What’s Behind Soaring College Costs and What You Can Do

by | Sep 4, 2023 | *Financial Awakenings, Education, Life Aspiration Planning, Weekly Column

Since I first wrote on the increasing cost of a college education in 2011, has anything changed? The short answer is “no.” The cumulative increase in college tuition has been much higher than the cumulative increase in inflation over the past 40 years. Between 1980 and 2020, inflation rose 95% while the cost of an average college education rose 148%. A four-year degree that cost $50,000 in 1980 would cost $124,000 now.

Clearly, the cost of college continues to rise much faster than the cost of other goods and services. An August 13, 2023, article by Melanie Hanson at Education Data Initiative delves further into the numbers. Hanson also lists five factors that may contribute to the increase:

The Bennett Hypothesis – The more aid (grants or loans) students get, the more they are willing to pay in tuition, which encourages colleges to increase tuition rates.

The Golden Ticket Fallacy – Students who believe that college degrees always mean higher earnings are likely to do less research on college costs.

The Invisible Menu – The actual cost of tuition is not clear when published rates do not include grant aid or discounts that students may receive.

Oligopolistic Competition – Since many students need and want to attend college locally, they have only a few schools to choose from, which limits competition and keeps tuition prices higher.

Excessive Regulation – Regulation, accreditation, and federal subsidies may hinder innovation and competitive pricing.

In addition, for decades governments have championed making a college education affordable for all, just as they did home ownership in the mid 2000’s. Since some segments of society couldn’t afford an education or a house, the answer was to encourage lenders to make loans they wouldn’t normally have made. This was done by guaranteeing lenders that if the loans went bad, the government would take them over.

There were two results of this well-intentioned policy. On the positive side, the easy credit has seen those holding four-year degrees climb from only 17% of the population in 1980 to near 40% today. On the downside, this has resulted in a continuing rise in college loan debt. According to Lending Tree, in 2010 students owed $800 billion in outstanding student debt. Today, that amount is $1.77 trillion.

The availability of credit—where almost any student could borrow up to $250,000 for a four year or advanced college degree without any worry of paying it back until graduation—sent prices soaring. Easy credit drives up prices, as the increased demand exceeds supply. Colleges increased tuition at a dizzying rate, simply because they could easily fill classes with students who could pay the tuition by painless borrowing. Normal market forces were thwarted, and prices rose exponentially and consistently.

Pundits and politicians may debate causes and solutions for the high price of college, but what can you do as a consumer?

One answer is to research and comparison shop as you would for any other large purchase. Not every school offers the same quality of education; nor does paying more ensure better quality. Compare your field’s average starting salary with the total cost of education. For example, graduating from MIT might sound impressive. Yet the average four-year in-state cost of about $308,000 doesn’t guarantee any better paying job than graduating from the South Dakota School of Mines & Technology at an average four-year in-state cost of about $107,000. MIT mechanical engineering students received average salary offers of $75,100 in 2021, according to CollegeSimply, compared to $69,500 for SDSM&T students.

Education is one of the most significant expenditures you will ever make. Being a careful college shopper can help make that cost an investment rather than a burden.

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