Currently, most of these subsidies are given to universities and professors, who then dole them out to graduate students. One experiment worth trying would be to add a large number of fellowships for graduate education that are awarded directly to promising young undergraduates who are considering further study in science and engineering. If these fellowships were portable, so that the recipient could pursue any course of study at any institution, it would add an interesting new dimension of competition to higher education. It might encourage more innovation, perhaps even the entry of new competitors. After all, it is probably not a sign of health that in the research university business, the United States has not seen a successful new entrant since Stanford and the University of Chicago were founded at the end of the 19th century.
Source: Economic Growth – Paul Romer