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The Increasing Cost of Higher Education

  |   Education Funding, Finanical Aid

Fact or Fiction

The cost of a four-year college education is increasing faster than inflation.

FACT!

 

According to the College Board Trends in College Pricing 2016, it is true that the cost of a college education in the United States is increasing at a faster rate than inflation (as measured by the Consumer Price Index for all urban consumers, CPI-U).  However, the increases are not equal across the board at all schools and don’t necessarily reflect the same percentage increase in what a family and student may actually pay.

The College Board’s report is rich in facts and supporting data.  Below are a few key takeaways.

#1

While the published price for tuition and room and board (the “sticker” price) at four-year schools continues to rise, on average, it is increasing at a decreasing rate when compared to the prior ten-year period (as evidenced by the data in the graph below).

Source: College Board Trends in Pricing 2016

In addition, given all of the commentary regarding college costs, it may come as a surprise that the average annual inflation-adjusted increase over the period encompassing the 1986-1987 to 2016-2017 school years is 2.8% for private nonprofit four-year universities and 3.9% for public four-year universities.

However, this doesn’t tell the whole story…

#2

Unfortunately, increases in aid are not keeping up with the cost increases.

  • The College Board estimates that in 2016-17, the average in-state net tuition and fee price (sticker price less grants, scholarships, and education tax benefits) at public four-year institutions is about $3,770, compared to a sticker price of $9,650.  Unfortunately, between 2011-12 and 2016-17, increases in grant aid for full-time students attending an in-state four-year public university covered only about 19% of the $830 (in 2016 dollars) increase in the sticker price.
  • During the same period, average aid increases covered almost two-thirds of the $3,780 increase in published tuition and fees at private nonprofit four-year colleges and universities.

So, while college costs may not be increasing quite as much as it seems, the combination of even small increases with less aid, means that many families are paying more.

#3

Location matters!  While it is easy to get caught up in the “averages” reported in the College Board’s report and others, the difference in the sticker prices by region is a study unto themselves.   And, while the higher sticker price may be reflective of a school that provides more aid, thereby lessening the net price paid, that is not necessarily the case.  For those families who are unlikely to receive much or any aid, it is important to do some comparison shopping before deciding on a school.

The chart below provides a good summary of the average sticker price of schools across the county and the differences among some regions are significant.  For example, there is a $6,000+ (36%!) difference in the published cost of attendance between a public four-year school in the Southwest versus New England.  And, the current difference is not the only factor keep in mind.  Over the last ten years, both of these regions have incurred a 37% cumulative inflation-adjusted increase.

Source: College Board Trends in Pricing 2016

Final Thoughts

It is clear that the increasing cost of college, in combination with an ever-changing job market, has many questioning the cost benefit analysis of a $150,000+ education.  At the same time, according to the College Board report, in 2015, the $111,270 median income for families headed by a four-year college graduate was more than twice the median income for families headed by a high school graduate.   Like most things in life, especially those that require such a large investment, it pays to spend the time to do the research, ask questions, and have an open mind.

AUTHOR - Tammy Wener

As co-founder of RW Financial Planning, Tammy oversees the financial planning process for all clients and manages the day-to-day operations of the firm. She truly enjoys getting to know her clients and is not shy about asking questions. Tammy has 15+ years of experience in the financial planning and estate planning fields and has worked with a broad range of clients including: couples simultaneously planning for financial independence, caring for their parents, and saving for college; newly widowed and divorced women looking to become more financially literate; young couples just starting out; families juggling the demands of a child with special needs; and financially independent individuals and couples exploring “what comes next.”



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