Thursday, March 14, 2013

Why is College so Expensive?

By Beth Dumbauld
College has always been viewed as a major life expense. Yet a college degree has also always been seen as a ticket to professional success, financial security, and a key to learning how to learn throughout your life. Throughout the years, paying for college, though requiring sacrifices for many, was doable -- and considered a wise investment with a high return. Yet somehow, somewhere along the college pathway to prosperity, there came a shift in that investment-to-value ratio. In other words, college changed from being a smart investment for getting ahead to becoming a very expensive necessity needed just to get by.
And here’s why:
College has become more expensive relative to current income. 
It’s not your imagination: when it comes to college, the “good old days” really were the good old days. Today, the cost of college is rising at such a rapid rate relative to income, 130% over last 20 years, that college costs comprise a far more significant financial burden than they did on students only 20 years earlier. Consider this: when adjusted for inflation, Americans in the middle class actually earn a few hundred dollars less than they did 20 years ago.1
You need a college degree just to be eligible for an entry-level job
A college degree has become the bare minimum educational credential for many careers that, not long ago, didn’t require any college education at all, let alone a bachelor’s degree.
It’s too easy to over extend yourself financially with student loans
Over-financing your college education can lead to lifelong debt issues. According to the most recent data looking at 2011 college graduates, the average student leaves school with $26,600 in student debt.2 

Where You Go to College Makes a Difference in How Much You Pay for College. 

Where you choose to enroll in college and ultimately plan on earning your degree makes a huge difference in your overall cost of college. Common sense says that more expensive colleges (generally private and for-profit colleges and universities) with higher published tuition rates should be more expensive to attend than less expensive colleges (generally state colleges and universities) with less expensive published tuition rates. A pretty simple concept – yet one that’s not always accurate.
While it’s true that, on average, state colleges and universities cost considerably less (published price), what you end up paying at a private college or university (net price) may be considerably less relative to the published charges for full-time enrollment at a public college or university. The difference comes down to a school’s ability to offer financial aid packages that can meet or exceed the difference in tuition prices.
The average published college tuition and fees rates for undergraduates for 2012-2013 is as follows3:
  • Public 2-Year (In-State): $3,131
  • Public 4-Year (In-State): $8,655
  • Public 4-Year (Out-of-State): $21,706
  • Private Nonprofit 4-Year: $29,056
  • For-Profit: $15,172
Expensive? Yes. End of the college tuition story? No.

The Cost of College Continues to Rise Each Year – No Matter What Kind of College or University (Public or Private) You Choose to Attend.

In spite of the fact that some private colleges and universities may be able to offer some students a lower net cost of going to college because of significant financial aid packages, the majority of students receive their degree from a public institution. In fact, for 2010, the breakdown among degree-granting institutions was as follows4
Of the 18 million undergraduate students (2010):
  • 76% attended a public institution,
  • 15% attended a private nonprofit institution, and
  • 10% attended a private for-profit institution 
It’s also important to keep in mind that college tuition fees are rising at both the public and private levels. Comparing the published tuition and fees between the 2011-2012 academic year and the 2012-2013 academic year, college costs have risen 4.8% for public 4-year colleges and universities and 4.2% for private ones.5

1CNN Money, Surging College Costs Price Out Middle Class, 6/6/2011, p.1  
2The Institute for College Access & Success, The Project on Student Debt, 10/18/12, p.1. 
3College Board, Trends in Higher Education, 2012, p.1
4National Center for Education Statistics, The Condition of Education, Section 3, 2011.

Why is College so Expensive? Part 2

Increases in Tuition Rates are Rising Faster than Increases in Grant Aid and the Tax Benefits Offered for Those Attending College. 

According to the College Board, over the last two years (2011-2012 and 2012-2013), “the average net price paid by full-time students enrolled in public 4-year colleges increased measurably” and the “average net price also increased for public two-year and private nonprofit 4-year students.”6 What this increase in net price means to you is that the increase in tuition and fees at the college you are currently attending will most likely rise, if the current trend continues, faster than your financial aid at that institution. In other words, expect to pay more for college each subsequent year that you remain enrolled.
This is what inflation is all about: paying more for goods and services even though you aren’t getting anything more in return. And whether you deal with inflation the easy-way (by planning and budgeting) or the hard-way (by borrowing and defaulting on loans), sooner or later, you will come face-to-face with the realities of inflation if you are pursuing your degree.
Currently, most college students enroll in a school charging one tuition price, only to have the cost of those tuition and fees rise the next year. It may seem all very theoretical at this stage, but the reality is when you get your new (and larger) tuition bill for your second year of college, you don’t want it to come as a surprise. You don’t want to be in a position where your planned budget no longer affords you enough cash for textbooks, gas for your car, or the ability to take the number of credit hours you’d really like to take that semester to push forward with your career path. You need a plan for rising tuition costs.

The State You Live in Makes a Huge Difference in How Much You Pay to Attend a Public College or University.

Contributing significantly to rising tuition rates at public colleges and universities has been a decline in the total dollar amount states contribute to their public state colleges and university systems. In an era of state budget cuts to education, colleges are increasingly passing on the financial burden of these budget shortfalls to their students. 
In fact, total state contributions to public colleges and universities declined, on average, by 3% in 2010-2011 and by a nearly unprecedented 11% in 2011-2012.7
Furthermore, each public college system sets its own tuition and fee rates annually according to its own historical and current educational budgeting system. As such, you’ll find that regionally within the U.S. there can be a significant price difference: 
Average published tuition and fees for in-state students at public 4-year colleges by region8:
New England (CT, MA, ME, NH, RI, VT): $11,019
Middle States (DC, DE, MD, NJ, NY, PA): $9,205
Midwest (IA, IL, IN, KS, MI, MN, MO, NE, ND, OH, SD, WI, WV): $9,267
South (AL, FL, GA, KY, LA, MS, NC, SC, TN, VA): $7,621
Southwest (AR, NM, OK, TX): $7,721
West (AK, AZ, CA, CO, HI, ID, MT, NV, OR, WA, WY): $8,730 
Though there is a sizable cost difference between regions, what the dollar numbers above can’t tell you is that over the last decade the percentage increase in college tuition in fees was over twice as large in the West (126% increase in tuition price over last decade!) as in New England. The numbers also don’t tell you about the significant variance in college debt and return on investment from state to state.

6College Board, Trends in College Pricing, 2012, p.1
7College Board, Trends in College Pricing, 2012, p.2
8College Board, Trends in College Pricing, 2012, p.16

Difference Between College Sticker Price and Net Price.

As discussed earlier in the article in relation to public versus private college and universities, there can be a sizable difference between a college’s sticker price (the advertised cost of tuition and fees) and the net price (what you actually pay). Because of this phenomenon, a student’s perception about the cost of college is often skewed towards the overwhelming and negative.
Before you press the panic button, let’s get the facts about financial aid
For the school year 2011-2012, college students received an average of $14,745 of financial aid per full time equivalent student.9Also, during this time period, students received 56% more in grant aid10 (money you don’t have to pay back) than students did a decade earlier. This is good news. On the other hand, college students during the 2011-2012 school year, on average, took out $6,558 in federal student loans (money you do have to pay back). This number also doesn’t include the amount of money students have taken out in private loans (money you have to pay back at generally far higher rates and shorter terms than federal student loans). 
Even though what you ultimately end up paying for college may be less than the published rate, that’s not to imply college isn’t expensive, it just emphasizes the fact that your college of choice may not necessarily be as expensive as you think it might be. What you end up paying for college is linked to many factors including your background, your unique set of skills, your economic situation, as well as how many existing college credits you are able to transfer into your college of choice. 
The National Center for Education Statistics provide a College Navigator ( which allows you to research the schools you are interested in using a number of school-specific financial and student success rate parameters, including: estimated tuition and expenses for full-time undergraduate students, the number and percent of students receiving financial aid at that institution (as well as a breakdown of grants/scholarships versus loans), net price, programs & majors available, admissions, retention and graduation rates, as well as cohort default rates (the percentage of students by academic start year who are in default on loans). 
You can also check StraighterLine College Savings Calculator, a resource that can assist you in determining what your true cost of college will be. 

What Can You Do to Accommodate the Rising Cost of College?

Two of the most important things you can do to accommodate the rising cost of college right now are: 
  • Have a clear degree-to-career path so you know precisely what college courses you will need to take and which colleges offer the most flexible degree pathway. A flexible degree pathway, by its very nature, should include a college’s ability and willingness to accept a significant number of transfer credits. 
  • Take as many low cost online credit-bearing college courses as you can and then transfer those college courses to the school where you plan on ultimately earning your degree. This will save you thousands of dollars towards your total cost of college. The less time you’re paying tuition, the lower your college debt will be and the less interest you’ll pay.
Taking advantage of low cost college courses is not a new thing. Students are smart and adaptable – and they learn quickly. It may come as no surprise to you if you are currently enrolled in school, but the most likely group to take advantage of earning college credit through distance learning options (such as online college course providers) are students who are already enrolled full-time at a different institution’s college program.11  

9College Board, Trends in Higher Education: Average per FTE Student over Time, p.1
11A National Dialogue: The Secretary of Education’s Commission on the Future of Higher Education, Frequently Asked Questions About College Costs, p.8

Currently enrolled students realize how expensive college is every day. It’s not a theoretical concept. Once you are in college, you become increasingly motivated (at least from a cost perspective) to speed up the time it takes to earn a degree. It’s simple math. By reducing the number of semesters it takes to graduate, you will pay less in tuition. If you can earn transferrable college credits from elsewhere at significantly lower costs per credit hour than at the college you currently attend, then signing up for low cost online college courses just makes a lot of sense, as long as the college where you are earning your degree accepts those transfer credits.
However, is taking courses concurrently at two different programs of higher learning the best use of your time and money? Perhaps, in certain cases. In others, it occurs as a result of financial necessity, akin to financial triage. Before you enroll in college, take a step back. Ask yourself if it would be better for you academically and financially to take online college courses prior to enrolling in a degree-granting program? Or if you do still plan on taking online college courses while enrolled in college elsewhere, know exactly which college courses are guaranteed to transfer to your current institution.
Earning a college degree can be expensive, but taking online college courses can greatly reduce that expense – particularly if youearn transfer credits for online courses taken through online college course provider StraighterLine (with its innovative and affordable $99/month subscription plan). An online college course provider like StraighterLine allows you to save money up front (even bypassing a year or two of college!) and at the same time, setting the stage for a clear, low-cost academic pathway to a college degree at an institution from which you will ultimately graduate. 

Since College Is So Expensive – How Important Is College, Really?

At the end of the day, as you consider the rising expense and opportunity cost of college, you may ask yourself why is college so important?
The short answer is: doesn’t matter why, it just is.
The longer (but not too long) answer is:
  • Earning a college degree in today’s economy and workforce is an essential credential to be even considered for most professional jobs, even those that didn’t require a 4-year college degree years ago (such as police officer or nurse). An advanced education is absolutely required for jobs in the rapidly growing STEM fields (Science, Technology, Engineering and Math).
  • Earning a college degree is tied directly to your lifelong earning potential. Young adults with a bachelor’s degree earned 114% more than those without a high school diploma and 50% more than someone with only a high school diploma.12
  • Having a college degree is important to the financial health of your family. The median income for families headed by an individual with a 4-year college degree was $100,096 – two times the median income for families headed by a high school graduate.13
  • Learning for the sake of learning is important. Learning new things directly increases your quality of life: it increases happiness levels, reduces stress, and offers a greater sense of self-fulfillment.14 Education is a good thing.
Since earning a college degree is so important and will have a lifelong impact on your finances, your lifestyle, and your well-being, be sure to take the time to truly understand about the costs and expenses associated with earning that degree. If you know what the reality is in terms of college costs, you can take steps now to mitigate those costs, and graduate with less college debt, or maybe even no college debt at all.

12National Center for Education Statistics, The Condition of Education, Section 3, 2011.
13College Board, Trends in College Pricing, 2012, p.4
14Cardillo, Donna, Can a College Degree Make You Healthier and Happier, 8/3/12, p.1


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