Although we often hear of the rise in college tuition (or are the unfortunate ones writing the check) we often don’t know how much it is rising or why. Regardless of the price, many parents, grandparents, and students are willing to deplete their savings and take out loans for college degrees that may cost as much as $250,000 at a top 20 school.
College tuition and corresponding student debt have skyrocketed:
Over the last 40 years, the cost of college tuition has really skyrocketed, rising at an average yearly rate of 6% above inflation. This has led to college tuition increases of 284% for public schools and 210% for private schools. You know it’s bad when costs have increased at twice the rate of medical care, as seen below.
This substantial increase in college tuition has led to an explosion of borrowing through college loan programs. Students and families are borrowing an average of $100 billion a year to pay for college, with total student debt outstanding now over $1.2 trillion. This is more than the aggregate amount of credit card debt or car loans nationally. The amount of students graduating with debt has increased to 59%, a record high. They owe an average of $35,000 upon graduation (up $4,000 in the last two years). Even the great recession did not temper families’ willingness to take on more student loans (see below).
The increase in debt per graduate means that:
- Graduates are much less likely to pursue entrepreneurial ventures.
- They are less willing to make risky investments, keeping their money in savings accounts rather than investing in stocks and bonds.
- They are less likely to buy homes and more likely to rent (reflected in home ownership rates now at a 48-year low).
- They begin saving for retirement much later.
Is a college degree worth the money?
Many families are questioning whether college is worth the cost. Enrollment peaked in 2009 and has been decreasing ever since.
There is plenty of evidence that college is worth the cost, despite the decrease in enrollment. College graduates make almost double the weekly wage with half the unemployment rate as compared to high-school graduates (see graphic below). It has also been proven that more highly educated people are generally happier in life than less educated people. However, many people have concluded that you have to be more selective about the type of degree and type of school you choose in order to make sure your expenditures on college tuition pay off.
Why is college tuition so expensive?
The main reasons for the increase in college tuition are the increase in spending on amenities to attract more desirable students, colleges hiring more teachers to decrease their student to faculty ratios, colleges wanting more flexibility with financial aid and scholarships (in order to attract more competitive applicants), and colleges receiving less financial support from the states. Tuition has increased as a percentage of total school revenue from 17% to 25%, whereas funding from the states has decreased from 32% to 23% over the past ten years. If the cost of college tuition continues to increase at the current rate, then tuition will rise from $20,000 to $41,000 a year for public schools, and from $44,000 to $91,000 a year for private schools by 2030.
Need college planning and related advice?
Finding the right college at a reasonable cost for your children or grandchildren may be overwhelming. Luckily, a whole cottage industry of college planning consultants has emerged. Check out college planning sites such as College Planning Consultants to learn more.
What do you think about rising college tuition? Is college worth the cost?