College Tuition – Why So High?

College tuition is rising fast.  Why?  That’s a question that has been and will continue to frustrate millennials and their parents for quite a while to come. There might be a few explanations though.

1. Demand

The number of undergraduates in 1970 was approximately 8.6 million.  In 2004 it increased to about 17.3 million.  In the Fall of 2011, the number rose to 19.7 million.  Clearly, as time has moved on, the push to attain higher education has increased, and probably for good reason.  For example, the 2010 unemployment rate for high school graduates that did not go to college was 10.8%; the rate for college grads was just a little less than half that number, at 4.9%, and even lower for those who received a post-undergraduate degree.  And that was even during the “great recession.” 

Naturally, as demand for a product increases, the price increases, especially as the supply is diminished.  Pretty much everyone understands this supply and demand principle.  College is a little different though, because colleges are not simply “selling” college degrees (although that point is arguable). As more people enroll in higher education, the operating costs rise.  Colleges and Universities have to hire more professors, build larger libraries, add on more classrooms, and keep up with constant technological advancement. However, as discussed below, there is a difference between public and private institutions when it comes to the “supply and demand” argument.

2. Budget Cuts

Many U.S. States have cut higher education spending in order to get more control over deficits, among other reasons.  So public colleges and universities are trying to compensate for state subsidies they used to receive from the state for operating costs by raising tuition.  This actually means that students are paying more for their education than they were before, but not getting any more in return.  Tuition in public colleges and universities has risen while spending on classroom instruction has actually fallen. But what about private institutions?

Private Colleges and Universities do not and have not received subsidiary tax dollars from the states where they are (except for some tax breaks).  Private education is completely funded by tuition and alumni donations.  This is where the supply and demand element plays a role, where it doesn’t as much at public universities.  If you want a degree from Harvard, Duke, MIT, Princeton or Stanford, you have to be willing to pay for it.

Private Universities have always been more expensive than public Universities and community colleges.  There is a constant bidding war for the most prestigious professors and researchers.  Normally, however, the return on investment has been greater, too.  A friend told me he was able to get almost any job he wanted when he graduated because he was able to drop the “H Bomb.”  (H stands for Harvard).  Most of us don’t go to “Havad,” though (read it with an English accent – “Havad”). So how have people been mitigating the cost of higher education?  Some trends have started to develop:

People are starting to vote with their feet. Enrollment in community colleges is up, while applications to private universities is down.  This will hopefully force a lot of private universities to lower their costs and tuition to be more competitive as the millennial generation enters college (plus, they are going to have to deal with the new millennial mindset that many in this generation are starting to question the value of a college degree anymore, let alone that from a very expensive private university). I’m not all that worried about private schools, though, because the vast majority of people that get college degrees are getting them from a public institution.  So, public colleges will hopefully try harder to lower tuition and costs to keep enrollment up.  One trend among public colleges is providing more, less expensive online classes and materials. Except for those that go to major private universities like the “H Bomb,” earning capacity is generally not seriously affected by which school you get your degree from. 

3. Length of Time to Graduate

There is one trend that I am really having a hard time understanding, though: Students are taking longer to graduate.

A study by the non-profit Education Trust found that only 37% of first-time freshmen at four-year schools earned their bachelor’s degrees in 4 years (most of the rest took more than 4 years).  Not only that, but another 26% took up to 6 years! I understand that there are unique situations where some people need to take time off from school and such, but generally, it should not take 6 years to get a 4 year degree.  As a matter of fact, obtaining a 4 year degree in 3 years is not much more work than getting it in 4.

Further, Inflation for college tuition has consistently gone up by 4-6% every year.  That means that if a college degree would cost $10,000 when you are a freshman, by the time you graduate (hopefully in 4 years), what was a $10,000 degree 4 years ago will actually cost you anywhere from $11,700 to $12,625, roughly. Unfortunately, the average cost of tuition at a public college is quite a bit higher than that (about $8,244 per year).  Private 4-year colleges average a much higher number still (about $28,500 per year).

When you are starting college, make sure you are meeting with your adviser to plan your route through the first 2 years (most of the people that I know that took more than 4 years to graduate because they didn’t take the correct required classes in the first year or two, and had to take them later on, costing more time and money).  Get in and out of there as soon as possible!  Employers will not be impressed if it took you 6 years to get a “4-year” degree.

Millennials (and their parents, if they are paying for college) are going to need to have a plan before going to college.  The plan should consist of:  Where to go to college that I can get the most bang for my buck?; How can I graduate as quickly as possible?; Where can I get a scholarship?; What kinds of grants can I get?; etc. In order to get the most out of a college degree, it will be best to actually mitigate the costs before you even get there. 

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