The Rising Cost of College

 

Recently, I was browsing the website of my alma mater, and chanced upon the cost of attendance for a 4 year undergraduate degree. Every so often, I have heard people complain about the rising cost of college, but this was the moment the gargantuan scale of the problem hit me.

I have very fond memories of my undergraduate experience – It is where I met some of my best friends and had some of the best times of my life. It is also where I learned to be independent and deal with my problems, to think and make decisions for myself, to build a professional career…I can go on and on. Suffice it to say that my undergrad experience helped shape and make me the person I am today.

At the time, the average annual cost of attendance for a 4 year undergraduate public college as an out-of-state/international student was expensive, by any measure. But it was worth it. The idea was that spending this large sum of money on education would give you the ability to be self-sufficient in the future. That’s a great investment on any day! However, I decided to dig a little deeper, and what I found was truly shocking.

But before I go into that I’d like to lay the groundwork by explaining the difference between in-state and out-of-state students. In-state students are typically students from State A who choose to attend college in State A. For the purpose of these calculations, we assume that they decide to not live with their parents, presumably because they want the “complete” college experience. An out-of-state student is one that lives in State B, or another country, and chooses to attend college in State A.

The typical arrangement is that the in-state student pays significantly lower tuition & fees because that student and his/her family live and pay taxes in that state, part of which presumably goes towards funding public universities. So an out-of-state (or international) student pays significantly more to attend the same university as in-state student. An analysis of the data from my alma mater during the 2000-2015 period reveals out-of-state students pay between 1.9x to 2.4x more than in-state students.

Additionally, there are tons of scholarships and financial aid options available. In-state students have access to the most scholarships and funding, then out-of-state students. Very few such options exist for international students. No wonder then that most universities are doing whatever they can to attract increasing number of international students. International students are the proverbial golden hens that pay full price, receive minimum financial aid, and as a kicker, even help with “diversity” related statistics. Which university wouldn’t like to use buzz words like global and diverse and talk about the number of countries their student body represents in their information brochure?

Cost Chart

The annual cost of attendance for out-of-state students has increased close to 150% since the year 2000. This represents a 6.2% annual increase every year since 2000 (CAGR). As can be seen in the graph above, that number today stands at close to US$ 50,000. Assuming a continued annual increase of 6.2%, that means someone entering a 4 year undergraduate program at a public university as an out-of-state student today (in 2015) can expect to have paid close to have paid US$ 221,000 for their degree on graduation.

In-state students have seen an increase of close to 125% during the same period, which represents an annual increase of 5.5% (CAGR). Extrapolating the data, someone entering a 4 year undergraduate program at a public university as an in-state student today (in 2015) can expect to have paid close to have paid US$ 106,000 for their degree on graduation.

Forget students, most average families can’t afford these prices. Hence they turn to loans. Close to 70% of graduating students in 2015 had education related debt. According to a recent Wall Street Journal article on student debt, the average 2015 graduating student will have a little over US$ 35,000 of student loan debt. The author goes on to write “…adjusted for inflation, that’s still more than twice the amount borrowers had to pay back two decades earlier.” As is the case for of a number of students, parents also take out loans to help pay for college. According to the article, that average number has reached close to US$ 31,000 this year.

 “All together, total education debt–including federal and private education loans–will tally nearly $68 billion this year for graduates with a bachelor’s degree and their parents.” 

-Wall Street Journal article

A Forbes article on the subject best explains why this is Ed Dharmful for young students: “Debt costs you time in savings, pushes back when and whether you can buy a home, start a family, open a small business or access capital…not to mention the opportunity cost of the education itself….” Additionally, a large portion of student loans are backed by the U.S. government through banks like Sallie Mae, or since 2010, the Department of Education. With current student default rates at close to 12% and expected to rise, and more debt forgiveness programs, it is the tax payer who will end up on the hook for these loans.

Like I mentioned at the beginning of this post, investing in a good education is always a good investment, but the question that now arises is: For how much longer will this stand true? For how much longer are these increases sustainable?

Not to beat a dead horse, but to drive the point further I continued the cost of attendance extrapolations. An out-of-state student graduating in 2040 from a standard 4 year public college will have paid a total cost of attendance of US$ 824,000, versus US$ 344,000 for an in-state student.

The solution is NOT temporary Band-Aid fixes like lower interest rates, higher taxes to subsidize education, or higher availability of loans. The answer lies in a fundamental restructuring of the way the educational system works and is funded, without losing the high quality education that most American colleges represent.

 

 

 

 

 

 

Notes:

  1. My alma mater is a well-known public university. After having compared its costs to other public colleges, I feel confident using its numbers as a benchmark for public colleges.
  2. The cost of attendance analysis focuses exclusively on 4 year undergraduate programs at public universities. Private schools, community colleges, etc. are excluded.
  3. In the graph, the year 2000 represents the 2000-2001 academic year, and so on.

 

 

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