Why Does College Cost So Much ... and What Can You Do About It?

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Female student worrying about money
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For anybody who has paid even the slightest amount of attention to higher education over the past few years, it should come as absolutely no surprise that college costs a lot of money. Countless writers and analysts -- including me -- have noted that higher ed costs more than it ever has before, and that more and more people are going insanely deep into debt to pay for it. But even amid the Sturm und Drang of the higher ed debate, the issue of how it impacts you -- and how you can maximize the value of your college dollar -- has sometimes gotten short shrift.

On The Washington Post's Wonkblog, Dylan Matthews' series "The Tuition Is Too Damn High" has unpacked several of the details of the tuition battle, looking at both why college is so expensive and why it is still the best investment you can make. The series is required reading for anyone interested in the college funding debate.

Here are some of Matthews' most interesting takeaways:
  • While the cost of college has risen far out of pace with the rest of the economy, your "investment" in tuition has an average annual return of between 15 percent and 17 percent. This far outpaces stocks, bonds, gold and real estate, and makes higher education one of the best investments you can make.
  • A large fraction of the increase in tuition comes from a drop in state funding for higher education. With the exception of Wyoming and North Dakota, every state is now spending less money per student, and public colleges and universities are making up the difference by passing the bill along to students. Between 2000 and 2012, the share of universities' revenue that came from tuition went up by over 35 percent.
  • States aren't the only ones to blame: At many colleges, use-it-or-lose-it funding rules discourage them from saving money. More importantly, colleges are in a crowded marketplace, where extravagant facilities can make a major difference in prestige and enrollment. In other words, colleges have every reason spend money that requires them to raise tuition, even if doing so doesn't improve educational outcomes for students.
So what can you do if you're a student looking for the best possible outcome for your college dollar? First of all, go to college -- and graduate. Studies have shown that, by age 25, college dropouts receive an average 11 percent income boost from their time in a classroom. For those who end up with a degree from a four-year university, however, the dividend at age 25 is a whopping 73 percent increase in earnings over a worker with a high school diploma.

Second, when you're choosing a major, give a little thought to the return on your investment. In the past, I've written about the value of choosing the right major and determining the most profitable grad school investment. Recently, Bankrate.com put the cost/profit ratio into even starker terms with an analysis of how long it will take for your degree to pay for itself.
On the top end, if you're in advertising or marketing, you can expect to be out of the red within six years of graduation. On the other side, if you choose to become a marriage and family therapist, you can expect to work for almost 35 years before you get into the black.

Third, while the time you spend at a four-year college is certainly valuable, you may want to wait a while before going there. Community colleges, on average, cost 32 percent less a year than public four-year institutions. Many state universities will allow students to transfer over their first 60 college credits -- a factor that could save you many thousands of dollars. And even if you decide to go straight to a four-year school, you can still save a lot of money by taking summer school classes at your local community college, and graduating earlier.

Fourth: Speaking of spending time outside the university, you also might want to spend some time outside the classroom. Despite all the recent scandals involving companies that take advantage of interns, it's still clear that an internship can make a huge difference when it comes to getting a job. A recent survey by the National Association of Colleges and Employers found that students who completed at least one paid internship received job offers 60 percent of the time.

Ultimately, the lesson is clear: College is pricey, and is likely to get even more so. But it remains the best investment you can make. What's more, with research, careful planning, and internships, you can make it turn a profit sooner -- and remain profitable longer.

Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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22 Comments

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Frank Enstein

What a lazy useless article! That statistic about the "value" of a college degree is a huge fraud, because it compares the incomes of grads vs. non-grads without controlling for all the other factors that influence earnings, such as family socioeconomic status, race, innate intelligence, and other factors which would have made the college attendees successful even without a degree. I bet this author went to college and it clearly hasn't done him a bit of good.

September 05 2013 at 4:04 PM Report abuse rate up rate down Reply
freevee

Colleges set tuition by asking "what can families afford to pay?". In the distant past, the answer was constrained by parents' income. Top students whose parents had little money could earn a scholarship. Since the advent of Federal student loans, the answer to the question includes the amounts that can be borrowed. The resulting trillion dollar student loan debt makes the Federal government the worst predatory lender. Can you imagine that uproar if banks lent $100,000+ to 18-year-olds to finance business startups or to buy exotic sports cars?
Colleges need only so many professors so their tuition income pays for administrators. A recent report stated that the U. Of California employs 19,000 professors but 192,000 administrators. When Gov. Brown cut state financing for UC, UC simply raised tuition - no job cuts here!

September 05 2013 at 3:11 PM Report abuse rate up rate down Reply
ectullis

You have nothing to worry about if you are either black or a foreigner

September 05 2013 at 3:01 PM Report abuse +1 rate up rate down Reply
posthuf

College cost have risen in tandem with Congressional giveaways of taxpayer money to the Department of Education.

College and union financial attorneys see 'opportunity' every time the phrase 'increased wages for teachers' or 'increase money to our beleaguered schools' cross the lips of a politician, and are first in line to 'get their fair share.'

And the 'opportunity' they see has nothing to do with helping kids, poor, middle class or rich, get a better education and improve their lives. It has to do with them getting more taxpayers monies for less work and service.

If they REALLY gave a hoot about education they'd put that money toward supporting school choice. Forcing kids out of good schools into lesser schools in the name of 'equality' is hardly equality, and more wasteful than forcing kids out of poorer rated schools into better schools that they are not ready for.

The mismatch of opting for the untrained minority for a college seat over a trained and qualified non-minority for the same seat, then having the minority flunk out because he/she is not ready for the subject matter is not a solution to inequality in opportunity. It is a sham perpetrated by politicians who are after nothing but easy campaign for another soft term in office.

September 05 2013 at 2:36 PM Report abuse rate up rate down Reply
Kent

Here's my problem with the idea of going to community college. For every very bright kid there, who will get a Bachelor's and an advanced degree, there is one who barely graduated high school and may flunk out.

I went to an elite school, in part, because I wanted to be around bright people. I remember sitting up until all hours fo the night discussing various topics, from diplomacy prior to WWII to the merits of Reagan's tax cut to whether the Stones or the Beatles were the better band, to whether or not Mozart's genius topped Beethoven's tortured soul, in terms of the quality of their compositions.

September 05 2013 at 1:53 PM Report abuse rate up rate down Reply
Gloria

One down side to Community College first. Many school scholarships are for in-coming FRESHMAN only. And they are usually for 4 years. In that instance, it wouldn't be worth going to Community.

September 05 2013 at 12:55 PM Report abuse +1 rate up rate down Reply
billwaters52

Not mentioned in the article is the fact that colleges are spending more and more on bureacracy. There are layers and layers of personnel in areas that do not further education such as student activities, athletics etc. Colleges can spend this money, knowing that students can and will borrow, borrow, borrow to pay the outlandish tuition and fees.

September 05 2013 at 11:44 AM Report abuse +2 rate up rate down Reply
jbnb63

Maybe we should require universities with HUGE endowment funds(Harvard has BILLIONS) to pay some income tax on the earnings from those funds or refund those earnings to pay student loan interest.

September 05 2013 at 11:42 AM Report abuse +2 rate up rate down Reply
1 reply to jbnb63's comment
Kent

You have to remember that endowments often have strings. A person might have given money to pay for a professorship, using the investment icome off that gift to pay the salary of a professor in a specific field.

Or, there may be a gift that goes towards facilities for a specific department. Thus, the income from that gift would go towards buying new equipment for a department or partially funding a new building or addtion to a department's building.

Then, there are gifts for specific scholarships, whether it's for students in general, students from a specific geographic location, or students of a certain demographic.

If you start taxing investment income of colleges, which are tax-exempt under 403(b), then do you start taxing interest that a church makes on its bank accounts, or if a food pantry has more cash at the end of the year than at the start?

September 05 2013 at 1:36 PM Report abuse rate up rate down Reply
Fran

That is all assuming graduates get decent paying jobs in their fields. Show of hands, how many recent college grads are either still unemployed, working at their High School/College job, or had to take a retail sales/Fast food type of job to start paying off these bills? I do know a couple of recent college grads who got lucky but overall when this is what you are doing post graduation it's hard to justify the high costs.

September 05 2013 at 11:39 AM Report abuse +1 rate up rate down Reply
2 replies to Fran's comment
Kent

Think how much worse it would be, if you didn't go to college or dropped out. In large corporations, there is often a limit as to how far a person can be promoted without a college degree, just as there may be a limit on how far a person can be promoted without an MBA or other apppropirate Master's degree.

This happens in every recession. College graduates have a hard time finding jobs, when job growth is very sluggish. This was especially true in the early 1980s. Friends of mine found it hard to get a job in 1981 and 1982. By 1984, entry-level positions were more plentiful.

September 05 2013 at 1:39 PM Report abuse +1 rate up rate down Reply
Fran

Kent: Well ................... I'm a SAHM One of my many reasons for being a SAHM is that I spent 2 1/2 years after college trying to start a career. I have a degree in Dance, Minor in management, and a certification to teach Preschool - 5th grade in NJ but would need to do alternate route. I had four years of retail experience too. I finished in Dec of 2003 and got married at 24 in October of '04. I only applied to jobs I was qualified for and averaged 4 interviews a month for 18 months before depression developed. Through that time I tutored at Sylvan. The job search ended with a PT Thomas Kinkade gallery consultant job. That ended 6 months later. I stayed at Sylvan until I was 3 months pregnant with my son in Dec of '08 when they had to let me go due to the recession. I have an anxiety disorder and have to keep stress low to manage it but that's a lot of interviews that went no where. Luckily, I didn't have college debt and I did get a lot out of college but I would never have been able to pay it off if I did need financial assistance. What my husband did makes sense. To avoid student debt after two years he was promoted at the store to Assistant Manager and did that full time and took two classes a semester until graduation. BA in business. He's a quality Control Manager for an imported Italian cheese company. His extra work experience made a big difference in hire-ability. I never said college was a bad thing but I don't think the current costs are justifiable when you look at the career paths these people are taking.

September 05 2013 at 1:58 PM Report abuse +1 rate up rate down Reply
davidl1950

I am always interested in those who scream corporate greed at every opportunity, but fail to see the outrageous level of greed at colleges and universities. Ever since my daughter entered college 22 years ago I have been monitoring tuition costs at the school she attended and they have averaged 6 percent each and every year. There has never been a time when inflation was even half that level. That amount is compounded as this years 6 percent is on top of last years 6 percent. The end result is that tuition has gone from $27 k to almost $60 k per year. All for a BA or BS which qualifies one to do................well pretty much nothing. People need to start looking at college as an investment and do their due diligence to see if investing that enormous amount of money is going to be justifiable in the long run. If you come out of a prestigious 4 year school with a degree in sociology at a price tag in excess of $250,000.00 you are going to have a hard time justifying the expense and paying back the loans.

September 05 2013 at 11:33 AM Report abuse +2 rate up rate down Reply
1 reply to davidl1950's comment
Kent

That's exactly why I switched majors from political science to economics. My plan was to attend law school, and poli sci is the standard major. My mother said, "What if between freshman and senior year, you decide you don't want to be a lawyer. Then what?"

Not wanting to get an advanced degree in poli sci and teach, I switched to economics, figuring it would be more marketable. I did go to law school, but economics made the practice of corporate law more understandable, since economics does study how businesses are run.

September 05 2013 at 1:43 PM Report abuse +1 rate up rate down Reply