A typical student in an American public college pays thousands of dollars more in tuition than just a decade ago. Students and parents are worried and frustrated, and many point the finger at state legislators, who have cut funds to state schools. During last year’s presidential campaign, Hillary Clinton blamed “state disinvestment” in higher education for soaring tuition and declared her support for “free college.”

While the “disinvestment” narrative is simple and appealing, it collapses under scrutiny. If state funding to...