Understanding the Rising Costs of Higher Education

College, professional, and graduate schools currently cost more than ever. However, without them, you stand to lose more than ever. One common take on the situation blames institutions of higher learning for effectively price gouging the American people. This, however isn’t the case. Higher education is more valuable than ever, and government aid that once came as grants have transitioned to student loans. Face it, if you’re going to have the best university system in the world, someone’s going to have to pay for it. Let’s look at the past, present, and future of rising education costs, and how they affect you.

More Students, More Money

First, let’s put rising tuition and fee costs into perspective. The cost of higher education has surged more than 538% since 1985. In comparison, medical costs have jumped more than 286% while the consumer price index has jumped 121%. Meaning higher education is almost 4.5 times as expensive as it was 30 years ago. While this is alarming in terms of burgeoning student debt rates, we’ll explore how it’s not so bad later on in the piece.
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In current dollars the change is even more evident, with the average cost for all institutions in 1981-82 at $3,489, with a price tag of $19,339 in 2011-2012. For 4-year institutions, the increase over the same time-frame extended from $3,951 to $23,066. Meanwhile 2-year institutions (that are still many of the most economical higher education options) increased in price from $2,476 to $9,308. As seen below, this isn’t a new trend, with yearly increases in college tuition and fees often doubling to quadrupling price increases for other goods, every year.

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Though the cost of higher education has skyrocketed in recent decades, so too has the accessibility of higher education and the diversity of higher education students. Minority students are attending college at record highs, and women now account for a majority of undergraduate students nationwide. This tempers the conventional take that college prices are too high. Instead it seems that colleges are — in many ways — doing their jobs better than ever, even if they are increasing tuition and fees at an unsustainable rate. Though a number of colleges are combating rising tuition costs, or attacking increasingly unmanageable student loans, the majority of college costs continue to increase. Let’s look at some of the causes of this increase in tuition.

Reason for the Rise

Contrary to narratives featuring price gouging higher education institutions, much of the high price of higher education is a simple matter of supply and artificially inflated demand. The availability of student loans, and the expectation — ever more prevalent over the last half century — that most kids have a chance of attending college have provided colleges with a glut of applications. In earlier years, government aid after WWII helped colleges to adjust to increasing demand, building new buildings, creating programs, recruiting talent. In recent decades, however, demand has continued to rise without as much government aid to help with college growth.

The GI Bill of Rights was the first large enabler of higher education for the middle class. Enrolling 8 million veterans after 1944, the program exceeded its expectations ten fold. As states focused on building education infrastructure, the federal government continued aid for families to make college affordable. The National Defense Student Loan program (later known as the Federal Perkins Loan Program) was inaugurated in 1958, and extended many of the offerings of the GI Bill to civilians. This aid worked dramatically, increasing the percentage of college-aged students attending college from 15% of their age group in 1940 to 40% by 1970.

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1970, however, was a turning point in government higher education aid. As the economy and double-digit inflation took hold, college tuition and fees climbed rapidly to match or exceed inflation. Government programs weren’t prepared for the rise in education costs, and the federal grant programs began to shift to subsidized loan programs. With less subsidization from government sources, colleges turned elsewhere to pay for educations: tuition and fees owed by families.

The Sticker Price

As a country, student loan levels are approaching crisis levels, and many entry-level wages are also stagnating. One point that is often misconstrued, however, is that this is due to price gouging from higher education institutions. A distinction that needs to be made in these discussions is that while sticker prices for universities seem to have jumped rapidly with student debt burdens, the actual average price paid by students has not.
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Hard pressed by the recession, many American families saw their ability to cover portions of their children’s tuition drastically fall over recent years. From 2010 to 2012, the average amount parents chipped in to pay for college by a staggering 35% (to $5,727), exacerbating the need for other ways to pay for college (i.e. loans). While there are a number of ways to reduce costs, more often than not financial aid channels are hard to navigate, and fitting external scholarships can be hard to find. While some schools have taken steps to reduce tuition and fees, and highly-ranked schools often guarantee loan free financial aid, more often than not tuition bills that increase yearly are passed to students.

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Particularly for public two-year colleges, the sticker price shouldn’t scare you in the least. Incorporating average aid of $4,810, those that qualify for aid actually come out with more aid than the cost of going to school. For public four year college students, even borrowing the average after-aid tuition for four years ($12,480) is only a third of average student debt for all schools. Private schools, however, are where the potential to go into debt has really skyrocketed. With average after-aid costs 4 times as high as public 4-year colleges, average after-aid tuition can cost as much as $49,840 for four years. While a number of the best schools (particularly liberal arts schools) are private, attending a private institution is avoidable if rising education costs are a problem, as there are many excellent public schools in almost every region of the United States.

Citations:

  1. http://www.bls.gov/spotlight/2010/college/data.htm#cpi
  2. http://www.npr.org/2014/03/18/290868013/how-the-cost-of-college-went-from-affordable-to-sky-high
  3. http://www.forbes.com/sites/pascalemmanuelgobry/2013/05/09/the-reason-why-college-is-so-expensive-is-actually-dead-obvious/
  4. http://www.insidehighered.com/news/2006/07/06/debt
  5. http://www.forbes.com/sites/halahtouryalai/2013/01/29/more-evidence-on-the-student-debt-crisis-average-grads-loan-jumps-to-27000/
  6. http://blogs.wsj.com/numbers/congatulations-to-class-of-2014-the-most-indebted-ever-1368/
  7. http://www.bls.gov/spotlight/2010/college/data.htm#cpi

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