The Rising Cost of Tuition Surpasses the Rate of Inflation

Dr. Richard Vedder says schools have no incentive to lower costs.
Panic around the rising cost of college is not a new phenomenon. An article in a December 1968 issue of The New York Times reported on the growing economic problems of that decade. Reporter Thomas Mullaney wrote, “The public is being hit increasingly in the pocketbook by a wide array of price increases for goods and services ranging from cars to clothing to consulting fees. The head of one New York family cited some of them when he complained recently: ‘In a two-week period, I had notices that tuition for my three children at private schools is rising between 15 percent and 30 percent.’” Sound familiar?

While the complaints may sound very similar to what we hear today, times have definitely changed. Rita Kirshstein with the Delta Cost Project says that what college students face today is “not your mother’s college affordability crisis.” The reasons behind the current crisis are more complex.

The price of college tuition has increased at a pace much faster than that of inflation in recent years. According to a report by the Delta Cost Project, tuition for a public four-year institution in 1970 was $358 per semester. If tuition had grown in pace with inflation, the average tuition at public colleges would have been $2,052 in 2010. Instead, the average per semester tuition at public colleges and universities was $6,695 in 2010.

In order to cover the cost, an overwhelming majority of college students are receiving some form of financial aid, which is usually some combination of federal loans, work-study, scholarships and grants. But, for many students, their financial aid package isn’t enough.

In 2010, the cost of tuition at public colleges and universities took up about 11 percent of the median family income (around 36 percent for private institutions)—a significant jump from 4 percent of the median family income in 1970. Because students have to take out loans, they are graduating with a mountain of debt, which can weigh them down for decades. As of June 2012, the amount of student loan debt is higher than credit card debt, and the gap between them is projected to continue growing.

Professor Richard Vedder, who teaches economics at Ohio University, argues that tuition costs so much because colleges and universities have very little incentive to lower their costs. Higher education is one of the few industries where it is more profitable to have a higher price tag.

Princeton professor of sociology Thomas Espenshade agrees with Vedder’s theory on the whole. In a college setting, Espenshade says, the goal is to produce as many degrees as possible, so each faculty member has to produce more degrees. But universities don’t want to produce more degrees by increasing the average class size because that would dilute the quality of education. So, they hire more faculty, which drives up the cost. Colleges are feeling more pressure to produce degrees now since three out of five jobs require a college degree.