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The Facts about Rising College Costs

My Best Friends A report by Bloomberg.com in August 2012 indicated that college tuition and fees have soared by a total of 1,120%, or 7.2% per year, since 1978. The news organization said that health-care costs rose 601% (5.3% per year) and the cost of food rose 244% (2.6% per year) over the same period.

According to the nonprofit College Board, the average annual cost of college, including tuition, fees, room and board, books, transportation and other expenses in the 2012-13 academic year was:

  •  Public, Two-Year, Commuter  – $15,584
  • Public, Four-Year, In-State, On-Campus – $22,261
  • Public, Four-Year Out-of-State On-Campus – $35,312
  • Private, Four-Year, On-Campus – $43,289

For years, critics have been arguing that the widespread availability of federal grants and subsidized loans has enabled colleges and universities to raise the price of attendance, rewarding faculty and administrative staffs with ever-higher salaries. They also claim that elite colleges have been competing for the best students by raising their national rankings through increasing spending-per-student ratios.

But a closer look at the numbers reveals that the averages are obscuring some finer points of major significance.

Public Versus Private Inflation

While public school costs ― particularly those for in-state students ― remain lower than nearly all private colleges, the sectors have switched places in regard to inflation. In the 10-year period from 1982-83 to 1992-93, the average annual growth in real (i.e., inflation-adjusted) total private school costs outpaced that for public colleges and universities 3.9% to 2.4%. Over the next 10 years, the real growth rates for both were equal, at 2.6% per year. But since 2002, public school inflation-adjusted price increases have surged ahead of that for private colleges, 3.8% compared to 2.3% (Source: College Board, 2012).

The most dramatic surge in public tuitions came over the past year. The Associated Press reported in June 2012 that the average tuition at public universities, unadjusted for inflation, soared 15% nationwide this year, double the average annual rate of inflation for all kinds of colleges over the past 30 years. Driving the trend has been a reduction in state aid to colleges and universities.

Earn More, Pay More

Despite the increases in college prices, offsetting increases in need-based grants, scholarships, subsidized college aid, and tax credits ― resulting in a lower “net price” than the published price of college ― has protected lower – and moderate – income Americans. But that has left higher-income families to face the brunt of the most recent upticks in the cost of higher education.

Over the last 20 years, data from the College Board show that students from families in the lower 40% of income experienced almost no inflation in college expenses. While there has been some increase in the inflation-adjusted cost of room and board, for families with below-average income, college costs have risen about 1% per year.

The richest of private American colleges and universities are leading this trend. For example, at Harvard, most students receive financial aid, lowering the total cost of one year at the school from the published price of $55,500 to $14,550. Students attending the top 20 of Kiplinger’s best value private colleges ― including all the Ivy League schools and “near-Ivies” like Stanford, MIT, Chicago, and Duke ― receive an average need-based aid package of more than $35,000, reducing the “sticker price” at these schools by as much as 60% to 70%.

The flip side of this is that if your family income puts you in the top 20% of Americans ― starting around $100,000 ― you’ll probably be expected to find a way to cover the full cost.

Perhaps more than ever, trends in college costs are difficult to forecast. For low-and middle-income families, some of the most expensive private schools by “sticker price” can carry a net price that is less than that of some state schools. Families counting on the lower cost of state schools are suddenly facing much steeper costs and continued weakness in state government finances. But if you’re fortunate enough to be among those in the upper reaches of the income spectrum, you’re facing the full force of cost increases in either sector.

Please call if you’d like more information on college planning.

Copyright © Integrated Concepts 2013. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

 

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