Why Is College So Expensive? Facts, Trends, and Helpful Tips

Why is College So ExpensiveIt's a common question: Why is college so expensive across America? The answer is not as simple as you might think. While it might be tempting to blame the rise of college tuition on a single factor (like economic stagnation or institutional greed), the reality is that a lot of different variables come into play. It's a complex situation.

There's no doubt that college is expensive for many students. At some of the priciest schools, it can cost upwards of $40,000 a year to cover tuition and fees along with room and board, and that doesn't even account for things like books or transportation expenses. The average college graduate leaves school owing more than $37,000 from student loans. In fact, Americans collectively owe over $1.4 trillion in student loan debt—far more than they owe in credit card debt.1 These are not encouraging numbers.

But before you conclude that college is too expensive, consider these facts. The cost of college may be going up, but the benefits of a college education—better job prospects, higher earning potential, etc.—are also growing. Thanks to scholarships, grants, and other forms of financial aid, there's often a huge difference between the sticker price for college tuition and the amount that students actually end up paying. And there are plenty of practical things you can do to bring your costs down and make college more affordable.

Trends in College Costs

In America, the past 40 years have been characterized by rising tuition costs. Have a look at the average tuition and fees at different types of institutions during the 1976-77 versus 2016-17 school years (all figures in 2016 dollars):2

  • Public four-year institutions—$2,600 vs. $9,650
  • Public two-year colleges—$1,190 vs. $3,520
  • Private nonprofit four-year colleges—$10,680 vs. $33,480

It's easy to panic about college prices rising, but more recent trends offer some hope. For instance, one survey found that families spent an average of $23,688 on college in 2015-16, which was slightly less than they spent in 2014-15. And families with students in two-year public colleges enjoyed a significant drop in costs: They spent $9,840 in 2015-16 (down from $13,531 in 2014-15), which was the lowest amount spent since 2008-09.5 These figures represent the families' estimated gross costs (including cost of living expenses) before any financial aid was taken into account.

Other sources indicate that while tuition costs may be going up, in some cases the historical rate of increase has actually gone down. For instance, tuition and fees at private nonprofit four-year colleges grew at an average rate of 3.1 percent between 1986 and 1996, but they grew by only 2.9 percent between 1996 and 2006. In addition, they increased by only 2.4 percent between 2006 and 2016.2 The same source also noted that increases in the prices that students actually pay (after subtracting various forms of financial aid) have been smaller than the increases in published prices.

But we're still talking about thousands upon thousands of dollars. So why is college tuition so high? Where does the money go?

How Colleges Use Their Money

Despite the rising cost of college tuition, the truth is that those fees rarely cover the full amount required to provide students with a college education. Institutional operating expenses can be enormous. In 2009, for example, public four-year colleges collectively took in $41 billion in tuition fees, but they had over $200 billion in expenses, which broke down as follows:3

  • Instruction (faculty salaries, benefits, office supplies)—26.7 percent
  • Research (research centers, special projects)—12.1 percent
  • Institutional support (administration, management, public relations)—8.0 percent
  • Academic support (libraries, museums, deans' offices)—7.3 percent
  • Public service (conferences, reference bureaus)—4.9 percent
  • Student services (admissions, career counseling, intramural sports)—4.1 percent
  • Operations and maintenance (building maintenance, utilities, insurance)—4.1 percent

The rest of the expenses were for things like depreciation costs, scholarships and fellowships, auxiliary enterprises (dorms, bookstores, food services), hospitals, and other operations.

In the same year, public two-year colleges collected almost $8.5 billion in tuition, but they spent over $48 billion. As with the four-year schools, instructional costs made up the lion's share of the expenses. Research costs were minimal, however, as that is not a primary focus for these types of institutions. Here's a breakdown of their expenses:3

  • Instruction—39.5 percent
  • Institutional support—14.8 percent
  • Student services—9.5 percent
  • Academic support—7.7 percent
  • Operations and maintenance—5.5 percent
  • Public service—1.6 percent
  • Research—negligible

Of course, these costs will vary among institutions. For instance, a school with numerous research centers will have higher costs than a school with fewer facilities. But in virtually all cases, tuition fees alone are not enough to cover everything.

Plus, a lot of students don't pay the full published price for tuition. Many colleges provide subsidies that reduce the net amount of tuition a student must pay. The higher the discount, the less revenue is available to fund the colleges' expenses. In 2013-14, for example, net tuition revenue covered just over a third (38 percent) of the per-student education-related expenses at two-year public institutions and a little over half (56 percent) of those expenses at four-year public colleges.2

At public colleges, the bulk of the difference is made up through funding from state and local governments. A quarter of all revenues for public four-year institutions came from state and federal appropriations in 2009. For two-year public colleges, government funding made up 28 percent of revenues.3

Colleges also receive revenues from investment returns on gifts and endowments as well as from auxiliary services like campus bookstores, hospitals, and food outlets.

So Why Is College Tuition Rising?

College tuition is climbing in large part because state funding for higher education has been greatly reduced over the years, particularly following the recession of 2008. At public research universities, for instance, funding was 28 percent lower in 2013 than in 2008.6 In constant dollars per student, funding was 15.3 percent lower in 2015 than in 2008 and 20 percent lower than in 1990.7

As government funding declined, tuition fees increased to make up the shortfall. Average tuition and fees at public institutions rose by 28 percent between the 2008-09 and 2012-13 school years.2 That's a big reason why college is so expensive.

In fact, one report estimated that state funding cuts were responsible for 79 percent of tuition hikes at public research universities between 2001 and 2011.4

But while declines in state funding might be the biggest reason why tuition is so expensive, they are not the only explanation. Increased spending by colleges is another factor. For instance, while the number of full-time faculty employed at public colleges has remained virtually unchanged since 1990, the amount that schools have had to spend on employee health insurance jumped by 40 percent between 2001 and 2011. Increased spending (on both administration and construction) accounted for about 12 percent of tuition increases during that time period.4

So, is the cost of college too high? Only you can decide. But before you do, you might want to ask yourself another question: Does the value outweigh the cost?

The Value of a College Education

Several factors explain why college is expensive. But some would argue that the benefits of a college education are so great that the cost is simply the price of doing business. The following are a few chief benefits:

1. Better job outlook

Any form of post-secondary training will likely take you farther than a high school education alone. One study found that almost all (99 percent) of the jobs created in the U.S. between 2010 and 2016 went to workers with some form of college education. The following is the number of jobs created for the holders of each type of educational certification:8

  • Graduate degree—3.8 million jobs
  • Bachelor's degree—4.6 million jobs
  • Associate's degree—3.1 million jobs
  • High school diploma or less—80,000 jobs

The same study also found that 65 percent of the workforce has at least some college education. That's also reflected in the latest government statistics: The vast majority of the 20 fastest-growing occupations in the U.S. between 2014 and 2024 require training beyond high school.9

Is college expensive? It's hard to argue that it isn't. But if it opens the door to better prospects and more opportunities, it just might be worth your while.

2. Higher lifetime earnings

Investing in education does tend to pay off in the long run. The difference in earnings between adults with a college education and those with only a high school education is significant. Globally, on average, those with a bachelor's degree earn 48 percent more over the course of their lifetime than those with only a high school diploma. Those with a graduate degree earn almost twice as much.10 And in the U.S. alone, the average college grad earns over $800,000 more than the average high school grad by the time they retire.11

Not only that, but research has shown that the return on investment (ROI) from a college education is much higher than from other forms of investments. One study estimated that investing in a four-year degree yields a return of above 15 percent, which is much higher than historical returns from stocks (6.8 percent), corporate bonds (2.9 percent) or real estate (0.4 percent).12

That same research found that those returns have remained relatively constant for decades. So it appears that rising tuition costs have been matched by increased earnings for college graduates. Keep that in mind the next time you ask, "Why is college tuition so expensive?"

3. Positive effect on society

Society as a whole benefits from a better educated citizenry. There are plenty of spillover effects of a college education. For instance, some evidence suggests that communities whose members have higher levels of education tend to have lower crime rates and higher civic participation.13 Those with higher levels of education are more likely to find jobs, less likely to need social assistance programs, and more likely to generate tax revenues for government.

One study showed that even people who only had a high school diploma earned more when they lived in cities populated with a high number of college graduates.14 So it may well be that the cost of college education over time is more than balanced by the long-term benefits that graduates experience.

10 Tips to Make College Less Expensive

10 Tips to Make College Less ExpensiveIf you're concerned about the high cost of college, you're not alone. Many students wonder how they can possibly afford post-secondary education, especially when the media is full of stories about declining government funding and skyrocketing tuition fees. A 2016 survey showed that families with a child in college were more stressed about education costs than any other household expense, including medical or housing costs. The same survey revealed that students were more likely than parents to feel stress over education expenses.5 The obstacles can seem insurmountable.

But don't jump to the conclusion that college is too expensive. Take a deep breath. If you do some research, you will likely discover that things aren't as bad as you think. You can do a number of practical things to make your higher education more affordable. Consider these tips:

1. Get a job.

Around 12 percent of college costs were covered by student income and savings in 2016.5 That's not an insignificant amount. Having a part-time job during high school or in the summers can take care of a good chunk of the cost of your college education.

Working at a part-time job while you're in college can also be a great way to earn money for your education if you can fit it into your schedule. Many students do: 43 percent of full-time undergraduates had jobs in 2015, and almost 27 percent of those students worked more than 20 hours a week.15

If a job just won't fit around your study schedule (after all, you don't want your grades to suffer), consider working during the summer or any other time when you have an extended break. A paid internship is another way to make some extra money—and to gain valuable experience in your field at the same time.

2. Seek out scholarships.

Scholarships and grants are free money that doesn't have to be paid back, and they are a fantastic way to finance your college education. In fact, scholarships and grants represented the largest proportion of any resource used to pay for college between the 2010-11 and 2015-16 school years.5

Grants are usually based on financial need, whereas scholarships are normally based on merit (e.g., academic or athletic achievement). Both are offered by colleges, state governments, the federal government, and many other organizations. Thousands of scholarships and grants are available, so you should be able to find one for which you qualify. Be sure to meet application deadlines.

3. Choose your loans carefully.

If you can't avoid borrowing money to pay for college, be sure to understand the different types of loans. There are federal student loans (funded by the federal government) and private student loans (offered by banks and schools).

Your goal should be to stick with federal loans as much as possible, since they generally offer more favorable terms than private loans. For instance, unlike many private loans, federal loans do not have to be repaid while you are still in college. Federal loans also offer fixed interest rates and flexible repayment plans.

Learn more about the various forms of financial aid and get some tips for paying off your student loans.

4. Consider a less-expensive school.

The fees at many vocational colleges and trade schools are lower than those at traditional colleges or universities. Plus, they offer career-driven training that gets you ready for the workforce in a shorter time, so you can start earning money sooner. If you're interested in a lower-cost alternative to training for a career in business, health care, technology, or the trades, you might want to consider these types of schools. It's easy to quickly find programs in your area.

5. Transfer campuses.

You can save a ton of money on a four-year degree by completing the first couple of years at a community college, where tuition is a fraction of what it would be at a four-year university. Course credits can then be transferred to a four-year college, and you end up with a degree that looks no different than if you went to the more expensive college for the full four years.

Keep in mind that transferring does not work in all states. You should definitely check to make sure the school you want to transfer to will accept credits from the college you plan to start out at. But if it works, doing things this way can mean paying a lot less for a four-year degree.

6. Live at home.

Living at home while going to college offers several advantages: You save on rent and food, you pay far less in tuition than if you went out of state, and you might be able to convince your mother to do your laundry. One survey found that about half (49 percent) of students lived at home during the 2015-16 academic year.5

You do miss out on the experience of living on campus, which can be a downside for some students. But you save a bundle on your expenses. If living at home is an option for you, it can be a huge money saver.

7. Share rent with friends.

"Live cheap" should be your motto. If you can't live at home, you might be better off sharing an apartment with a couple of roommates rather than paying for room and board on campus. You also have to factor in things like utilities and transportation, but the overall cost might be worth it.

And there's an extra bonus to living off campus: It can sometimes be easier to focus on homework when you don't have all the distractions of a dorm.

8. Take public transportation.

It's often cheaper to invest in a bus pass than to pay the insurance, gas, and parking fees that come with driving your own car. If you must drive, see if you can carpool to reduce costs. If you live close enough that you can walk or bike, so much the better.

9. Avoid buying new books.

Check with your instructors before buying books. You may be able to get away with buying used textbooks instead of purchasing brand new ones. Some places will even rent books to students, so it's worth asking around. If your instructor insists on the newest version, try to figure out if the content is really any different from the old one.

And be sure to help others by selling your books back to the bookstore or to a friend when you're done with them. You might even find success selling them online.

10. Graduate on time.

As it turns out, hardly anyone does this. Only 19 percent of full-time students in four-year bachelor's programs at non-flagship universities actually finish their degrees in four years.16 The more time you take to complete your degree, the more money you spend. You also miss out on the income you could be earning if you were beginning your career instead of studying for exams.

Maximize your chances of finishing on time by having a plan for your college education. Try to avoid changing majors, since that can also delay your graduation and increase your costs. And make sure the courses you're taking are the ones that you actually need to graduate.

The Bottom Line

Why is college so expensive in this country? There are many reasons why college tuition is so high, but the better question might be: Does the value of a college education make it worth the cost? You need to weigh the pros and cons and decide what's best for you. Keep in mind that career-focused vocational colleges and technical schools can often be a more affordable alternative to traditional colleges. And they're easy to find. Enter your zip code in the search tool below to start discovering program options in your area!

1 Student Loan Hero, "A Look at the Shocking Student Loan Debt Statistics for 2017", website last visited on May 10, 2017.

2 The College Board, Trends in College Pricing 2016, website last visited on May 10, 2017.

3 National Center for Education Statistics, Enrollment in Postsecondary Institutions, Fall 2009; Graduation Rates, 2003 and 2006 Cohorts; and Financial Statistics, Fiscal Year 2009, website last visited on May 12, 2017.

4 Demos, "Pulling Up the Higher-Ed Ladder: Myth and Reality in the Crisis of College Affordability", website last visited on May 12, 2017.

5 Sallie Mae, How America Pays for College 2016, website last visited on May 10, 2017.

6 American Institutes for Research, Trends in College Spending: 2003-2013, website last visited on May 10, 2017.

7 State Higher Education Executive Officers Association, State Higher Education Finance: FY 2015, website last visited on May 10, 2017.

8 Georgetown University, Center on Education and the Workforce, America's Divided Recovery: College Haves and Have-Nots 2016, website last visited on May 10, 2017.

9 Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2016-17 Edition, website last visited on May 10, 2017.

10 Organisation for Economic Co-operation and Development, Education at a Glance 2016: OECD Indicators, website last visited on May 10, 2017.

11 Federal Reserve Bank of San Francisco (FRBSF), Economic Research, "Is it Still Worth Going to College?", website last visited on May 10, 2017.

12 The Hamilton Project, "Regardless of the Cost, College Still Matters", website last visited on May 10, 2017.

13 Arizona State University, Productivity and Prosperity Project, The Value of Higher Education: Individual and Societal Benefits, website last visited on May 10, 2017.

14 National Bureau of Economic Research, "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data", website last visited on May 10, 2017.

15 National Center for Education Statistics, website last visited on May 10, 2017.

16 Complete College America, Four-Year Myth: Make College More Affordable, website last visited on May 10, 2017.