Why does college cost so much?
High school graduation has now concluded. The celebration was wonderful and well deserved. The maroon and gold balloons are now sagging at the mailboxes and a glorious summer beckons. Unfortunately, a cold reality has also arrived—how to manage the exploding cost of a college education.
College has simply become very expensive. The average yearly cost at a public college is now approximately $20,000 and $40,000 for a private institution. A four-year degree will cost the current average graduate almost $110,000. In 1989 that degree cost about $52,000, adjusted for inflation. That reflects a real cost increase of 100%. The real kicker is that average wages over that period, adjusted for inflation, have only risen from $54,000 to $59,000. The bottom line is that the real increase of college costs has risen eight times faster than personal income. I think I just heard that last maroon balloon pop!
Why have these costs risen so rapidly? I have been looking into this for a discussion at the First Religious Society men’s group. It is obviously a complex issue but I will outline three general observations.
First and most importantly, higher education is a service industry that is profoundly dependent on highly educated personnel. The industry has the highest percentage of workers with degrees (80%) and advanced degrees (70%) in the nation. With the sophisticated development of our economy, the labor market for highly educated people has become extremely competitive and colleges have been required to pay for these folks, increasing their cost structure more rapidly than the overall economy.
Next, like almost all manufacturing and product sectors, higher education has also undertaken technology investments to improve the quality of their “product.” Unlike the product sector, however, higher education has not seen these investments reduce the cost of the end product. They have, interestingly and unexpectedly, increased the overall quality of the education provided, particularly in sophisticated emerging industries. In short, the costs are higher to educate new technology and information-enriched workers in almost all disciplines.
Finally, as a result of the short, but deep, recessions we have experienced in the recent past, federal and state governments have reduced subsidies they provide to higher education. While there has recently been some reversal of this trend, subsidies to higher education in real dollars have fallen to approximately half of what they were 25 years ago.
Perhaps, the most difficult implication of this remains the burden of student debt. Forty-five million graduates now have approximately $1. 5 trillion in debt. This is now the largest sector of non-housing related debt, surpassing credit card debt by $600 million. These obligations are causing significant hardships for graduates as they navigate their careers.
There is good news, however. The value of a degree is as great as ever and seems to be increasing. The average individual with a four-year degree will earn $1–2 million more (depending on career sector) over a lifetime than a person without such a degree. It is estimated that on average the rate of return on money invested in a four year-degree has an annual rate of return of over 15%. I think I might just see that last gold balloon rising toward the horizon on a brisk breeze.
This is a very complex topic and there are many factors that I have not mentioned. I believe, however, that this topic rests at the core of what we are as Americans—a people who believe deeply in the power to learn, work hard and better ourselves. It certainly is worthy of a serious national dialogue.