College Costs – Where Are They Heading?
When it comes to the rising cost of college, it’s not all bad news. Sure, costs continue to run above the rate of inflation, but this trend has been gradually easing.
The cost of a college education may arguably be the most expensive item parents plan for during their child’s life. The sticker shock of tuition, room-and-board charges and other fees may cause a sense of panic for parents when thinking about how to save for college, or wondering how much college will cost in the future.
Can the cost of college really continue to rise? The bad news—college has been and will likely continue to increase at a faster rate than inflation. The good news—the rate at which college costs have outpaced inflation has been declining over the last 20 years, and even more so over the past 10 years.
The chart below illustrates how college costs have changed during the last three decades. While costs have increased over the last decade, you can see that the pace of increase has significantly slowed from the decades before.
Ten-Year Percentage Changes in Inflation-Adjusted Published Prices by Decade
1990-91 to 2020-21
Source: College Board, Annual Survey of Colleges; NCES, IPEDS Fall Enrollment data.
Each bar in the figure above shows the percentage change in published prices in inflation-adjusted dollars over a 10-year period. For example, from 2010-11 to 2020-21, average published tuition and fees at private nonprofit four-year colleges increased by 18% beyond increases in the Consumer Price Index. Average tuition and fee prices reflect in-district charged for public two-year institutions and in-state charges for public four-year institutions.
With regard to college tuition and fees, Consumer Price Index (CPI) data from the period between January 1990 and November 2020 shows that college costs have grown at an average pace of 5.5% per year, which is 2.4 times more than standard inflation. Over the last 10 years, however, college costs have grown at an average annual pace of 3.4%, which is only about two times greater than the rate of inflation.
Additionally, with grant and institutional aid becoming more common at public and private institutions, the out-of-pocket costs for many undergraduate students over the last decade have grown at even lower rates than the CPI data shows. According to the College Board’s Trends in College Pricing and Student Aid 2020 report, grant aid per student since 2006 has increased 76% at four-year public institutions, and 72% at four-year private institutions.
Considering the recent slowing cost trend and rising outstanding student debt, as well as the spotlight that the COVID-19 pandemic and remote learning has put on the value of college tuition and fees, we believe that it’s hard to envision college costs rising at more than 4% (or about another 1% higher) above long-term inflation going forward. We are continuously re-evaluating our planning assumptions to ensure your plan reflects the most current research and our best thinking. With that in mind, we’ll be updating plans going forward to reflect a lower 4% inflation rate for college expenses. If you want to revisit your child’s college savings plan or put a new plan in place, please reach out to your Wealth Advisor to get the conversation started.
ABOUT THE AUTHOR
Steven Hollon
Steven is a Wealth Advisor in our Itasca, IL, office. He works closely with clients to help them identify a holistic understanding of their financial and future goals. He earned both his Bachelor of Science in Accountancy and Master of Accounting Science from the University of Illinois. Steven is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER™ professional.
