Why Tuition And Fees Are Still Rising Faster Than Financial Aid

Why Tuition And Fees Are Still Rising Faster Than Financial Aid
Imed Bouchrika by Imed Bouchrika
Chief Data Scientist & Head of Content

Going to college is expensive. This can be seen from the staggering amount of student loan debt Americans have accumulated—now nearly $1.6 trillion (Federal Reserve Bank of New York, 2020). Moreover, paying for higher education is now the largest expense individuals will make, second only to buying a home. But it was not always this way.

In this article, we will see just how the cost of college kept rising over the decades and why tuition increases every year even as financial aid lags behind. We will discuss the different reasons that can provide more insight into higher education pricing, what factors affect the cost of matriculation, and what can future generations of students do to pursue their college degrees without accumulating insurmountable student debt.

Why Tuitions Increase Every Year: Table of Contents

  1. Cuts in State Funding
  2. Demand for College Education
  3. Stagnating Wages
  4. How to Make College More Affordable

According to the latest Trends in College Pricing report of the College Board, the average published (sticker) tuition and fees charges for full-time undergraduates at private nonprofit four-year institutions is $37, 350 for SY 2020-21. This reflects an increase of 2.1% and a difference of $770 compared to charges in 2018-19, which was $36,880.

For public four-year out-of-state institutions, the increase is 0.9% with an additional cost of $250 from $26, 770 to $27, 020. The increase in public four-year in-state schools is 1.1% with an extra $120 from $10,440 to $10, 560; and public two-year in-district schools is 1.9% with an increase of $70, from $3,700 to $3,770.

These tuition and fees increases are not only true for the recent two years. According to the College Board, these charges have risen about 3% every year through the last decade. From 1990-91 and 2020-21, the average published tuition and fees increased from $18, 560 to $37, 650 for private nonprofit four-year institutions; from $3,800 to $10, 560 for public four-year institutions; and from $1, 810 to $3, 770 for public two-year institutions (Ma, Pender, and Libassi, 2020).

The costs mentioned are only for tuition and fees. There are of course other expenses associated with going to college, such as living expenses and budgets for school supplies. Altogether, you can imagine why students’ accumulation of huge student loans and why the debate whether a college degree is still worth it have become highly controversial issues.

Source: College Board

Cuts in State Funding

Contrary to the popular notion that higher education institutions are price gouging students and their families, a study done by the Center on Budget and Policy Priorities (CBPP) found out that deep cuts to state funding in the last decade are one of the main reasons for surging college costs (Mitchell, Leachman, and Saenz, 2019). State funding for higher education drastically fell during the Great Recession and has not picked up since, leaving little room for students looking for financial aid. For example, figures from 2018 showed that overall state funding for public two-year and four-year institutions is still more than $6.6 billion below its levels before the recession fully made its impact in 2008.

Based on 2017-2018 figures, higher education institutions get the biggest portion of their revenues from tuition and fees followed by investments, government grants, contracts, and appropriations (NCES, 2020). Public schools get 41% of their revenue from government sources, private for-profit schools receive 94%, and nonprofit schools receive 31% of revenues from tuition and fees. This is a far cry from three decades ago when revenue from tuition was only a quarter and the rest came from state and local funding.

When state funding goes down, students need to shoulder more of the costs of going to college. This has not only made it more difficult for students to enroll and graduate but has also contributed to a wider gap between racial and class inequality. Higher costs create stricter barriers to entry into college, which ultimately deter low-income families.

Here are some key points highlighting the cuts on state funding for higher education between SY 2008 to 2018:

  • Between SY 2008 to 2018, 41 states spent less per student
  • States, on average, spend $1, 220 or 13% less per student
  • Nine states cut their spending per student by more than 20%, while six states cut funding by more than 30%
  • There are only nine states that increased their funding per student

Source: CBPP, 2019

Demand for College Education

Demand for higher education shows no signs of slowing down even with a glut of graduates. In 2018, 44% of people in OECD countries aged 25 to 34 years old, have a college degree compared to 35% ten years ago (Education at a Glance, 2019). Moreover, in the U.S., the number of college students in the 1990s increased from 13.8 million to 19.9 million in 2019 (NCES, 2019). Meanwhile, enrollment for undergraduate students is projected to increase to 17 million by 2029 (NCES, 2020).

As more students pursue a college degree, demand goes up and prices go up as well. More students mean higher education institutions need to recruit more highly educated faculty and staff who need to be compensated not just with salaries but also other benefits, such as healthcare insurance. Non-teaching personnel holding top executive positions and receiving six-figure salaries has been a controversial issue.

Apart from instruction-related and administrative costs,  schools also have to contend with the rising costs of providing student services. Services like personal counseling, academic support, and healthcare have been eating up a considerable portion of campus budgets. These factors ultimately impact the final fees the schools charge students.

Stagnating Wages

A study from Pew Research showed that real wages—wages after adjusting for inflation—were higher in 2018 but have the same purchasing power as they did 40 years ago (Desilver, 2018). This means wages cannot keep up with the 3% annual increase in tuition and fees considering that wages only increased by 0.3% between 1989 and 2016. The rising cost of college and stagnant wages amplify the problem of rising college costs since there is not enough income to go around once you factor in other living expenses. This is why most students—even from middle-class families—borrow in order to finance higher education.

The rising cost of living also impacts the overall cost of going to college. Aside from tuition and fees, there are many other expenses related to pursuing higher education. For example, most students move away from their family homes and stay at school dormitories or apartments near campus, which means they need to pay for room and board. Other expenses also include food, transportation, textbooks and other school supplies, equipment and appliances, and school projects and activities fees.

Source: College Board

How to Make College More Affordable

Looking at the costs associated with going to college, we can clearly see that there is a hefty price to pay, especially for families and students who are already struggling to make ends meet. However, even with these high prices, we also learned that the demand for higher education will not slow down and undergraduate enrollment is projected to continue its uptick in the next decade. This is expected as more and more students realize the value and pay off of a college degree in terms of income and job security. Many students and families are ready to borrow to afford their education, opting to deal with student debt later.

Though it seems that there is no escaping the rising cost of college, there are things you can do to try and make it more affordable. One thing is to apply for financial aid early and complete all the documents you need for the Free Application for Federal Student Aid (FAFSA). By doing so, you can increase your chances of getting into the many universities that use FAFSA as a way to determine and allocate needs-based awards.

Another way you can lessen the cost of college is to look and apply for local scholarships. Most students tend to check available scholarships from higher education institutions but you can also try to apply for scholarships provided by local organizations. These types of scholarships may not cover one hundred percent of your tuition and fees; however, they are less competitive and can still be a huge help as you pursue your degree.

Also, comparing the prices of different types of higher education institutions, it can be a good idea to choose a public university. This can significantly reduce the overall cost of going to college. Plus, attending an in-state public institution can provide further savings. Another option is to go to a two-year community college first to complete the required courses for your chosen degree.

When it comes to managing the costs of school materials, you might want to consider renting digital textbooks. You can also buy digital textbooks or loose-leaf formats in order to cut costs. Additionally, you can look for older versions of a particular textbook or use open educational resources if they are available.

 

References:

  1. Federal Reserve Bank of New York (2020). Household Debt and Credit. New York, NY: Center for Microeconomic Data.
  2. Mitchell, M., Leachman, M., & Saenz, M. (2019). State Higher Education Funding Cuts Have Pushed Costs to Students, Worsened Inequality. Washington, DC: Center for Budget and Policy Priorities
  3. Ma, J., Pender, M., & Libassi, CJ. (2020). Trends in College Pricing and Student Aid 2020. New York, NY: College Board.
  4. OECD iLibrary (2019). Education at a Glance. Paris, France: Organisation for Economic Co-operation and Development.  https://doi.org/10.1787/f8d7880d-en
  5. NCES. (2019). Back to school statistics. FastFacts. Washington, DC: National Center for Education Statistics.
  6. NCES. (2020). The Condition of Education: Undergraduate Enrollment. Washington, DC: National Center for Education Statistics.
  7. Desilver, D. (2018). For most U.S. workers, real wages have barely budged in decades. FacTank. Washington, DC: Pew Research.

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