Let’s talk a little bit about college tuition inflation
Thursday, June 24th, 2010One subject that I’ve wondered about for a long time is the rapid rate at which college tuition is increasing. I myself just recently graduated from college with tens of thousands of dollars in debt. My mother attended the same school I did several decades ago, and her mother was able to pay for the entire tuition out of pocket on a single stenographer’s income, while she and my father were not able to pay for mine after saving for 20 years on two substantially higher salaries. It just didn’t add up.
We all hear that the rate of “tuition inflation” is higher than the rate of “normal” inflation. This is very true:
Tuition inflation appears to roughly track the national rate of inflation but it’s almost always higher. so college tuition increases in cost just like everything else, but faster. Here’s exactly how much faster:
(Ideally, the average ratio should be 1 or lower)
As we can see, in the 1950s, and early 1960s, college tuition costs were increasing as much as seven times faster than the national average! In the last 40 years, though, the rate of tuition inflation has been brought down to only about twice the national average (!!!), but that’s where it’s stubbornly stayed.
Let that sink in a bit: for at the last 50 years, the price of college has been increasing more than twice as fast as the price of everything else, and sometimes faster! Even that last graph doesn’t really do a very good job of expressing just how wildly college prices have diverged from the price of everything else because of this higher rate of inflation:
(This graph was created by starting with average 2007 tuition and going backwards to compute the rest of the prices through the value of previous years’ tuition inflation. Figures are not inflation adjusted, as inflation is shown as its own line)
If college tuition had been increasing at the “normal” rate of inflation, then four years in a private college should cost a little under 30 grand. But instead it costs four times that amount.
I’ve included the median family income for the years that it’s available from the U.S. Census Bureau. In 1994, the total price of 4-year college exceeded the average family’s entire yearly pre-tax income. That’s before 7% for Social security, 3% for medicare, federal income taxes, state income taxes, state sales taxes, property taxes, capital gains taxes…
Does graph look familiar? It very closely resembles graphs of the effects of compound interest at different levels. Just like how 40 years later, a financial account at 10% interest will be worth far and away more than twice an account with only 5%, college tuition today costs far more than twice that other products do, despite only having an inflation rate that’s about twice as high.
It’s the miracle of compound interest, and not only does it work in reverse for your debts, but it apparently affects college tuition as well. These things increase faster and faster over time, raising prices to unbelievable levels if left unchecked.
But it gets worse. Here’s how the average family sees it:
Glup. Today, an average family would have to spend almost twice its entire pre-tax income to be able to afford four years in a private college for one child. That’s about 45% of the average household income for each year. Compare that to 1967 when it took less than 4% of the average household income per year. That’s a tenfold increase in 40 years, with not even a doubling of income. Yowzers.
So there’s no sinister plot to destroy American education. There’s no marxist takeover, no corporate collusion that explains the skyrocketing price over the last 40 years; it’s just the ordinary effect of inflation compounded year after year, writ large due to a much higher rate than that of most products and services. So the real question is then why is the rate of inflation for college tuition so much higher than the national average?
That’s the subject for another post. Expect more soon.