On many of the websites for these college radio stations, I’ve only seen them play indie music. Are they choosing to play this type of music, or are they being forced to (because more popular music is too expensive to play)?
Probably because there is a local radio station that does it better and would capture those few people who listen to pop music on terrestrial radio
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Depends on the school and station. Syracuse has WAER which has spawned many sports and news journalists. And Z89- WJPZ Z89-which at least in my day was top40/early 80s etc.
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I had a radio show way back in my college days. It was expected that we played music that would not typically be heard elsewhere (not because of cost, but because the station’s mission was to be something different from top 40 stations), but we also weren’t allowed to exclusively play indie rock. The way it worked when I was there was the station purchased a license (sometimes more than one) based on number of students/listeners and that covered everything—so cost was not broken down by song selection. The station divided its collection into categories such as jazz, world, etc. and we had to play a certain number of selections from each category within our two or three hour time slot but otherwise were free to choose what we wanted. We also had a heavy rotation box of new release artists the station actively promoted each week that we had to incorporate into our sets. You had to work your way up to the better time slots, so my time slot my first semester was 2-4am and I remember choosing the longest jazz selections I could find so I could take naps on the couch on nights I was especially tired 
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Vassar College has a great student radio station. They play all kinds of stuff. One minute it will be The Carpenters, then maybe Alt J, then maybe Grandmaster Flash, then maybe Mozart. Clearly just kids playing whatever they like. WVKR, 91.3.
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