For students, the price tag of a four-year college education is close to triple what it was three decades ago. While many have pointed to rising costs at schools themselves - especially higher administration expenses and construction outlays - there are other important factors driving tuition rates higher. Practitioners at the Federal Reserve Bank of Cleveland’s Policy Summit weighed in with their perspectives on the rising cost of getting a degree.
Average annual tuition and room and board for full-time undergrads has nearly tripled in the past 30 years
|Note: Figures have been adjusted for inflation.|
Source: US Department of Education, National Center for Education Statistics.
A primary driver of tuition prices is the change in who is footing the bill, said Justin Dreager, CEO of the National Association of Student Financial Aid Administration. In the 1980s, federal and state government funding covered more than 75 percent of the cost of education. That figure has fallen to just over 50 percent and continues to trend downward. In fact, the New York Fed reports that public funding, driven by lower state appropriations, has fallen every year since 2000. The reduction in education funding became even more pronounced during the recession, which hit state governments hard. Nearly two-thirds of states cut their higher education budgets by more than 25 percent in the years following the onset of the recession. With the decline in government support, families are left to make up the difference, as they pay an increasing share of the total cost through higher tuition bills. Thus, as Scott Karol, director of program evaluation and technology at Clarifi, pointed out, students must carefully consider the return on their investment as college degrees become increasingly expensive.
Nearly two-thirds of states cut their higher education budgets by more than 25 percent in the years following the onset of the recession.
Tuition prices are often gauged relative to other prices, and in recent years, college costs have risen much more quickly than inflation. Draeger explained that the productivity gains seen in other industries (which help to drive costs and prices down) are difficult to achieve in the college setting. Schools can’t simply educate more students with fewer teachers, without sacrificing quality. Bryan Ashton, senior program coordinator at Ohio State’s Student Wellness Center, added that schools will need to be creative and open-minded as they explore ways to manage their costs and control tuition growth.
Finally, students can affect their own cost of education through their borrowing decisions. Federal loan standards allow students to borrow the full cost of attendance and incidentals. As Ashton explained, some students borrow the maximum amount allowed semester after semester (whether they need it or not) and spend the surplus on expensive rentals and other extras that drive their own education-related costs higher. Financial counseling can be instrumental in helping students to understand the real future cost of their decisions.