Why Is College So Expensive Rising College Costs, Explained

Why Is College So Expensive Rising College Costs, Explained SAT / ACT Prep Online Guides and Tips If you’re like the average student, you’re probably bemoaning the ever-rising cost of college. School seems almost impossibly expensive, and yet every year sticker prices tend to go up. You know that getting a degree is important for your future career prospects, and you understand that you can apply for financial aid, but you just don’t get how schools can set these sky-high prices. Did college tuition always cost so much? And if not, why has it risen to its current rate? I’ll answer these questions and more in the following sections, which address: Current college expenses cost breakdowns Historical trends of tuition fee expenses in the US Explanations for these rapid cost increases What you actually pay for school, and how that’s different from the sticker price Tips strategies for keeping your costs down Read on to learn more about why college is so expensive, and what you can do to afford it. What Does College Cost? Before we talk about why college is so expensive, we should talk about what college actually costs. You might already have a general idea of average prices for public and private schools in the US, so hopefully this info won’t give you sticker shock. The major college costs that students are responsible for include tuition, fees, room, and board. Tuition fees are generally lumped together, as are room board costs. All of these expenses (plus a few minor others) are equal to the total amount it costs for a student to go to school for one year, otherwise known as the Cost of Attendance. Let’s look at some of these average costs for the last academic year (2014-2015): Tuition and Fees Private college average = $32,405 Public college average for in-state residents = $9,410 Public college average for out-of-state residents = $22,958 Room and Board Private college average =$11,188 Public college average = $9,804 In sum, the average Cost of Attendance ranges from about $18,943 at public schools to $42,419 at private schools (there will obviously be some variation - these are just averages). You can read more about the breakdown of college expenses by checking out our comprehensive guide to college costs. Now that you have a good baseline for current college costs, we can talk about why, exactly, they’re so shocking. We can do this by looking at historical data, or information on college costs over the last few decades. Historical Trends: The Rising Cost of College College cost trends in a nutshell. Here, we’ll take a look at how tuition, fees, room, and board costs have changed (in today’s dollars) over the last 40 years or so. I’ve created some graphs, so you have a better representation of rising expenses from a few different perspectives (data sources include College Board, IPEDS): Average tuition fee increases (for both private and public schools) Average room board increases (for both private and public schools) Average private college versus public college cost increases Tuition and Fee Increases I’m starting with tuition fees because this is where we tend to see the most dramatic cost increases over the past few decades – you’ll see what I mean on the graph below. Remember that these costs are all in 2015 dollars – because of inflation, $1 decades ago was worth much more than it is now. This has been accounted for in the graph so that the cost increases don’t seem larger or more drastic than they actually are. That being said, they look pretty drastic: Average Tuition Fees, 1975-2016 (in 5-year increments) To give you some concrete examples: The average private school tuition cost $10,088 in 1975, whereas the average private school tuition now costs $32,405. That’s a 221% increase over the past 40 years. The average public school tuition cost $2,387 in 1975, whereas the average public school tuition now costs $9,410. That’s a 294% increase over the past 40 years. When people talk about the discrepancy between private school and public school costs, this is generally what they mean. Room board can be expensive (as you’ll see in a minute), but the greatest difference in costs is evident when we look at tuition fees. The major factor that accounts for this difference? Public school tuition is subsidized by the state, whereas private school tuition isn’t. The tuition numbers for public schools listed above are average costs for in-state residents - tuition for out-of-state residents at public schools can be much more expensivebecause it’s not subsidized for those students. Room and Board Increases Room board costs can be a bit more variable than tuition fees costs, and depend heavily on things like cost of living in a particular area, or students’ living and dining plan selections. That being said, average room board costs have increased pretty dramatically over past decades (again, the amounts here have all been adjusted to 2015 dollars). Average Room Board, 1975-2016 (in 5-year increments) To give you some concrete examples: The average private school room board cost $6,125 in 1975, whereas the average cost now is $11,516. That’s a 188% increase over the past 40 years. The average public school room board cost $5,446 in 1975, whereas the average cost now is $10,138. That’s a 186% increase over the past 40 years. You might notice that although private room board costs are more expensive than those of public schools, there’s not a huge difference between them - in the 2015-2016 school year, for example, the difference between average room board costs between school types came to $1,378. Total Cost Increases: Private Colleges vs. Public Colleges Finally, we’ll take a look at how the average costs of private schools have compared to the average costs of public schools (in 2015 dollars) over the past four decades. Although they’ve both risen at rates faster than that of inflation, you might notice that there’s a big difference in the costs (and the change in costs) between public and private schools: Average Tuition Fees + Room Board Costs, 1975-2016 (in 5-year increments) Overall, we can see that average education costs have risen pretty rapidly. For public schools -The average total cost went from $7,833 in 1975 to $19,548 in 2015. That’s a 250% increase over four decades. For private schools -The average total cost went from $16,213 in 1975 to $43,921 in 2015. That’s a 271% increase over four decades. Your next question, naturally, might be why we’ve seen such a rapid increase in the cost of a college education in the US over the past 40 years. This isn’t an easy question to answer, but we’ll address all possible explanations for the rising cost of college in the next section. Why Are CollegeCosts Rising So Rapidly? This is the million dollar question - we know very well that costs are rising, and by how much. What’s more difficult to understand is why, exactly, college costs (for both public and private schools!) are going up at such an astonishing rate. There are several popular explanations for these cost increases. As with most complex issues, however, it’s difficult to approach a question like this objectively because most of these explanations come from perspectives that are biased by particular financial or political agendas. I can’t tell you for sure what the â€Å"right† answer is, but I can present the explanations and discuss their merits. This will help you gain a better understanding of how many factors may affect these dramatic cost increases. Explanation #1: Public Funding for Education Has Been Slashed This explanation may be the one most endorsed by schools themselves, and it’s likely to be the one you hear if you ask admissions officers or tour guides about the issue at any pricey institution. It’s not that costs have gone up - costs have just been shifted to students as schools have to make up deficits left by slashed state or federal funding. But is it true that the government has stalled or cut funding for post-secondary institutions? Well, not necessarily. Overall, government funding for higher education (i.e. college) has increased a lot faster than government spending in general. Although there are hiccupswhen the economy is in bad shape - like during the Great Recession - funding, in general, seems to have increased significantly over past decades: State funding for higher education increased significantlybetween 1960-1980: 390%, to be precise (adjusted for inflation) This state funding reached an (inflation-adjusted) high record of $86.6 billion in 2009. It fell a bit due to the stock market downturn in 2008 but has since risen to $81 billion The federal Pell Grant program has grown (in 2015 dollars) from $10.3 billion in 2000 to $34.3 billion Budgets were cut after 2008 due to the Great Recession, but college costs were increasing way before that, and the stock market has since recovered. I think it’s safe to say that funding for post-secondary educations hasn’t been slashed overall, but that doesn’t mean that schools aren’t dealing with tight budgets. In fact, funding might be a big issue for schools if †¦ Explanation #2: More Students Are Attending College More students = less money to go around? Why would college costs go up if more students attend? Well, schools would have more to pay for. If they accept greater numbers of students, they have to pay for more food, more housing, more professors, more facilities. Even if the amount of public funding increases, schools might be scrambling to cover costs if the funding amount per student decreases. Is this really what’s happening? Well, enrollment in postsecondary programs has increased by almost 50%since 1995 - there are definitely more students pursuing an education after high school.Again, though, we've seen this trend of increasing college costs way before 1995. Ultimately, I think it’s a bit of a stretch to say that an increase in enrollment has forced schools to raise their prices: First, no school is required to accept a greater number of students than it’s comfortable with. If they thought that bigger cohorts weren’t financially feasible, why would they take on more students? Second, adding students to a graduating class doesn’t do much to increase a school’s fixed costs (unless they were adding a very large number of students). Even if a school does spend more money to accommodate larger numbers of students, they also have more students paying to attend the school - this would, presumably, help to cover extra expenses. Let’s entertain the idea that schools may be paying more to take on large numbers of students. One budget item that may account for college cost increases... Explanation #3: More Pay for Professors With an increasingly global market comes global competition for academic positions (and competition when it comes to attracting students). Top experts in particular fields move all around the world to take jobs at universities who are willing to pay for them. Schools also haveto compete with the private sector when it comes to salaries. Because the private sector tends to be pretty lucrative, schools must compensate coveted experts very well for the work they do. Paying top dollar for professors could account (at least in part) for this increase in college expenses. So are schools actually paying more for their professors? There are undoubtedly some rockstar professors that make a ton of money at top universities. Overall, though, it looks like the average prof isn’t exactly raking in the dough - salariesaren’t much higher now than they were in the 1970s. Butif schools have to pay to employ larger numbers of professors, perhaps this could contribute to rising costs, right? In reality, though, schools now tend to employ way more part-time, lower-paid instructors (like graduate students and adjunct professors) than well-paid tenured professors. It looks like this explanation can’t fully account for the decades-long spike in costs. Explanation #4:Colleges Acting More Like Businesses A business’s primary focus - or at least one of them - is to maximizethe amount of money it makes. Even if a college is designated as a nonprofit, it’s still going to be incredibly concerned with its budget and revenue. A big portion of its revenue comes from what students pay to attend. Generally, people are willing to pay more for experiences or services that are more comfortable or enjoyable. Some people argue that colleges have caught on to this, and compete for applicants and students by offering and marketing â€Å"better† experiences - better food, better housing, nicer facilities, more interesting clubs and activities. Others suggest that schools raise prices just to appear more prestigiousto applicants. Is this really the case? Well, over the past few decades, there have been large increases in average administrationandstudent servicesbudgets at both private and public schools. Admin positions at colleges and universities grew by 60%between 1993 and 2009, which was much faster than the rate of growth for tenured faculty positions. Finally, high-ranking admin officers tend to make pretty cushy salaries. Overall, it seems that these sales- and marketing-related expenses (in the form of growing admin and student services budgets) could account for some of the decades-long cost increase. The next logical question, though, would be why students and parents would be willing and able to deal with ever-expensive college costs. Perhaps there’s something else at play here†¦ Explanation #5: More Public Funding Available for Schools Could more money be leading to an increase in costs? If colleges acted like businesses, they would charge whatever amount students were willing to pay in order to get a degree. If students are willing (and able) to pay more for college, then colleges would raise their costs. Some people argue that by increasing public funding for student financial aid, the government is increasing students’ willingness to pay - more financial aid money means more flexibility and freedom when it comes to choosing a college. A greater willingness to pay leads to an increase in cost from colleges and universities. Is more financial aid leading to these ballooning college expenses? It’s hard to say, mostly because we can only see the relationships between these two factors (what's known ascorrelation) and not necessarily whether one is causing the other. But here’s what we do know: For every extra dollar made available to students in the form of government financial aid, there’s an increase in average college tuition of about 65 cents For-profit colleges (like Capella, DeVry, and the University of Phoenix)are more explicit about the fact that they are run as businesses, and as such, focus on increasing profits. Publicly traded for-profit schools do well on the stock market when the government increases financial aid funding,suggesting that investors believe more financial aid = more profit for schools. We can’t determine anything for certain, but it looks like there’s an important relationship between available financial aid and college costs. One education professorposited that â€Å"if students couldn’t get any money from the federal government, tuition [fees] would probably go down, but it’s hard to say how much.† Increased financial aid is meant to make college more affordable, but in a system where schools (even nonprofit schools) are motivated to increase revenue, this funding may contribute to a disastrous feedback loop. What Do You Really Pay for School? The stuff we’ve discussed so far sounds pretty scary, to be honest. Who wants to worry about ballooning college costs and education affordability, when you want to just focus on getting into the schools you’re interested in? This is where I get to reassure you that all the numbers I’ve talked about so far may not be as meaningful as you think. All of these published costs - tuition, fees, room, board - come together to make up a school’s sticker price. This sticker price is what a student would pay without any financial aid or scholarship money, or without taking any serious cost-cutting measures. The number you should care about is your estimated Net Price, not Cost of Attendance. Your Net Price is the amount you pay after grants and scholarships. Average Net Prices for students are generally much lower than the figures published earlier in the article. Your Net Price will really depend on your financial situation and where you end up going to college, but average Net Prices are a good place to start if you're budgeting for school. The average Net Prices for 2015-2016 are: $14,120 for in-state students at public schools $26,400 for students at private schools You can do even better than these average figures, though- it’s pretty easy to calculate your own Net Price at a particular school! All you need to do is access its Net Price Calculator. Check out our complete guide to college costs for more info on using a Net Price calculator. How Do You Keep Costs Down and Save Cash? You have a lot of information to process so far, but this last section might be one of the most important ones! Since college is so expensive, you’ll want to take as many steps as possible to cut costs, especially if you’re on a budget. Just because college costs are rising doesn’t mean you have to pay full sticker price for a college education. These next tips will help you get as much money as possible for school. An effective (if impractical) way to cut your spending. Apply for Financial Aid As you may have guessed, financial aid is a huge part of keeping your college costs down. In order to get your hands on financial aid funds, make sure to submit a FAFSA accurately and by the deadline. The FAFSA is important because it's the application for all federal financial aid programs, including the Pell Grant, Direct loans, and Perkins loans. Schools also often use the FAFSA to determine aid eligibility. Apply forOutside Scholarships There are so many scholarships available based on so many different criteria, including academic merit, financial need, volunteer work, ethnicity, interests, and more. Awardscan range from $50 to hundreds of thousands of dollars. If you're interested in applying for scholarships, start by checking out our posts on top awards for juniors and seniors. Applyto In-State Public Schools In-state tuition is often much, much cheaper at public schools than tuition for non-residents. If you're interested in applying to public schools and want to lower your costs right off the bat, apply to schools in your state. Check out our article on college costs for more information on how much money you could save with this strategy. ApplytoSchools With Strong Financial Aid Programs Someschools have strong merit- and need-based financial aid programs. They award money to students independently of any awards given by the federal or state governments, which are all based on financial need. Although private schools tend to have pretty high sticker prices, highly-ranked schools with bigger endowments tend toaward generous financial aid packages to their students. Conversely, schools that are working to draw in more competitive applicants tend to give generous merit-based awards. To start learning about schools with great financial aid programs, check out this list of schools with the best financial aid. Cut Down on Living Expenses As you’ve seen, room board costs make up a big chunk of the total costs associated with going to college. Cutting down on these expenses can mean you pay a lot less money in the long run. There are a lot of ways do this. Ultimately, you should focus onchoosing economical meal plans and/or housing options, if available. You could also see if living at home is an option if you plan on going to school close to your parents. Get a Student Job A student job is a great way to gain professional, research, or business experience while also bringing in extra cash to coverexpenses. What's Next? You've made it to the end! No doubt you're itching to learn more about saving money in college, especially now that you know how much it can cost. You should start by learning all you can about financial aid. Our guide to applying for financial aid is a great introduction. To get more nitty gritty details about financial aid programs, read about the Pell Grant, Direct Loans, and Perkins Loans. Next, learn about the types of schools that are most likely to give you a great deal. Read about schools that cover 100% financial need, and schools that have the best financial aid programs. Want to improve your SAT score by 160 points or your ACT score by 4 points?We've written a guide for each test about the top 5 strategies you must be using to have a shot at improving your score. Download it for free now: