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

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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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

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

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

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

Educated and experiences Private Industry Instructors are allowed to teach within Corporate America, but are not allowed to teach within our school systems without a degree and a Teacher's Certificate. Thus, we are preventing students from obtaining information from people who are without degrees, but up on the latest developments and knowledge that Corporate Industry desires and needs.

September 05 2013 at 2:23 PM Report abuse rate up rate down Reply

Big Five, the Yale, Harvard, etc., schools have 55,000 total seats available and there are 85,000 or more Foreign Students applying for a education in the U.S.A., therefore, the Big Five can ask for and GET whatever they want for the education they are providing, and many to most of the Foreign Students are from richer families or on their government's dime.

September 05 2013 at 2:20 PM Report abuse rate up rate down Reply

How long should a Degree be good for; the reason asked is that if you spread your college education over a decade or so, but have not within that time gotten a degree, you may or must start from scratch when finally applying for the degree in which you have had and passed all of the required courses.

So, if course completion is only good for less than 10-years, should a person with a degree still be considered a College Grad if his or her degree is over 10-years old?

September 05 2013 at 2:18 PM Report abuse rate up rate down Reply

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

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

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