these schools, so if your argument is that the prices are similar because they are both near the max loan amount, they aren't.

Does this mean that education budgets for the states has had cuts in the last 16 years? Where is that state money saved going?

This is not limited to education pension funds, public sector or prison guard pension funds typically negotiate the same deal, very frequently with people they themselves have helped get elected, so you know those negotiations are extremely tough.