by Hillary Patin

The Real Cost of College

As students are borrowing more than ever to afford their degrees, many are questioning whether the cost of college is actually worth it.
Real Cost of College

In the past several decades, we’ve seen that college costs tend to increase, on average, by about twice the consumer inflation rate.

Meanwhile, a college degree doesn’t carry the same weight in the job market as it used to. Many argue that the college degree is the new high school diploma, since jobs that did not traditionally require college degrees now do. In certain industries, a bachelor’s degree is a nonnegotiable requirement, making it seem like an inevitable expense.

Furthermore, the proportion of people who have a college degree has been increasing year after year, resulting in a more competitive job market for college graduates than ever before. College-educated young people are struggling to find jobs that afford them the ability to pay off their student loans and maintain a decent standard of living.

While many students are able to get scholarships and grants to help cover some of the cost of college, most students and their families are still paying a significant amount out of pocket.

Is the cost of college worth it?

It’s obvious that going to college is not a decision to take lightly. As the cost of a degree continues to rise, price has become a bigger consideration among students and parents. Now, financial concerns govern decision-making for nearly 8 in 10 families, Sallie Mae found, outweighing even academics when choosing a school.

But pursuing a degree does seem to pay off: A February 2020 study shared by the Washington Post shows that the median income for families led by a bachelor’s-degree recipient is more than 100 percent greater than the median income for families not led by degree recipients.

Students without families to foot the bill are left to make a difficult decision: Find a way to pay for college, with the hopes of increasing their lifetime earning potential, or don’t, and potentially limit their ability to earn more over the course of their career.

What’s included in the cost of college

There are ways to earn a degree without going into debt: Financial aid and scholarships can be used to cover tuition and fees at most colleges and universities.

But the cost of attendance goes beyond just tuition, which is where things get tricky: Paying for college can also include room and board, food, transportation, and other expenses you might incur throughout the school year. Unless you have a stipend or scholarship that covers living expenses (or family to help with the costs), you’ll have to come up with this money on your own.

The cost of tuition and fees makes the biggest difference between the budgets required for different college experiences. But room and board, books and supplies, transportation, and other expenses add up too—costing students almost $15,000 per year.

Why is the cost of college rising so fast?

If the cost of college rose at the same rate as everything else, it would be much easier to decide to become a college graduate. But the cost of college is far outpacing the rising costs of other goods and services.

The Consumer Price Index (the average price of common goods and services such as food, transportation, and medical care) has risen about 115% since 1985, while college costs have risen about 500% in the same time period. Why is the cost of college rising so fast?

The answer may surprise you.

If you take a look at the numbers, you’ll see that the truth is counterintuitive: Public funding for higher education is much higher today in inflation-adjusted dollars than it was in the 1960s. In fact, higher education public funding has increased at a much faster rate than other government spending.

For example, government spending on higher education has increased tenfold since 1960, while government spending on the military has only increased 1.8 times since 1960. Indeed, the federal government has expanded its aid programs over the last decade. Pell Grant spending, for example, climbed 71% from 2007 to 2017, leading to an additional $11.5 billion for the program. Meanwhile, states have been cutting their funding of higher education, and the number of students enrolling has been increasing, lowering the rate of per-student public funding.

Perhaps what’s most alarming is that there’s enough money in the system to fund everyone’s education when you add up the total amount of money that goes towards higher education from the federal government, state governments, local governments, and nonprofit institutions. It is estimated that offering tuition-free college to all American college students would cost about $79 billion in a year.

In 2016 (the most recent year where detailed expenditures were published by the Congressional Budget Office), the federal government spent $91 billion on policies that subsidized college attendance. That is more than the $79 billion in total tuition and fee revenue for public institutions.

If there’s that much money in the higher education system, then why is the cost of college rising at such alarming rates, and where is that money going?

Increasing administrative costs

Full-time professors today are making barely more than what full-time professors made in the 1970s, adjusted for inflation. Furthermore, full-time professor positions are increasingly being replaced by part-time, adjunct professors, who are paid by the course and do not receive benefits.

In the 1970s, 80 percent of college professors were full-time employees, according to the National Education Association. Today, part-time adjunct professors represent more than 50 percent of college faculty, says the American Association of University Professors.

Salaries of college administrators, on the other hand, have boomed. In 2019, the median salary for a college president ranged from just over $200,000 at public community colleges to nearly $700,000 at private independent doctoral universities, AAUP found.

Public funds funneled to the most fortunate

In addition to an increase in college administrators, colleges feel the pressure to keep up their status by spending money on increasing the quality of dorms, food, and sports. While the free market usually leads to low competitive prices, the opposite happens with colleges, especially elite ones.

Because the student body is a part of the selling point for elite colleges, being able to select the students they want is imperative to maintaining the culture and status they ascribe to. This leads to the counterintuitive issue of high-achieving students from wealthier families receiving a disproportionate amount of financial assistance.

Higher prices allow colleges to recruit the students they want as a part of their student body. While a handful of students pay the full sticker price, students with excellent records and accomplishments can attend for a discounted price while adding to the perceived value of the school.

If instead, students from wealthier families paid full price for tuition at elite colleges, that money could be used to subsidize students from less wealthy families, and more students would have access to that education.

Selective state schools act similarly to private, elite colleges, using aid to attract the most competitive students. Non-selective schools operate completely differently. They serve at-risk students, and students who need money the most.

With more money increasingly going toward the education of wealthier students, the income gap can only be expected to increase. This means that college is more affordable for those who can already afford it, and less affordable for those who can’t.

Because college is more expensive for the less privileged, weighing the costs and benefits of going to college differs across income brackets. Unless they qualify for highly sought-after athletic or academic scholarships, less privileged students who need the money for education the most are going to have the hardest time getting it, and will receive a less glamorous education.

The real cost of college? Not the same for everyone

Some argue that the costs of college are still worth the benefits. According to the Fed, the average college graduate earns $78,000 per year, compared to $45,000 for those with only a high school diploma, which represents a premium of $33,000. The pay gap between college graduates and those without degrees is the largest it has been in decades.

On the other hand, some argue that the return on investment for those with a debt-ridden, four-year degree is continually getting worse. In 2010, students could expect to break even eight years after graduating from school, when the graduate is usually around 30-years-old. If this trend continues, those graduating in 2030 could expect to break even with the costs of college at age 37.

Despite both of these perspectives, the return on investment of a college education differs for everyone. While many graduate from Ivy League schools with the help of public financial assistance, others graduate from money-strapped state colleges and community colleges with little to no public financial assistance and a mountain of student debt.

All we can say for sure is that the cost of college is extremely high for those with less wealth, and most affordable for those who can already afford it.

Maximizing scholarships, grants, and financial aid can help alleviate some of the cost of college. Where you choose to study can make a big difference too—to the tune of thousands of dollars in tuition and fees a year. If you do take on debt to cover the cost of your education, make sure you fully understand what you’re signing up for, and what it’ll mean for your finances once you graduate.

Learn more about paying off student loans.

Disclaimer: Hey! Welcome to our disclaimer. Here’s what you need to know to safely consume this blog post: We do our best to make sure information is accurate as of the date of publication, but things do change quickly sometimes. Any outbound links in this post will take you away from, to external sites in the wilds of the internet; neither Simple nor our partner bank, BBVA USA, endorse any linked-to websites; and we didn’t pay/barter with/bribe anyone to appear in this post. Individual situations will differ; consult your favorite finance, tax or legal professional for specific advice. And as much as we wish we could control the cost of things, any prices in this article are just estimates. Actual prices are up to retailers, manufacturers, and other people who’ve been granted magical powers over digits and dollar signs.

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