Rising costs of college: Blame yourself in part for the $50K bill

Just how much does a typical four-year private college education cost? How much is it worth? The cost of college tuition continues to rise each year -- partly driven up by the students and their families -- but the US government reports that those degrees are still worth the effort and expense.


GWU sets the pace

Last weekend, a New York Times article reported that George Washington University (GWU) was raising its undergraduate tuition to more than $39,000 a year. The university, located in Washington DC, breaks down the costs for incoming students in the admissions section of the school site. Here's how much you would expect to pay each year for the next four years as an incoming freshman (some of the costs, such as Room & Board, Books & Supplies, and Personal are averages intended to reflect the actual costs a typical student will face; others are one-time fees):

• Tuition -- $ 37,790
• Room & Board -- $11,500
• Personal -- $1,350
• Books and Supplies -- $850
• Orientation Fee -- $250
• Student Association Fee -- $30
• TOTAL for first year at GWU: $51,770

Can its students afford to attend the university? From the article:

Lamar Thorpe, the Student Association president, said tuition is not a big issue at GWU, in part because parents often pay for it and in part because students think they're getting a great education.

Thorpe is certainly putting a positive spin on the subject. The article notes that he will be $60,000 in debt after graduating, despite having received financial aid, working a part-time job, and being a member of the Navy Reserve.

What is causing this cost escalation? There are a variety of drivers, but three in particular are worth noting.


1. Ironically, parents are partially to blame

In another New York Times article from December, the blame for the high cost of tuition was placed partly on the families that struggle to pay it.

So early in 2000 the board voted to raise [Ursinus College] tuition and fees 17.6 percent, to $23,460 ... Within four years the size of the freshman class had risen 35 percent, to 454 students. Applicants had apparently concluded that if the college cost more, it must be better.

*** 

The recognition that families associate price with quality, and that a tuition rise, accompanied by discounts, can lure more applicants and revenue, has helped produce an economy in academe something like that in the health care system, with prices rising faster than inflation but with many consumers paying less than full price.

But this is only partially responsible for rising college costs. At the GWU Web site, there are financial details that give some deeper insight into why costs are rising (the numbers are from from the 2001 time frame). Student fees generated over $286 million in the 2000-2001 academic year. That, along with other revenue sources, resulted in a total revenue infusion for that year of $481 million. As for costs, the university reported that "Instruction and departmental programs" cost about $252 million. Student aid was reported as $5.7 million, while "Administration and general" was around $69 million. Total expenses were roughly $550 million. The result? A net loss at the end of the 2001 academic year of $68 million. Why the loss? Read on.


2. More financial aid to cover the high tuition

Schools are losing money, mainly because the cost of delivering an education is so high and because most students aren't paying full price. The December Times article noted that, "73 percent of undergraduates attending private four-year institutions received [financial aid] in the school year that ended in 2004, not even counting loans." The specific case of Swarthmore College was highlighted.
''The half of our student body whose families are paying the full sticker price are paying $41,000 for something that costs $73,000,'' said Suzanne P. Welsh, the treasurer. ''So they're getting a great discount.''



3. Higher staff and president salaries

Besides absorbing the loss on student tuition, where else are schools bleeding money? A significant monetary drain is the result of escalating staff and president salaries. The December Times article noted that:

The biggest expenditure at liberal arts colleges is for salaries and benefits. With competition for big-name professors becoming more intense, faculty salaries have increased. So has the pay of college and university presidents, more than 100 of whom now receive at least $500,000 a year. 

An endowment is key to survival 

With so much red ink, what keeps the colleges and universities open? The key for schools is an endowment. GWU reported its endowment was $690 million in 2001, while Swarthmore has a $1.3 billion endowment of its own (presumably this is an up-to-date figure from the recent interview of Ms. Welsh). Harvard University has a massive $29 billion endowment, according to a Harvard Gazette article from last fall (this same article notes that "Tuition from Harvard College, for instance, covers only about two-thirds of the total cost of a Harvard education.").

A great deal at public colleges?

What about public colleges and universities versus private institutions? In Massachusetts, for example, there is a major difference between the costs of a private school like Harvard University and a public school, such as the University of Massachusetts. The 2006-2007 tuition cost for Harvard College is listed as $30,275, with the expected total cost being $46,450. The University of Massachusetts (Amherst) says its education is "a great deal," with in-state UMass tuition fees of $9,883 and a total expected annual cost of $17,221 (out of state is $19,897 and $27,235, respectively). The December Times article made note of this discrepancy:

The average cost of tuition, fees, room and board at those [private] colleges is now $30,367 ... tuition and fees at public colleges and universities -- though growing recently at a faster pace than those at private institutions -- remain vastly lower, at an average of $5,836, the College Board says.

Government data shows that more degrees = more dollars

Is a college degree -- one that can cost more than $50,000 a year -- worth the investment? The US Census Bureau offers data that suggests that the effort and expense to attain an undergraduate degree are worth it. In a press release last October, the Census Bureau noted that Americans with college degrees make significantly more money on average:

Adults age 18 and older with a bachelor’s degree earned an average of $51,554 in 2004, while those with a high school diploma earned $28,645.

At some point, despite the increase in financial aid, this cost escalation will have to be reined in in order for the majority of Americans to send their children to college. However, in the meantime, parents can look forward to forking over tens of thousands of dollars for every year that just one of their offspring is in college.

It probably won't work, but it certainly won't hurt to do some math and point out just how much your child is blowing when they skip that class or register for Introduction to Basket Weaving 101. Good luck.