Home > 2014 > Students

Will Tuition Ever Stop Increasing?

Advertiser Disclosure Comments 0 Comments

Since 1978, college tuition and fees have increased by a whopping 1,120%. During that same period, the price of food has increased 244% and medical expenses 601%. In fact, tuition prices have gone up four times faster than the consumer price index, according to a report by Bloomberg.

Over the years, the rapidly increasing costs of an education have been blamed on a number of different factors like professors’ inflated salaries, construction booms on campus, students demanding luxury amenities, increased administrative costs, availability of student loans, state funding cuts and technological changes.

Whatever is causing these increases, one thing is certain – they’ve created big problems for both individual students and the economy at large. According to Edvisors, 70% of students borrow to go to college and they take on an average of $33,000 in student loans. These numbers mean that total student loan debt in the U.S. ballooned to $1.2 trillion, eclipsing the amount of credit card debt Americans hold. This trend is not slowing down, with an additional $110.3 billion borrowed in 2012-2013, according to the College Board.

These unprecedented levels of student loan debt have only been worsened by a lackluster economy. Around 50% of graduates with bachelor’s degrees under 25 are either unemployed or underemployed, according to the Associated Press. It doesn’t help that over the same period that saw rapid rises in tuition rates and tuition paid, incomes have stagnated. That means that a college education is increasingly unaffordable for most students and necessitates a continued increase in student loan debt.

That contributes to making it incredibly difficult for young people to begin paying back their loans. It’s not surprising that more than 30% of loans are currently in deferment, forbearance or default. For some, that makes things much worse with penalties and interest charges turning $10,000 or $20,000 student loans into $100,000 in debt. Due to a lack of financial education in high school, many students take out student loans without truly understanding how student loans work, which gets them into trouble later on.

Not Leaving the Nest

Household formation has hit a nearly 40-year low, the Pew Center for Research found, with many attributing student loan debt as the cause. Students graduating with debt and unable to pay it off are living longer at home with their parents and not striking out on their own. This, coupled with fewer Millennials buying homes means that the economic ripples of these two rites of passage have not made their way through the economy. With household formation estimated by Moody’s to be worth $145,000 once the purchases ripple through the economy, this is a significant amount of spending that has been lost. Furthermore, the inability of so many Millennials to start saving early for retirement means this student loan crisis has created a ticking time bomb that will greatly impact retirement security in the future.

This has led some to start questioning the value of a college education. Depending on whose accounting you consult, the value of a college degree is anywhere from $185,000 (via the Organization for Economic Cooperation and Development) to $1,000,000 (via the U.S. Census Bureau) in extra earnings over the course of a lifetime. But those figures measure the benefits previous generations have received. In addition, the think tank Demos suggests that households taking out $53,000 in combined student loan debt will lose $208,000 over their lifetimes due to their decreased ability to build home equity and save for retirement early in life.

That’s why people like Peter Thiel, the co-founder of Paypal and the creator of the Thiel Fellowships given to students to drop out of college and start a business, are saying that a college degree isn’t always worth it. In the film Ivory Tower, a documentary examining the crisis of student loan debt, Thiel says, “Twenty years ago we would have said all the kids who weren’t going to college were the victims. Now we’re saying that it’s the kids who are going to college who are the victims. It’s like a sub-prime mortgage broker who ripped you off and talked you into buying a house you couldn’t afford. Education is in some ways more insidious than housing.”

Cutbacks in Student Aid

Even with tuition increases slowing down in recent years – in 2013-2014, it was 2.9% for in-state tuition at public four-year colleges and universities, the lowest increase in 30 years, and 3.8% at private schools — what students actually pay has increased significantly, according to U.S. News and World Report. The average amount an in-state student actually paid to attend a public university is 60% higher in the current academic year than in 2009-2010.

That’s because states running deficits due to the recession and economic recovery have cut back on college funding, leaving schools unable to offer the same level of financial aid and thus passing the costs on to students. In fact, the average state appropriations were cut by 10.7% in 2011-2011 and 0.5% in 2012-2013.

While there are some cheap colleges where tuition is affordable, they are the exception and not the rule.

One of the problems is that the availability of student loans allowed colleges to continue to increase tuition without seeing a decrease in demand, according to Veronique de Rugy, a senior research fellow at the Mercatus Center at George Mason University. In a typical market-driven system, increased prices should drive down demand since fewer people can afford to purchase the service. That’s not the case, however, when there are lenders willing to extend tens of thousands of dollars in loans to young people with no credit. The fact that student loans survive bankruptcy and sometimes even the death of the borrower, only increases lenders’ confidence that they will someday get paid back.

But there is some hope in the fact that for three years in a row college enrollment has decreased. According to the National Student Clearing House, college enrollment decreased by 1.5% in 2013 and 1.8% in 2012. If this trend continues, perhaps the market will force colleges to compete on price and lead to decreases in tuition.

Or perhaps federal or state governments might step in by regulating tuition prices or increasing student funding. This summer, a Senate Budget committee hearing took place to examine how student loans are affecting the economy.

The Long-Term Effects of Debt

Brittany Jones, a student who graduated with $70,000 in debt testified at the Senate hearing and said, “Student loan debt has been the driving force of my decisions for the last eight years of my life. […] According to my current repayment plan, it is projected to be for the next 25 years of my life, well into the years for which I should be planning a retirement.”

Students not only see high debt loads affecting their ability to save for the future and to establish a household, but if they find themselves unable to keep up with their payments, it can destroy their credit as well. Late payments and defaults can affect how much interest they pay for credit in the future (and you can see how it really adds up over time), or may prevent them from getting a loan at all when they need it.

Obviously, there’s a problem when student loans take over people’s financial lives and influence their important life choices. Given the broader economic impacts, we can no longer pretend that it’s just a personal problem. While the slowing growth of tuition prices is something to cheer, the fact that the price a student pays has increased doesn’t give a lot of confidence that anything will change on its own. It’s about time something is done to increase college affordability.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More on Student Loans:

Image: Andy Dean

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team