Are college costs outpacing the value of education?

As a new school year begins, students face tuition increases that have far exceeded inflation

Lectura de 5 minutos

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College tuition and related costs have increased significantly faster than overall inflation, making higher education less affordable for many families.
Student loan debt now rivals auto loan balances, highlighting the growing financial burden carried by graduates.
Demographic shifts and enrollment pressures may force colleges and universities to rethink pricing models and funding strategies.

Schools are getting back into session. This week I get the opportunity once again to travel to my alma mater, Oklahoma State University, to present to their Student Managed Investment Fund class led by Professor Eric Sisneros. I highly value the opportunities I get to interact with college students at several universities across our footprint. For all the negative press one can find about the state of education and this generation of young people, getting on a college campus and presenting to advanced classes reminds me why I remain optimistic about the future. There are still plenty of ambitious, smart and enthusiastic students looking to make their mark.

At the same time, we know the cost of getting a college education is far different than it was when many of us went to school. The idea of being able to work a part-time job and pay the bills while attending school full-time seems a quaint and completely outdated concept…because it is. Our chart this week shows a graph from the Federal Reserve that looks at the cost of tuition, fees and childcare, compared to inflation, as measured by the headline Consumer Price Index (CPI). (In full disclosure, we tried to separate the childcare aspect, but this is the way the Fed presents their data.)

No wonder college students today feel they are behind the eight-ball by the time they get out of school. Not only can they not work to pay the bills while they are in school, they are also generally left with significant student loan debt that was taken out to afford the skyrocketing cost to go to college. In fairness, many colleges offer significant scholarships and grant assistance to alleviate some of the pain, but there is no doubt many students feel forced to take on debt to finish school. This is where the goal of "helping" students by providing access to loans has, in many cases, ended up hurting the students. Access to borrowed money allowed schools to increase tuition, and some poorly constructed incentive plans led to college financial officers recommending excessive levels of borrowing, when compared to the income potential for various degree programs. We also know this led to increasing support from "FNB Mom and Dad." Student loan debt, which is 9% of the total outstanding consumer debt, is now approximately equal to auto loan debt levels and higher than overall credit card balances, which make up 7%.

Overall enrollment levels may begin to fall based on demographic changes, which show that the number of 17-year-olds entering our society is declining. As a result, the financial picture of many colleges and universities is declining. Some are responding by lowering tuition levels to spur additional enrollment. Others are leaning on foundation distributions, new fundraising or reducing degree programs to reduce costs. The fact remains that the cost of college grew way faster than inflation and wages. Like many students across the country, I am excited for the new school year and the pride we all feel in our alma maters. However, some level of change must happen going forward.