I ran across this article featured on a blog done by a friend of mine, Jeremy Kisner, of Surevest Wealth Management in Phoenix, AZ. The piece was written by Peter Bos, a summer intern at his firm and a sophomore at the University of Michigan. It's a well-reasoned analysis of the problem that at least shows this young man is getting a good education -- and provides some evidence that we are getting a decent return on our outsized investments in these institutions of higher learning.
Over the last 40 years, the cost of tuition has really skyrocketed, rising at an average yearly rate of 6% above inflation. This has led to tuition increases of 284% for public schools and 210% for private schools.
You know it’s bad when costs have increased at twice the rate of medical care, as seen below.
This substantial increase in tuition has led to an explosion of borrowing through college loan programs. Students and families are borrowing an average of $100 billion a year to pay for college, with total student debt outstanding now over $1.2 trillion. This is more than the aggregate amount of credit card debt or car loans.
The proportion of college students graduating with debt has increased to 59%, a record high. They owe an average of $35,000 upon graduation (up $4,000 in the last two years). Even the great recession did not temper the willingness to take on more student loans (see below).
- Graduates are much less likely to pursue entrepreneurial ventures.
are less willing to make risky investments, keeping their money in
savings accounts rather than investing in stocks and bonds.
- They are less likely to buy homes and more likely to rent (reflected in home ownership rates now at a 48-year low).
- They begin saving for retirement much later.
Is College Worth It?
Many families are questioning whether college is worth the cost. Enrollment peaked in 2009 and has since been decreasing. Yet there is plenty of evidence that college is still worth the cost.
College graduates make almost double the weekly wage with half the unemployment rate compared to high school graduates (see graphic below). However, many people have concluded that you have to be more selective about the type of degree and type of school you choose in order to make sure your investment in education will pay off.
Why Is College So Expensive?
The main reasons for the increase in tuition are the increase in spending on amenities to attract more desirable students, colleges hiring more teachers to decrease the student to faculty ratios, colleges wanting more control over financial aid and scholarships (usually to attract more competitive applicants), and colleges receiving less financial support from the states.
Tuition has increased as a percentage of total school revenue from 17% to 25%, whereas funding from the states has decreased from 32% to 23% over the past ten years. If the cost of tuition continues to increase at the current rate, by the year 2030 the typical tuition will rise from some $20,000 a year to $41,000 a year for public schools, and $44,000 to $91,000 a year for private schools.
Have you personally been affected by rising tuition? Do you think college is too expensive? Do you think it's worth the cost?
Finding the right college at a reasonable cost for your children or grandchildren may seem like an overwhelming task. But a whole cottage industry of college planning consultants has emerged to help prospective students. Check out college planning sites such as Stratagee or College Planning Consultants to learn more.
Also, take a look at a lendedu report which ranks U. S. colleges and universities in each state by the amount of debt the average student owes upon graduation. The site also offers tutorials on scholarships and other aspects of financial aid to help students finance their educational dreams, without going broke in the process.