The cost of college education has exponentially increased over the years. In fact, since 1998, it has grown by 188% — a rate faster than practically all goods and services today. Meanwhile, in the same timeframe, hourly wages (adjusted for inflation) has increased by a mere 26% (Perry, 2020). So, it is no longer surprising that many students are opting not to go to college or to enroll in a 2 year bachelor degree instead. These figures can only make one wonder why the price of going to college is increasing nearly 8 times faster than wages. Moreover, what impact does this have on the next generation of students? After all, many students might simply opt not to pursue a college degree for fear of being buried in student debt.
So, to shed some light into this topic, this guide will be unravelling the reasons for the lopsided increase between wage and the cost of college education. It will discuss the many drivers of the skyrocketing college tuition and fees and sheds light on the snail-paced wage growth. The goal is to help millennials and Gen Z students decide how best to navigate college and graduation without incurring huge student debts.
According to CollegeBoard, there was little if any growth in college prices in the 1970s (CollegeBoard, 1998). The uphill trend of college prices began in the 1980s. In particular, during the period between 1988 and 1998, the average inflation-adjusted public four-year tuition and fees, grew by 53%, while that of private four-year universities rose by 35%.
Over the decades, college costs have been rising by twice, sometimes thrice, the Consumer Price Index (CPI). To suffice, the tuition costs and other fees for four-year colleges in the academic year 1998-1999 was $3,243 for public in-state students and $8,471 for out-of-state students (CollegeBoard, 1998). In the same academic year, the total budget for four-year private colleges was $14,508.
By the academic year 2008-09, the college tuition and fees for four-year universities had grown almost twofold. To be precise, in-state students had to part with $6,585, while their out-of-state counterparts were shelling out up to $17,452. Moreover, those in private four-year institutions paid $25,143 (CollegeBoard, 2018).
Fast forward to the 2019-2020 academic year, things are not getting any better. If anything, college education is moving out of reach of students from low and middle-income families. The average published tuition and fees for public four-year in-state students was $10,440 and $26,770 for out-of-state students. On the other hand, private four-year students pay upwards of $36,880 (CollegeBoard, 2020).
Besides the tuition and fees, students have to pay for accommodation, transportation, books and supplies, and other expenses. All these expenses inflate the overall college cost, making it the second-largest expense an individual can make in a lifetime, after purchasing a home.
There are plenty of factors that have been contributing to the rise of college fees in America. Three of the most common reasons are outlined as follows:
State funding for two-year and four-year colleges was at an all-time high just before the Great Recession. When the Great Recession fully took hold, the state and other funding institutions took a hit and had no option other than to cut funding. In four of the most difficult years, during and after the recession, local and state funding declined to a record low.
When the economy recovered, funding rebounded somewhat. In the 2018-2019 academic year, state and local funding per student increased for the 7th consecutive year (CollegeBoard, 2020). The problem is, even with the increase, college funding has never reached the levels of 2008. In fact, according to the Center for Budget and Policy Priorities, in 2018, the funding for higher education was $6.6 billion less than it was just before the Great Recession (Mitchell, Leachman, & Saenz, 2019).
With significant funding cuts, colleges and universities had to take desperate measures, such as limiting course offering, reducing faculty, and reducing student services. They also increased tuition and pushed more of the cost of college to students and parents. In worst cases, institutions that could not cope with the tough times had to close campuses.
While deep state funding cut is a relatively sizable factor, there are other things that contribute significantly to the increase in the cost of a college education. One such factor is the cost of living—including food, housing, and medical costs.
According to Bureau of Labor Statistics, in November 2020, the Consumer Price Index had a 1.2% change. Food had the biggest change at 3.7%, followed by medical care services (3.2%) and shelter (1.9%) (BLS, 2020). College students are not immune to the effect of this increase.
Many students choose to move away from home to live in-campus or somewhere nearby. This means they have to take care of accommodation, transportation, food, and medical costs. Therefore, as the cost of living increases so does the overall budget for college students.
Also, the cost of living dictates how much universities spend on employees. For example, when the cost of health care increases, the cost paid by colleges for these services also increases. To cushion themselves from the impact, colleges let students shoulder these costs through fees.
Higher education is a labor-intensive industry, and it takes highly qualified faculty and staff to deliver quality education. Hiring faculty and staff, especially in roles with high demand outside academia, costs a lot of money.
With faculty and staff bloat, colleges must spend a big percentage of their revenue on staff and compensation, and other benefits. With the increasing cost of living, it means the institutions have to dig deep into their pockets to cater to employee’s health insurance costs. With state and local funding declining, colleges have no option but to push these costs to students, hence the increasing cost of higher education
Since 1979, the real wage growth for the vast majority of workers in the U.S. has been slow and uneven. In fact, in 2017, the average salary that wage workers earned was just 16.8% more than what their counterparts earned four decades ago. This means that the annualized inflation-adjusted wage growth rate over this period is 0.4% per year (Gould, 2020).
What is worrying is that the wages of fresh college graduates have been on the decline, from $17.97/hour in 2003 to $16.99/hour in 2013 (Mishel, Gould, & Bivens, 2015). More recent data shows that things have gone from bad to worse. From median hourly earnings of $26.32 or $54,000 per year in 2017, workers took home $19.33 per hour or $40,000 per year in 2019 for full-time workers (Gould, 2020).
The snail-paced growth is particularly disappointing because today’s workers are substantially better educated than their counterparts in the 1970s. To suffice, in 1979, only 40% of U.S. workers had some college, college, or advanced degree, compared to 65.6% in 2017 (Gould, 2020). Suffice to say, in today’s job market, there is no guarantee for graduates that studying for one of the highest paying degrees will lead to a lucrative career.
Source: Economic Policy Institute
A college education is an investment that takes both money and time. While time is not a hindrance these days, the money aspect of this investment is becoming a serious hurdle. With the price of college tuition increasing almost 8 times faster than wages, it threatens affordability of and access to higher education.
In particular, students from low-income families are the worst hit. The large tuition and fee increase in the past few years, coupled with the financial aid cut, has deterred some students from enrolling in college. Students of color are bearing the brunt too. In fact, despite the best effort by universities to promote campus diversity, rising college fees have proven to be a headwind to these efforts.
The rising prices have a ripple effect. Since a college degree is a basic requirement for professional jobs, students have to find a way to earn one. And so, when Pell grants and other financial aids are not enough to cover the whole cost, they turn to the last resort: student loans.
The latest student loan statistics show that 43% of those who went to colleges or 30% of adults in the U.S. have incurred a debt for their education. It is also estimated that the class of 2019 graduates from public and private universities have an average loan debt of $28,950, representing a 1% decline from the 2018 overall overage of $29,456.
Starting your career with a mountain of debt can be a major financial disruption. According to one study, in 2019, 16% of workers said that student debt had a negative effect on their financial and long-term investment plans. Even worse, 43% of workers with a college degree grapple with lower-paid jobs (TD Ameritrade, 2020).
Putting all these factors into consideration, one might ask, is college worth it? Does college pay off? Here is an interesting fact, the more you learn the more you earn. According to the Education Planner organization, high school graduates earn slightly more than a quarter-million dollars in their lifetime. On the other hand, their counterparts with a two-year associate degree earn double that amount.
Clearly, a college degree is worth it. It increases your chances of earning a better salary and also lowers the risk of unemployment. So, even as college costs rise rapidly, you have to find a way through college and graduation. What you should not do, however, is rely heavily on student loans to get through.
To start your career on the right foot, keep borrowing to a minimum. A good rule of thumb is to take student loans that you can quickly repay within the first year out of college. If you are in a financial constraint, consider studying in affordable schools or go for the free college options. After all, if you are a smart student you will excel regardless of whether you get your degree from an Ivy League or public in-state university.