Will college costs keep growing faster than inflation in the U.S.?
December 17, 2013 6:47 AM   Subscribe

I'm trying to do some long-term financial planning for my family. I need to decide how much to put in college savings plans. From what I read, College tuition in the U.S. has been increasing faster than inflation for at least the last 30 years. Does anyone have a sense of what's going on inside educational institutions and in State legislatures? Do you have any information suggesting that some efforts are being made to reduce costs or at least limit increases? I've looked at some projections of what tuition, fees, and room and board might be in 10-16 years and I don't see how I will ever be able to send my kids to college if we see the 4-5% annual increases that have been common over the last decades.
posted by Area Man to Work & Money (13 answers total) 3 users marked this as a favorite
Yes, they will. What's going on in state legislatures? Funding cuts. There is no relief in sight (that I have heard of), although, here, the Trustees are beginning to publicly say, there has to be a limit to tuition increases.
posted by thelonius at 6:56 AM on December 17, 2013

The rise in tuition fees is almost certainly not sustainable, so I would not be overly concerned about it outpacing inflation for the next fifteen years. At some point supply will outstrip demand and costs will stagnate.
posted by empath at 6:56 AM on December 17, 2013 [1 favorite]

You could try to mitigate costs more creatively: actively foster and encourage in your kids an interest in something of potentially lucrative scholarship value. If they have a particularly high amount of skill at a sport or instrument, work that for all it's worth.

A friend's little sister went to college on a full ride because she signed to their rifle team. That's the kind of thing that doesn't require a tremendous amount of athletic ability like swimming or something, but rather simply an interest and lots of practice.
posted by phunniemee at 7:10 AM on December 17, 2013

Universities are becoming more like corporations, and less like educational institutions. They are increasingly more concerned with their bottom line than they are with the welfare of their students. Do not expect any great change there.

State legislatures are working hard to cut budgets and defund social programs. There will likely be no relief there.

Most university professors hold themselves up as part of some greater good, when really they are cogs in a system that burdens increasing numbers of American youth with unmanageable debt and fails to prepare them with marketable life skills.

In any other country in the world, graduating a student with a $100K of debt and a degree in literature would be unthinkable and unconscionable. It happens every year in America.

The problem is going to get worse over the next generation before there is any chance of it getting better. Systemic change is needed. Think healthcare or immigration reform. It is that kind of political quagmire.
posted by Flood at 7:20 AM on December 17, 2013 [5 favorites]

Other things you can do: look into state schools and community colleges with reciprocal admissions agreements with four-year universities. Many community colleges allow students to take the first two years of coursework at bargain-level prices, at which point students can transfer to "real" universities--and will often be more competitive for scholarships when they do.

It's okay to decide you won't pay for, or co-sign loans on, private liberal arts schools that are outside your budget. In the case of the latter, you may actually be giving your children an advantage. Just help steer them toward choices that are within their reach, whether they be scholarships, more affordable institutions, or even skipping college entirely for a trade, if that seems appropriate for your children.
posted by PhoBWanKenobi at 7:21 AM on December 17, 2013 [2 favorites]

If your kids are academically able and you're still in Minnesota when they're in high school, PSEO is a viable option for collecting college credits. (I suspect private universities are generally not as welcoming of transfer credit as public ones, but I went to college with someone who had success transferring most of his PSEO credit to a UC to meet breadth requirements.) There's also College in the Schools (though I don't know if that's more useful than taking AP classes). My sense is that these programs are fairly well-entrenched and aren't going to get killed, but I'm no expert.

I kind of suspect the federal government would have to intervene (and restructure financial aid somehow) for the brakes to actually be put on tuition costs--if private university tuitions keep spiralling upwards, there's room for state's to cut funding further and raise their costs, while still being relatively affordable. It's far from my area of expertise, but I think you probably want to assume costs will continue to rise and then, when your kids are older (when you have a better of idea of what their skills and interests are), look at options for mitigating costs that are suitable to your kids. (For example, starting at the community college and then transferring wouldn't have been viable for me--I'd taken all the math they offered by the time I graduated from high school (and I was a math major). But I did take an ethics class there one summer that counted towards my degree.)

(Coincidentally, you kind of have to have a knack for riflery, not just practice a lot. It is true that scholarships are easier to come by in obscure sports, but they're often not actually particularly large scholarships. There are also fewer substantial academic scholarships than people would have you believe, though they definitely exist. Some rich private universities do offer grants in place of loans as financial aid, though.)
posted by hoyland at 7:55 AM on December 17, 2013

When the mismatch between tuition and expected value gets bad enough, it will correct. We are seeing that happen with law schools already, where the drop in applications and matriculations has led to a significant decline in effective tuition (published rate less grants).

However, for undergraduate, that mismatch might be a long time coming.

Outside of the special case of for-profit colleges, there's no evidence of constraint in the federal government for federal loan limits, which are the fuel for the fire of tuition increases -- indeed, with "pay as you earn"/"income-based repayment" and the back-end loan forgiveness built into those programs, the federal government is actually encouraging more borrowing and hence higher tuition.

State budgets continue to be in a long-term mess, with huge pressure from pension and retiree healthcare liabilities, and combined state and local tax rates at or very near all-time highs. The likelihood that legislatures will be able to rebalance state college expenses more to the state budget and less from students and parents seems low.
posted by MattD at 8:31 AM on December 17, 2013

There is currently a very loud and dissonant conversation about how to transform higher education. As a consequence, it is really not clear how things will shake out, but if I had to predict the future it would look like this:

1) The elite schools will not change in the next 15 -20 years. At the present time the full sticker price is just over 60K per year at some of these schools. I do expect that this price will continue to climb because there will still be a global demand for the relatively small number of seats available at these schools.

2) I would not even attempt to save for an expensive private non-elite school. Most people don't realize it but schools like this are shutting down on a regular basis. They have very small endowments and are tuition driven. These schools are likely to disappear over the next 15-20 years or they will be radically different places offering a very different product at a much lower price compared to today.

3) I think the real uncertainty concerns the future of regional public state universities (not the research oriented flagships). States continue to defund their systems and as a result schools have been forced to raise costs at an alarming rate. In the short term (say 5-10 years) I don't see much change at these schools (I am a professor at one). But taking a longer view---like 20 years---it is harder to say. I bet these schools become far more vocational in their orientation, occupying some of the space currently served by the for-profit sector. And this kind of change, if radical enough, could come with a completely different (hopefully lower) cost structure, particularly if these programs are much shorter than 4 years to a credential.

The main result of all this, I think, will be that the traditional 4-year liberal arts education will be an expensive option restricted to the more elite schools in the future (say 20 years out).

I think it is great to save whatever you can. But don't freak out about it because it is not clear what the options will be in 15-20 years. I am very confident that new more affordable options will emerge in that longer time frame that probably don't exist today. But of course, whether or not those options are a good fit for your children (liberal arts vs vocational, brick and mortar campus vs on-line) is a total crap shoot.
posted by Seymour Zamboni at 8:52 AM on December 17, 2013 [2 favorites]

Yes, they will, and the culprit is the government freely handing out ever more loans and grant money to students to go to college. Colleges see that, so they raise their prices and the government, in response, raises its loans and grants. That's why costs have skyrocketed at EVERY SINGLE school over the past couple decades. It's not a supply and demand situation: it's a bubble, but who knows how long it's going to last with the government blowing the air into it? The colleges get paid immediately, and your kid, who most likely got a loan, is saddled with crippling debt when they get out. And their degree is unlikely to even help them immediately start hacking away at that debt, since traditional college degrees match up very poorly with the actual job market out there.

Traditional colleges are a phenomenally inefficient learning system for the amount of money you pay. I had some things going in my favor which probably helped me earn almost a full scholarship to an expensive out-of-state one: HS class president one year, Eagle Scout, pretty good SAT scores, class valedictorian grades (although I don't think that was officially announced by the time I'd applied for schools), etc. I don't think it was worth it, even if my loans were minimal. You're spending hundreds of thousands just on a piece of paper when it comes down to it.

Society, in general, needs to stop placing so much emphasis on that piece of paper and start placing more emphasis on what a person can actually DO. I have a guy who works here who never got past sixth grade for various reasons, and I think he's one of the three smartest people I know. I call him my top engineer, because he's light years ahead of any of the M.S.-degreed engineers we hire when it comes to analyzing just about anything. I tell THEM to defer to HIS judgement, even though they have 12 years more schooling than him.

We're already seeing the response to this, and that is a rise in the number of two-year and community colleges, and that's fine with me. A lot of times, they're geared more towards practical learning anyway and can serve as an inexpensive footstool to finishing at a 4-year school if that's still a person's goal. Also, just consider sending your kid to an in-state school and availing yourself of the discounted tuition for in-state students. There's not going to be much difference in the educational quality between that and that "perfect" school your kid wants to go to that costs 15x as much. If your kid wants to go to the "perfect school for them," THEY need to start as early as possible lining up scholarships to pay for it. And they need to be given an honest talk about how the "perfect school" does not exist, so they should approach the problem of where to go and what to study practically instead of emotionally.

Also, just because I feel I always have to say this, not every kid should go to college. There are highly skilled trades a person can start learning and earning money with even before they're out of high-school. Welding is the example I use; it's challenging and requires a smart head and maybe some efficient and affordable classes at the local community college. There's almost unlimited room to grow one's skills, and, as an engineer who works with both, an experienced welder is worth a lot more to me than most engineers I've worked with. A good welder can make a ton of money, too, as they increase their skill level or pursue different paths that can naturally spur off of a welding career (ASME Authorized Inspector for example.) A kid who starts learning a trade right out of high school can have four years of salary in the bank and in investments by the time the college grad gets out with four years of debt. With compound interest, I'm sure that erases any of those declarations you see about how much more a college grad earns over a lifetime.

As a parent, save your money but don't automatically assume you'll use it for sending your kid to a 4-year school to go drink and party and cram the night before their test. Do the college degree and career research well ahead of time and start talking early with your child about it. Maybe even see if they can dabble in a few different jobs they might be interested in while they're still in high school. Your kid's high school college counselors WILL NOT help enough, if they help at all. The best thing you can do as a parent is get the college conversation started early, so there's time to make an informed decision for both you and your child.
posted by KinoAndHermes at 9:30 AM on December 17, 2013 [7 favorites]

One reason why colleges are federally mandated to have a net price calculator is because the list price and the net price are increasingly divergent. Enrollment managers at colleges try to maximize revenue. Tuition discounting is "a thing." There is a concern that the price of college is associated with quality. Moreover, just like people like to brag when they get something "on sale," parents like to brag about their child getting a scholarship.

State schools are increasingly looking at out of state students to increase revenue, and both public and private colleges are looking for full pay international students.

Various studies have shown that students from disadvantaged backgrounds are most disadvantaged by the tuition discounting model.

To be fair, operating a college is expensive.

In short, college pricing is more complicated than the pricing of plane tickets. It is important to consider the net cost, not the list cost. In general, the more you are able to save, the more options your children will have.
posted by oceano at 9:54 AM on December 17, 2013

Depends on the state -- for example, Washington has already cut almost all state funding, so the rate of increase in tuition has slowed greatly in the last couple years. So if your state has already cut almost all of its funding, tuition inflation should slow: There's a moderate relationship between state cuts and increases.

Also, taking out loans is not a big deal if they are going into a high-earning field with high placement rate (not lawyers or degrees that require graduate work to make any money); and if they're not, then community college remains affordable.

If I had to pick a number, I would say try to save $40k/kid. It gives them a start to their career if they pick CC or lessens the loans of a more expensive school.

Finally, people get in trouble if they start at an expensive school without knowing what they want to do. Don't let your kids do that and they'll be fine.
posted by flimflam at 11:40 AM on December 17, 2013

Some states, maybe most, have a pre-paid tuition program. Your payments are calculated based on the kids age when you start. So if you start at birth the payments will be lower. 18 years later they guarantee that the money will cover 4 years at any public school in the state. If your kid ends up at a private school or out of state, then you get the money plus earnings back just like any savings vehicle. I would guess the return on those savings are not great so the real value there is the guarantee of having instate school covered. However, that would be a hedge against the costs continuing to rise.
posted by COD at 12:45 PM on December 17, 2013

Education will continue to get more expensive because there's a limit to the extent that it can benefit from the kind of efficiency gains that keep prices falling in other industries -- that is, there's just no substitute for a certain minimum class size, individualized feedback, etc., and that can't be streamlined (and thus the educational "productivity" of an individual professor, say, can't really keep rising). Interesting article on why that is here</a.
posted by acm at 12:53 PM on December 17, 2013

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