College costs are going through the roof, outpacing inflation and creating a huge financial hurdle for prospective students and their families. Many factors are contributing to escalating college costs, many of which are beyond the control of those affected most. Parents who provide students with financial support will need deep pockets, a combination of grants and scholarships or a generous loan to afford a higher education.
How much have costs risen on the college horizon? Consider that in 1997, average tuition and fees for a full-time undergraduate student at a private, four-year college was $13,785 and at a public four-year school, a mere $3,111 annually.* Ten years later, the average cost has jumped to $23,712 and $6,185 respectively. These costs do not include what students must pay for room and board, books and transportation to attend school, which easily can run to $10,000 or more annually. The College Board reports that average room and board charges increased $7,280 between 1997-98 and 2007-08, while corresponding grant aid and tax benefits during that same time period rose only $4,940.
Interestingly, there appears to be some regional differences in the cost of higher education. Average tuition and fees at public two- and four-year public institutions in Vermont and New Hampshire, for instance, tend to be much higher than these same fees for schools in California, where the state provides generous financial support to post-secondary schools. The cost of attending private four-year colleges and universities also varies widely in different parts of the country. However, fluctuations may be more related to the prestige of the school and its faculty as well as the cost of living in the surrounding community, which influences professor salaries.
While the elite private universities may seem too pricey, data shows these schools are more likely to have generous endowments that enable them to help more students through grants and scholarships. Just this fall, Harvard, the pinnacle of the Ivy League, pledged that parents who earn under $40,000 will not be required to pay one cent for their child’s tuition, and also extended significant discounts to parents earning up to $120,000 annually. Few schools will be able to match this offer, but comparable big name schools with equally large endowments may follow suit.
The trends show that while college costs are rising across all institutions, tuition and fees at public four-year colleges appear to be rising at a faster rate. Plus, less money is available from state coffers for grants as education dollars shrink within state budgets. The more affordable route of attending a public university, while still less expensive, is not as affordable as it used to be.
More students are enrolled full time at four-year institutions compared to 10 years ago, creating more competition for admission into coveted schools. At the same time, state and local appropriations per student declined.
On the bright side, a good percentage of students did not pay the full sticker price for their college tuition. Federal and state grants and institutional and private scholarships help to reduce the overall cost of students attending college. Unfortunately, many middle-income families may not qualify for federal Pell grants because of low income thresholds. These same parents may qualify for federally subsidized (or unsubsidized) loans. However, when the cost of financing $20,000 or more per year is factored into the equation — and interest rates for college loans (if you can get one) are steadily inching upward — the cost of college is even more daunting.
If college costs cause you to doubt the value of a college education, think again. The statistics show a very strong correlation between future earning power and the presence of college degree, suggesting that it does matter in the long run. According to the Census Bureau, individuals with a Bachelor’s degree will, on average, earn almost twice as much over the course of their lifetime as an individual who only holds a high school degree. ** What the Ivy League and other pricey schools may not tell you is that you may be able to get as much mileage out of a degree from a state university as one from a more expensive private school.
Whether your child is planning to attend college in the near or distant future, it helps to think about your options for footing the bill for tuition, fees, room and board, books and more as far in advance as possible. A financial advisor can help you assess your financial situation and plan for future college expenses. Think about your education goals for your children and start saving now to lessen the financial burden of college down the road.
*Source: Trends in College Pricing, data from Annual Survey of Colleges, The College Board, New York, NY, weighted by full-time undergraduate enrollment.
**Source: The Value of a College Degree, Porter, Kathleen, ERIC Digest.
This information is provided for informational purposes only and is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor.
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