The Surprising Truth About the Rising Costs of College

Source: opencontent 

The rising cost of college grabs endless headline attention. Yet too many are missing the reality that these costs don't really outweigh the rising benefits.

Countless questions
According to College Board, tuition at four year public schools has risen by almost 4.5% each year since 1991, growing from about $3,400 to $9,000 today. While the growth at private schools was slower on a percentage basis, the increased cost is even more eye-opening, as tuition has risen from $16,750 to $30,000.

And these figures all are in constant 2013 dollars, meaning you can't blame inflation.

This rising costs have caused many to question whether or not college itself is worth it. The Wall Street Journal reported in 2012:

College officials say the long-held faith among many Americans that college is worth whatever it costs is starting to waver under the weight of lackluster job prospects, stagnant wages and a pileup of student debt. 

Even more recently, website FiveThirtyEight notes "as the U.S. economy improves, more high school graduates are choosing work over college." The government revealed less than 66% of the high school class of 2013 had enrolled in college, the lowest level since 2006:

All of this is to say college is seemingly becoming less and less appealing to countless Americans.

But unfortunately, two important things are missed in this conclusion.

The actual truth
First, it's critical to see that, although the topline tuition number is rapidly rising, the actual cost of college hasn't risen nearly as much. College Board reports that net tuition, which factors in financial aid, has risen 66% at public schools since 1991 -- just 2.2% a year. This is a far cry from the 160% growth seen in the published numbers.

The difference is even more striking at private schools, as the true cost is up by only 11% over two decades, from $11,270 in 1991 to $12,460 in 2014.

Source: College Board

In 1991 a student could expect to pay more than half of the published tuition at public schools. Today, that stands at just 35%. While many talk about the rising costs, few mention the rising benefits of financial aid, which has helped reduce the impact of the increased prices.

Secondly, Pew Research Center found in its study "The Rising Cost of Not Going to College" that the gap between what someone earns with a college degree versus someone without one has only widened over the years 

This salary gap between a high school diploma and a college diploma used to stand at just 24%, but it now sits at more than 60%.

Yet it doesn't just stop there. The Federal Reserve also recently found the expected earnings from a college degree has risen in recent years. For those who graduated college in the 1990's and 2000's, they could expect to make $5,400 more in their first year  than high school graduates. In 10 years, that ballooned to nearly $27,000.

Even with the rising costs, the Federal Reserve suggested "the benefits of college in terms of higher earnings far outweigh the costs of a degree," and "the average college graduate earns over $800,000 more than the average high school graduate by retirement age."

It's true the costs of college are rising, but it is vital to see the benefits are as well.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2014, at 5:13 PM, Magila wrote:

    This is great news and great advice, but the analysis fudges in a couple of ways. Families like mine 150K/yr are not eligible for the financial aid that cushions the rising cost of college for those who make less. Many Colleges count student loans as financial aid, if this is the case then the rising costs are compounded with interest. Bachelors degrees should not be lumped in with masters, PHd's, and professionals. If you take out engineering, graduate degrees, and the professions and just compare ordinary bachelors degrees with High school, and factor in the cost of student loans and interest the picture gets much less rosy. I am biting the bullet and spending 65K per year to send my kid to a top private college becuase of the higher earnings potential and the feeling that this is the best gift I could give her. I just wish I could put that quarter of a million toward my impending retirement.

  • Report this Comment On May 11, 2014, at 5:26 PM, WSK wrote:

    Bad move. Have precious do two years at a community college and then transfer to a good state school with a major that is in a field that has work. $260,000 for her to go to school is no guarantee of anything except you are a sucker. I went the route I described working 40+ a week to pay for it and I am doing quite fine now. You will regret not saving that money for retirement.

  • Report this Comment On May 11, 2014, at 5:36 PM, LaryB wrote:

    It is not surprising that college costs continue to rise. As long as the federal government continues to guarantee student loans what incentives do colleges and Universities have to lower costs? Colleges and Universities are on a free ride and don't want to lose the trough their feeding from.

  • Report this Comment On May 11, 2014, at 10:29 PM, dougiesc wrote:

    Here is the main issue missed in this article -- the single largest part of student "financial aid" is Federal loans (about 38%). This does not reduce the cost of college, but increases it via interest. It is easy for a student to get a BA and (at a private school) be over $100,000 in debt, and you cannot erase Federal student loans via bankruptcy! By calling this "financial aid" colleges mask the true costs of their degrees.

  • Report this Comment On May 12, 2014, at 4:07 AM, arkbiz wrote:

    The problems w/ college are manifold. First of all, nobody supposes any more that you are highly educated just because you graduated. George Bush seemed to illustrate that.

    Secondly, 75% of people who enter college either fail to graduate or take jobs that don't require college.

  • Report this Comment On May 12, 2014, at 5:04 AM, bcohen2010 wrote:

    The problem with these statistics is that by lumping all "bachelor's degree or higher" college graduates, the income figures given are meaningless. While many people graduate with a major that is in demand, find work in their field of study, and earn a good salary, many more do not. Averaging the incomes earned by these people and the other people who chose an easy (but not in-demand) major doesn't lead to any useful knowledge.

    A more useful article would have broken down incomes and unemployment rates based on what the person majored in. It also would have been useful to compare incomes for college degrees in various fields of study to incomes for skilled tradesmen such as plumbers, electricians, mechanics, etc.

  • Report this Comment On May 12, 2014, at 6:34 AM, merchantilist wrote:

    The essence seems to be that standard tuition has gone up a great amount so that tuition can be kept lower for some - a redistribution scheme.

  • Report this Comment On May 12, 2014, at 8:48 AM, 54321 wrote:

    Graduated from my state university back in '76 with BS math. Now retired, and decided to audit a fun course, chose an anthropology class. The changes in the campus were mind boggling and not all good. Yes, the campus was now pristine, beautifully landscaped, 3 times as many buildings and labs, twice the number of students, 4 times the number of staff and faculty. But, walking about I noticed that the rooms/labs really were not very occupied, most were empty even though I sampled many different times of day. The logical conclusion I drew was that there had been a building boom on my tax dollars as well as student tuition fees. Professors now had an average of 2 classes each instead of 4 or more.

    Of course tuition costs are up.

    Loans, subsidies, etc. feed this frenzy.

    By the way, I really did enjoy the class. Interesting, lots of good discussions, quite a bit different from STEM subjects.

  • Report this Comment On May 12, 2014, at 9:51 AM, Michael2014 wrote:

    What should be pointed out is that the increasing costs are primarily for non-academic items. Universities have been in an arms-race the last 2 decades to improve non-academic facilities. First, it was suite-style living, now apartments for the students. These are major infrastructure costs incurred because the students from moneyed families will not share a bathroom and need a walk-in closet. Then, the rising costs of sports takes its toll. Schools spend an average of over $20,000/athlete for each sport each year. Some schools have 25-30% athletes now. Add it up.

    Students and parents have no one to blame but themselves for demanding these amenities. It is a shame that this falls on the people who wouldn't demand them as well.

  • Report this Comment On May 12, 2014, at 10:30 AM, gael wrote:

    Concluding that the "cost of college" is going down because it is subsidized by government loans is a shocking display of financial ignorance on the part of a "financial education" column!! This is no different from claiming that healthcare costs would come down because the government is subsidizing it. Where does Motley Fool think the "government subsidies" come from? Is it possible that they don't understand the concept of redistribution? College costs for "poor people" (low income, or special groups the government decides should be exempted, illegal aliens, etc) are coming down...but only because working Americans are paying higher costs and hogher taxes.

  • Report this Comment On May 12, 2014, at 12:17 PM, Bill1811 wrote:

    Do NOT send you kid to an expensive private school for that first degree (bachelors). There is STRONG research evidence that it will give the kid very little, in terms of advantage. It is FAR less expensive to send that kid to a good 4 year public college (or better 2 years at a community college and then 2 years at a good 4 year public college) and the effects on income and opportunity are nil. However, send that kid to a top name (public or private), large, research university for that MBA, MS, JD, MD or PhD. If the kid gets that degree in engineering, physical or biological sciences, there should be no tuition costs and they will receive a small research assistantship to fund their living expenses (~95% of US students do). For those professional degrees (MBA, JD, MD) there are no research assistantships (they do not do research, those students just take classes).

  • Report this Comment On May 12, 2014, at 12:22 PM, Bill1811 wrote:

    Since the 60s, the percentage of public college cost paid directly by taxpayers has dropped (from ~60% in the 60s, to ~45% in the 80s, to ~15% now). It will be zero in ~30 years and those costs are being transferred to students/parents. That is the main reason tuition is increasing faster than inflation and why it will continue for 30 years (it is NOT the ~1.5%/yr average salary increases for faculty over the past ~35 years).

  • Report this Comment On May 12, 2014, at 4:51 PM, tarchon wrote:

    "Families like mine 150K/yr are not eligible for the financial aid that cushions the rising cost of college"

    Not true. That's need based financial aid. My family wasn't eligible for any need based aid due to my dad's financial acumen, but I hardly paid a cent all through my PhD. With merit based support and assistantships, there's quite a bit out there that has no connection to financial eligibility.

  • Report this Comment On May 13, 2014, at 8:32 AM, sharpgamom wrote:

    Your facts may be correct but your conclusion that since net costs haven't risen as much, then people aren't paying as much is completely short-sighted and ridiculous. Someone is paying for that full tuition increase - either the gov't (hello taxpayers) or private donations. What about the kids who fall in the middle - those that don't qualify for financial aid but don't make enough money that these college are really affordable? Of all the articles I've read about college tuition, financial aid, etc., NOT ONE has addressed the real problem: WHY IS TUITION INCREASING IN SUCH A MARKET IN THE FIRST PLACE??

  • Report this Comment On May 13, 2014, at 8:34 AM, sharpgamom wrote:

    Do deans and professors who work maybe 3 days a week, 8 months of the year really need high 6 figure incomes? At the expense of taxpayers? Gov't funding of college costs has done ONE thing and ONE thing only - made colleges and universities raise their costs exponentially and without reason in order to get more of the never ending taxpayer money pit. The gov't money is available, (surprise) the more colleges will raise their costs just to get it.

  • Report this Comment On May 14, 2014, at 12:29 PM, anindakumars wrote:

    sharpgamom - i m not sure you quite get it. In most respectable universities it is these professors who bring huge research grants. And it is mostly they who get high 6 figure income. Most college professors do not earn in 6 figure unless they are in areas like LA/ NY, at least not until they become professors (there are a couple of promotions + years to get there). I'd rather than universities stop or sharply reduce spending on building fancy stadiums and focus more on academics. That's where the real expenses and raising of cost comes from.

  • Report this Comment On May 14, 2014, at 12:32 PM, anindakumars wrote:

    sharpgamom- WHY IS TUITION INCREASING IN SUCH A MARKET IN THE FIRST PLACE - that is because more and more college going americans are disconnected from the reality. They want fancy stadiums and sports facilities when most of them should be working towards their degrees, focusing on studies. Also unwillingness to work hard IS A FACTOR. The american school system makes it so easy to NOT FAIL that students lose incentive to get out of the middle and bottom zone. The TAKE Everyone Along policy does not work, and WILL Not work. The kids who fall in the middle needs to work harder and not sit and text inside the class.

  • Report this Comment On May 14, 2014, at 12:35 PM, k9ns wrote:

    What about all that compounding long term interest advice I see on this site all the time. Where is that logic in this article. What would be the return on that $80,000 in stocks for your kids entire working life. I bet that might be a better return than the average college education. Or even more crazy run the numbers on $250,000 invested for say 30 years and the kid working a minimum wage job... just for a little reality check.

    I'd be willing to bet you are going to at best break even on average if the kid gets a pretty good job straight out of college if you have any loans at all, A lot of college grads are working on assembly lines right now. Lets face it Education cost are out of control just like our Government and Taxes..

    Besides that as a parent or tax payer you are most likely to get zero dollars return on an education payed for, it's a donation better think of it that way...

  • Report this Comment On May 14, 2014, at 1:01 PM, skinnypitt wrote:

    This article is crap, the fact is that the cost of college tuition has risen exponentially compared to average wage earners salaries. Also, using financial aid as a way to say its not so bad assumes that everyone gets financial aid and that is simply not the case, not even close. Colleges are taking advantage of those willing to pay and then they publish articles about how much you need their product. If they keep it up they will price themselves out of business. Also, we all know the quality of the professors at college is only marginally better than high school teachers and when they get tenure they care even less about educating. Where else can you go and have to pay through the nose so teachers can work hard to "wead out" the class, in other words they are trying to fail a percentage of you as a sign they teach well instead of trying to educate well.

  • Report this Comment On May 14, 2014, at 1:16 PM, sunrizesurfer wrote:

    Florida 4 year Prepaid Tuition Plan was a best-in-the-country plan when I brought one for my son 13 years ago for $8900, and it still was 8 years ago for my daughter, though it had risen to $11,900. With the State legislature (Republican lead, Big Business owned) had not approved 8% or greater increases in tuition for colleges year after year for over a decade, it would still be the envy of the nation. Instead, if by some miracle we were to have a baby today, it would cost over $50,000 for that same 4 year tuition plan. My wife and I both teach, both hold bachelor's degrees. We could not afford the plan today. What of the majority of Americans who earn less than we do? Thank god for FAFSA, for their sake.

  • Report this Comment On May 14, 2014, at 1:23 PM, MikeJeezy wrote:

    You have to be mentally unstable to invest $100-250K in a college education (thank you government). Take that $100K in tuition and start a business instead or invest it. Yes, that requires thought. You'll learn much more about survival in the real world in half the time than any college can teach you - even if the business fails.

  • Report this Comment On May 14, 2014, at 1:46 PM, diogenes01 wrote:

    Those who are referencing the 6 figure incomes of professors have not paid much attention to the University culture recently. Although there is a certain level of professors making large salaries, there has been a great increase in adjunct/associate professors, which means that they are not eligible for tenure and generally teach at least 4 classes a semester for abysmal pay. It is actually why my MFA ended up on the professional side of writing, because my dream of becoming a professor became moot while I was working towards it.

    I believe that the only smart way to go to college at this point is to cover gen-ed at a community college and then transfer to a state school. Also, lumping higher degrees with a BA also doesn't take into consideration that my Post-Grad student loans come with an 8.6% interest rate (doesn't really feel like "aid")

    I also feel its worth noting that that nearly any college offers a great education if you are there to learn and work hard. I decided against a top-tier private school and its $60k a year tuition and am doing quite well with degrees from State schools. I agree with k9ns, if parents suggest the community college to State school that I mentioned and actually invested the excess in the students future (i. e. stocks) then that student would graduate with a far better position than one who graduates from a top university with no cushion.

  • Report this Comment On May 14, 2014, at 3:00 PM, WesKirk wrote:

    I don't know why this is even an issue.

    I went to a top-rated university and graduated in business management and administration. The entire lump sum of what I learned about actual real-world business application? About two or three useful facts, the rest came from practical experience working in the business world as a kid in the family store which I'd eventually run. Thanks to actually being in the store and seeing how things ran behind the scenes, I can tell you most colleges these days do not adequately prepare people for the actual job demands and are more interested in granting tenure and issuing books written by the professors and their own bias as required course material than actually educating students and ensuring a quality learning experience.

    My mother worked in guidance counseling and told me that the main Ivy League schools use a triage system in which applications are only accepted if the student is:

    1. A minority applying (33%) for federal and local grants and subsidies to the school itself

    2. A legacy/elite rich person with either family history at the college or a large bankroll (33%)

    3. Top one percent of high school graduates (33%)

    So chances are a graduate of an Ivy League university will likely not be there due to their GPA. Unfortunate truth but the truth nonetheless. Intelligence is not limited to how many books and statistics you can cite, but real world adaptation to obstacles simply not properly covered and discussed in the academic world.

  • Report this Comment On May 14, 2014, at 4:11 PM, TXObjectivist75 wrote:

    "Financial Aid" (i.e. everybody else's money) is one of the prime reasons that tuition rises. Works the same as health care, remove/insulate the consumer from the pricing process with a third party payer, and no one cares to be price conscious.

  • Report this Comment On May 14, 2014, at 4:40 PM, SerpentBlanche wrote:

    Couple of things worth noting:

    * College Board "Net Tuition" is total tuition and fees minus grant aid and deductions/credits, so loans don't really come into play.

    * Net Tuition does not include room and board expenses; a proper cost/benefit analysis must include these costs. That makes the true cost substantially higher than what is stated in the article.

    My own opinion is that analyzing the gap between incomes of those who obtain a degree and those who do not misses the point. What ultimately matters is the debt to income ratio of the two groups. You can't say that a person with a BA or BS who took on, say, $80,000 in non-dischargeable education debt to obtain a $50,000 per year job is truly better off than someone who makes $30,000 a year, but carries no education debt.

  • Report this Comment On May 14, 2014, at 6:32 PM, RxPro wrote:

    I got my doctorate and my 200k in loans to prove it. Its not worth it, unless your parents are rich. I would have been better off with an engineering degree from a state school.

    Also, no one has said FAIR TAX yet. So I will. Fair tax fixes the job market issue, and it fixes university costs. How? taking home a tax free paycheck will allow people to spend their pre-tax dollars toward paying for school or their loans. I would make an extra 75k per year without tax and my tuition would be easily paid off.

  • Report this Comment On May 16, 2014, at 5:35 AM, SCStockPicks wrote:

    The fact that much of the "Financial Aid" outlined in the article comes in the form of loans, so is not aid in the normal sense of the word has been well commented on by others. As has the wide discrepancies in earning power between different majors (though there is a much narrower discrepancy between college costs).

    One thing that has not been addressed in may of the comments is the fact that barely a majority of those who start college ever finish a degree (55% according to recent studies get a degree within 8 years of starting). All of those who started, still have the costs incurred without any of the resulting benefits. College costs have risen largely because of how rosy the picture has been portrayed. People are willing to "pay up" to get those promised benefits, but we need to look at them realistically. If we did, maybe colleges would be forced to rein in some costs.

    I am still pushing my children to attend college, but everyone should go with their eyes open as to the relative costs and benefits.

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Patrick Morris

After a few stints in banking and corporate finance, Patrick joined the Motley Fool as a writer covering the financial sector. He's scaled back his everyday writing a bit, but he's always happy to opine on the latest headline news surrounding Berkshire Hathaway, Warren Buffett and all things personal finance.

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