Alert Message
Thanks for signing up! We hope you enjoy our newsletter, The Teller.
money

Why Is College So Expensive? 4 Trends Contributing to the Rising Cost of College

College keeps getting more expensive year after year. Why?

According to College Board Trends, the average annual increase of tuition and fees for a public four-year university was 3.4% between 2005 and 2016—that’s slightly less than the previous decade but still higher than inflation. The average median family income, on the other hand, declined 0.2% each year between 2005 and 2014.

That means families are feeling the squeeze of education costs more than ever. Below are a few reasons behind the constant increase in the cost of education in recent years.

Read more: How Much Does College Cost in 2019?

cost-of-college-keeps-rising

It’s Expensive for Colleges to Market to Potential College Students

In 2015, more than 20.2 million Americans were enrolled in a college or university, a 32% increase since 2000. This market share hasn’t been overlooked in the education industry, with a number of for-profit colleges having entered the scene to benefit from the growing demand for higher education. In fact, between 1998 and 2008, enrollment in for-profit institutions grew by 225%. For-profit institutions also helped pushed the amount of total student loan debt to record amounts.

With more institutions offering degrees, many colleges and universities throughout the country have had to compete harder for enrollments—and spend more money on marketing for new students.

For example, for-profit colleges have the advantage of fewer overhead expenses compared to more established non-profit schools, and consequently can spend as much as 20% of revenue on marketing to potential students, John Katzman, CEO of Noodle Partners, an online education group, wrote in Inside Higher Ed. This has forced non-profit colleges and universities to expand their own recruitment efforts as well.

How much do colleges spend on recruitment?

In total, the current recruitment spend for higher education is $10 billion a year.  Some estimates predict this will increase to $100 billion over time, Katzman said in his article. Acquiring students has become a cost of doing business simply to maintain enrollment and has surely been passed on in the cost of attendance.

A major exception to this recruitment pressure is elite schools—such as Stanford or Harvard—that have had a record number of applicants in recent years.

Colleges Are Spending A Lot on Building the Best College Experience

Along with increased recruitment efforts to compete for students comes a battle for the best college experience—think rock-climbing walls, winning sports teams, and decadent cafeterias. Colleges and universities are spending more money on capital improvement to increase rankings and attract better students. And while these improvements may indeed help lure students to attend, they don’t necessarily contribute to their academic success.

In 2011, colleges and universities collectively spent more than $11 billion on new facilities while simultaneously amassing $205 billion in debt, according to figures reported by The Hechinger Report, a higher-education publication.

Athletic spending is also at an all-time high, particularly at public institutions. Unfortunately, this spending has not demonstrated results in graduation rates. In actuality, the majority of students at four-year universities don’t graduate on time: 59% of students take six years to complete their degree, according to the National Center for Education Statistics.

An Increase in College Administrative Positions

Another likely culprit in the rising college price tag is the expansion of administrative staff. The Department of Education found that between 1993 and 2009, the number of administrative positions at higher education institutions increased by 60%—that’s 10x the growth of tenured professors, according to an op-ed published in New York Times.

That’s not to say colleges don’t necessarily need these staff members to implement new programs and take care of changes in the landscape of higher education. Technology, for example, is a vital part of everyone’s lives that didn’t exist so universally 30 years ago. In 2015 alone, colleges and universities spent a combined total of $6.6 billion on IT.

College Executives are Earning Large Salaries

However, in addition to the expansion of the number of administrative staff members, high ranking administrators are earning unprecedented salaries.

Public university presidents, in particular, have benefitted from enormous compensation packages. In 2012-2013, the median pay of presidents increased 5% to $478,896 and the number of presidents making more than $1 million more than doubled in 2013, reported the New York Times.

The Chronicle of Higher Education provides data on executive compensation at more than 1,200 chief executives at education institutions. Renu Khator, the president of the University of Houston was the top-earning public college executive in the nation in 2015, with a total compensation package of $1.3 million.

boom-in-university-president-pay-1

 

Is the Cost of College Worth It?

Amidst the discussions of looming student debt and the causes of such a high cost of attendance, many young adults considering both undergraduate and graduate degrees may wonder if it’s worth it. The data on this question are quite clear based on statistics from the BLS: workers with a college degree on average earn $450 more each week compared to those without. Unemployment rates also vary greatly depending on what type of education you have. People with just a high school diploma face a 5.4% unemployment rate (it’s as high as 8% for those who didn’t complete high school), while those with a four-year degree have just a 2.8% unemployment rate.

Understand the ROI of Your College Degree

Of course, it’s still necessary to consider a number of factors when determining the potential return on investment of your degree. You should always research career prospects in your particular field and your geographic area, otherwise, you run the risk of not finding a relevant job in the future. It’s also important to compare the cost of attendance to your future earnings to make sure you can handle your student loan payments upon graduation. Despite all of the external factors contributing to the cost of your education, you can still empower yourself to make smart decisions that set you up to enjoy rewarding work and financial success.

How to Make College Affordable

Picking a school to attend can be an emotional decision, but it is important to also make a smart financial decision too. There are ways to close the cost of attendance gap if your heart is sold on a school that would stretch your budget.

  • Complete gen-ed courses at a community college: Generally community college courses are discounted, and for your non-major classes this could be a great way to focus your education spending on your degree-specific courses. Some community college courses are even open to high school students looking to get a jump start on their college credits.
  • Compare college tuition costs: Both public and private colleges are required to not only list the tuition cost, but also the expected cost of attendance. This could include the cost of room and board, which may vary wildly from school to school.
  • File Your FAFSA Early for Financial Aid: Filing your FAFSA every year, even if you aren’t sure if you fit the criteria for financial need.
  • Search for Scholarships: Like financial aid, scholarships and grants are education funding that you don’t have to pay back later. Some awards are based on merit, rather than financial need, and can be a strong option for someone who did not receive the level of financial aid they hoped for.
Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.