To say most students have sticker shock when looking at tuition costs is an understatement. The average cost of college today runs between $10,000-$42,000 per year, for a bachelor’s degree, depending on where you attend - in-state public, out-of-state public or private school. This cost is about one-third of the average annual household income of $75,000 in the United States.
Just 20 years ago, the average cost of college was about half of what it is today. When you adjust for -current inflation the average household income would have been $68,000 in 2004 and we begin to see why college has become so hard to pay for. Costs have doubled while household incomes have stayed mostly the same.
What happened? Why have higher education tuition rates skyrocketed? What has caused this and what can do we do to combat it?
1. State Funding Cuts
One of the main reasons for the increase in tuition rates at public institutions where nearly three-quarters of all college students attend, is the reduction in state funding. Over the past few decades, state governments have trimmed their budgets for higher education, shifting more of the financial burden onto students and their families. In fact, according to a report by the National Education Association, schools are receiving about 20% less per student, on average, than they were getting in 2008.
The lost funding from the state needed be made up somewhere , so the costs were passed along to the students. Best Colleges noted that average tuition and fees rose by as much as 70% at some public colleges between 2000 and 2021. That’s a huge increase, especially considering the almost non-existent increase in average annual household income over the same period.
2. Administrative Bloat
Another significant factor is the growth of administrative staff within colleges and universities. The number of administrative positions has swelled over the years, often outpacing the growth in student enrollment. These roles, while helping with the operational efficiency of the schools, adds to the overall educational costs, which are then passed on to students through higher tuition fees.
Colleges are spending less on instruction in recent years while administrative costs have remained roughly the same. One of the reasons for this can be attributed to an increased need for administrators of student services as schools offer more amenities to remain competitive. It could simply be hiring for hiring’s sake – it’s a hard to tell. Regardless, if spending on instruction has gone down (implying a reduction in enrollment), why the need for more administrators?
3. New Campus Amenities
As much as we think it’s hard to get accepted to college, colleges are competing with each other to have you apply and attend their school. To add to their appeal, colleges have been investing heavily in campus amenities to attract and retain students. From state-of-the-art recreational facilities to luxury dormitories, these amenities contribute to the overall appeal of a college but come with high maintenance and construction costs, further driving up tuition.
High Point University in North Carolina spent over $700 million renovating to add amenities such as luxury appointed residence halls with pools, restaurants and sports facilities. Students at University of Arizona have a rooftop infinity pool and hot tub to enjoy; while those at Pomona College can wind down after finals in a relaxation room in massage chairs. Schools, it would seem, are turning into resorts of sorts, with students unwittingly paying for these amenities, that are “included”.
4. Increased Demand for Higher Education
More and more students are applying to attend colleges and universities. Reasons for this include: greater accessibility to college applications via the Common App, test-optional policies giving strong students but poor test takers courage to apply and more first-generation students than ever before. College applications have been on the rise driving down acceptance rates due to the finite number of students a school can admit.
The desire to pursue higher education has grown significantly over the years, leading to increased demand. Colleges and universities can raise tuition because they can, knowing that obtaining a degree is seen as essential for career success. The increased demand in applications means that schools can charge higher prices without too much concern for a drop in enrollment.
5. Rising Financial Aid
When states cut funding to colleges, they did so with the full knowledge that students would still be able to access money to attend school if they wanted due to the availability of financial aid. Colleges could raise tuition, knowing that government grants and loans could help cover the difference for many students, creating a cycle where aid increases are matched by tuition hikes.
The relationship between the availability of financial aid and tuition increases in colleges is a complex and much-debated topic. The theory that financial aid contributes to rising tuition is often referred to as the "Bennett Hypothesis," named after former U.S. Secretary of Education William J. Bennett, who suggested in 1987 that increases in financial aid enable colleges and universities to raise tuition without losing students.
Some of the Reasoning Behind the Theory:
- Increased Demand: Financial aid, by making college more affordable for more students, increases the demand for higher education. According to basic economic principles, an increase in demand, all else being equal, can lead to an increase in price. Thus, colleges may raise tuition because they know that financial aid can absorb some of the increases.
- Reduced Price Sensitivity: Financial aid, especially in the form of grants and scholarships, can reduce students' sensitivity to price changes. When students are less concerned about the cost because of available aid, schools might be more inclined to increase tuition, knowing that these hikes are partially or fully covered for many students.
While the availability of financial aid may contribute to rising tuition costs under certain conditions, the underlying causes for the increased costs are more likely determined by a variety of circumstances and effects such as those mentioned here as well as others for sure.
Whatever the reasons for the rising costs of college, it’s a choice to attend and like any major financial decision proper care and consideration should be made before committing. Factors to take into account, such projected debt at graduation, an ability to repay that debt based on expected income and future career goals along with other individual financial considerations should be taken into account. College can open the doors to a number of opportunities, just be sure that if you want to walk through, you fully understand the cost.