Heflin (2019) opines that the ramifications of the 2008 recession are still reverberating worldwide, and this holds true more than ever with today’s high inflation and supply chain concerns. This has caused a rise in prices for most commodities, including education. Besides the effects of inflation, factors like the perception of quality and the reduction of state funding contribute to the high sticker prices of colleges and universities. It is no surprise that the United States bears the second most expensive college tuition among OECD countries (OECD, 2019).
This article intends to look at other factors that contribute to the ballooning tuition fees for tertiary education. We consolidate other sources in order to view American higher education as an aggregate of other elements, including cultural influences and generational shifts. The paper attempts to paint a broad picture of the American college system in terms of costs, whether financial or opportunity, against a historical backdrop with an outlook for the next 5-10 years. It also highlights why education costs are still high despite the presence of Title IV and Title I schools.
Fishman et al. (2018) found that 68% of Americans aged 18 or older believe that education in the country is not as fine as it is. Still, the same study reports that a majority believe that a college education is a ticket to success, with 75% agreeing to this statement. The question is why are many people distrustful of college? And what happened to have disillusioned them so?
Data, which is always a good source of objective information, may shed some light on this phenomenon. The culprit may actually be more expensive schooling; to wit, college tuition fees, which have skyrocketed in the last 30 years. The average cost of college at a public four-year institution has risen 213% over the past three decades, from an average of $3,190 for the 1987-1988 school year to $9,970 for the 2017-2018 school year (Trends in College Pricing, 2017). The increase is just as steep at private schools, with costs rising 129% in the same period, from $15,160 in 1988 to $34,740 in 2018.
In the past decade alone, public college tuition rose by 29%, while private college tuition increased by 25%.
Here are some more numbers from the field:
Source: CollegeBoard Research
There are several reasons college in America is so expensive. Since the 2008 academic year, annual tuition at four-year public and private colleges has increased by 36% or $2,651 (College Board, 2017, as cited in Beal et al., 2019).
Apart from the obvious—demand, which we will also cover below—there are a few things that exacerbate this problem of cost in higher education. Here is a glimpse of the most relevant factors.
Ultimately, demand is the biggest contributor to rising college costs. The number of students trying to apply for higher education is rising, with a pace that outstrips the increase in wages (Mishel, 2015). Furthermore, higher enrollment numbers also lead to an increase in financial aid and a rise in operational costs to accommodate the influx of students, which all lead to higher tuition fees. In other words, rising college costs can be mostly attributed to a cycle of supply and demand.
To be more specific, the Department of Education has seen about 19.9 million students for the 2019-2020 academic year. While this is slightly lower than in 2017 (NCES, 2019), this is still almost 5 million more than two decades ago.
Many states have cut financial support for colleges, which has led these institutions to hike their tuition fees to make up for lost revenue.
Data from the College Board (2019) has shown some correlation with this statement. As states slash or slow down funding, the cost of education at universities and colleges also rises. For example, in the 2015-2016 academic year, state funding has decreased by 11% from the preceding 10 years, leading to a rise in tuition.
That said, state funding appears to have little impact on private institutions, as these schools do not get money from the government. This can be a more exclusive factor for public colleges and students with scholarships and grants.
Finally, like any other industry, higher education costs money to run. The case is especially true in a labor-intensive sector like education, where automation is often viewed with suspicion and distaste. And it helps little that universities tend to hire highly educated people, who command high salaries. In fact, most institutions of higher education spend much of their funding on compensation and, as tuition fees increase, so do their payouts (AAUP, 2018).
Some schools have begun experimenting with ways to keep staff compensation low, such as larger classes and more adjunct faculty. These have been met with mixed success, however, and in some cases have been negatively received. The American Association of University Professors (2012) has seen this trend, which helps explain why part-time professors now comprise 51% of total faculty compared to 30% in 1975, as can be seen in the chart below.
Plus, no longer are universities just places of learning and instruction—they are also becoming miniature ecosystems by themselves. Many institutions now have fully functional student services like counseling and healthcare. Operating these facilities can take a major chunk off a university’s strapped budget, which is already strained from administrative expenses like institutional support, research, and dormitories.
Student loans have always been a thorn on an American student’s side. The last 30 years have seen it jump 213% (CollegeBoard.org, 2019), making it, at present, second only to mortgages as the biggest consumer debt in the country. In 2015 alone, for every 10 graduates, seven students had student loans, with a debt of $30,100 per borrower on average (TICAS, 2016). This—alongside rising prices, relatively stagnant wage growth, and other debts—has made life more expensive today than it is for the previous generation (Martin, 2017).
Still, the cost of college (and the inevitable aside to student loans) has become one of the most hotly contested topics in Washington prior to the rise of the COVID-19 pandemic. The presidential campaign trail for 2020 has included talks about how to fix this perennial problem (Friedman, 2020). They are citing the sobering statistics mentioned above, plus the alarming increase in tuition fees in the last decade alone, as seen in the graphic below.
Source: U.S. Federal Reserve
However, given the job outlook of a college diploma, it falls on parents and families to pursue a path to this education. After all, there is evidence that college graduates still earn more than other demographics—at about 66% more than workers with only a high school diploma (The Annie E. Casey Foundation, 2016). However, as student loan debt among US households increases further, the ensuing debt burden may have various ramifications, such as household well-being and health (Kim & Chatterjee, 2019).
In light of the situation, there are proposals to end student loans or at least mitigate their impact on a young workforce. Legislation will ultimately be a part of the solution, such as the pending College Affordability Act (CAA), but the schools themselves may offer some hope.
In general, the more demand a service has, the costlier it gets. This is possibly a reason federal student aid has grown enormously, which has only led to tuition increases. It’s worth noting that the prototype of the Pell Grants was only ratified in 1972, expanded further in 1978 by the Middle Income Student Assistance Act (Gladieux, 1995).
With financial aid available to many students regardless of income, more soon applied for financial aid. And once universities knew that students would get this money, they started to charge more for their services to capture this aid themselves, leading to what is known in education circles as the Bennett hypothesis.
William Bennett, then-Secretary of Education in the late 80s, opined in a The New York Times piece (Feb. 18, 1987):
“If anything, increases in financial aid in recent years have enabled colleges and universities blithely to raise their tuitions, confident that Federal loan subsidies would help cushion the increase … Federal student aid policies do not cause college price inflation, but there is little doubt that they help make it possible.”
There might be a morsel of truth to this statement, however. A Forbes study (2015) found that for every dollar of federal student aid disbursed, universities raised their tuition fees by 65 cents.
While this is not a problem in a perfect world where prices increase proportionally with wages, the latter have become stagnant in the last 30 years (see previous section, under “Demand”).
The outlook for higher education in America looks grim, especially compounded with the pandemic (Shaffer, 2018). Its far-reaching effects may yet see a reexamination of instruction in schools. S&P Global Ratings, however, has recently revised its outlook from negative to stable (Wood, Kuffer-Macdonald, 2020) for non-profit higher education institutions in 2020.
Many graduating students of the class of 2020 are also grappling with job uncertainty in the face of the COVID-19 pandemic. They complain of lost job opportunities, such as for fields that may be changed entirely or decimated (Brownlee, 2020). Consequently, this will make repayment of student loans next to impossible without a high-paying job that would have justified taking out a generous loan in the first place.
Source: EducationData.orgDesigned by
To that end, there are various solutions and initiatives to at least alleviate the burden of student loans on college graduates, as discussed below.
There are several proposals put forth to remedy the high cost of college in America. We touch on the five most relevant below.
Besides these, there are also policies like 529 plans that help students and their families save more funds for education with reduced taxes.
Higher education is founded upon an irony—that the demand for a college degree (among other things, as this article has already outlined) inevitably drives costs up. This demand, then, creates a paradoxical situation in which college education is increasingly less advantageous, as there will come a moment where the cost of college far outweighs the potential benefits of a degree.
This value of a degree is already becoming apparent despite a few companies that does not require degrees. Based on Q4 2019 data, the Federal Reserve Bank of New York (2020) found that about a third (33.8%) of college graduates are working jobs that require no college degrees. However, while this does seem counter-intuitive, it is normal to some point as new graduates need a foothold on the jobs market before they can actually be ready for the field they have studied for. So, in many cases, the benefits outweigh the reasons not to go to college.
No matter who answers this question, though, college education still opens up many opportunities. Be aware, however, that the American higher education system is due for a change soon. The onus to accommodate increased demand while ensuring that the quality of instruction is on par thus falls on institutions of higher learning in the years to come.