What makes college education so Expensive?

There are several reasons college in America is so expensive. Since the 2008 academic year, annual tuition at four-year public and private colleges has increased by 36% or $2,651 (College Board, 2017, as cited in Beal et al., 2019).

Apart from the obvious—demand, which we will also cover below—there are a few things that exacerbate this problem of cost in higher education. Here is a glimpse of the most relevant factors.

Demand

Ultimately, demand is the biggest contributor to rising college costs. The number of students trying to apply for higher education is rising, with a pace that outstrips the increase in wages (Mishel, 2015). Furthermore, higher enrollment numbers also lead to an increase in financial aid and a rise in operational costs to accommodate the influx of students, which all lead to higher tuition fees. In other words, rising college costs can be mostly attributed to a cycle of supply and demand.

To be more specific, the Department of Education has seen about 19.9 million students for the 2019-2020 academic year. While this is slightly lower than in 2017 (NCES, 2019), this is still almost 5 million more than two decades ago.

Reduced State Funding

Many states have cut financial support for colleges, which has led these institutions to hike their tuition fees to make up for lost revenue.

Data from the College Board (2019) has shown some correlation with this statement. As states slash or slow down funding, the cost of education at universities and colleges also rises. For example, in the 2015-2016 academic year, state funding has decreased by 11% from the preceding 10 years, leading to a rise in tuition.

That said, state funding appears to have little impact on private institutions, as these schools do not get money from the government. This can be a more exclusive factor for public colleges and students with scholarships and grants.

Rising Operating Costs

Finally, like any other industry, higher education costs money to run. The case is especially true in a labor-intensive sector like education, where automation is often viewed with suspicion and distaste. And it helps little that universities tend to hire highly educated people, who command high salaries. In fact, most institutions of higher education spend much of their funding on compensation and, as tuition fees increase, so do their payouts (AAUP, 2018).

Some schools have begun experimenting with ways to keep staff compensation low, such as larger classes and more adjunct faculty. These have been met with mixed success, however, and in some cases have been negatively received. The American Association of University Professors (2012) has seen this trend, which helps explain why part-time professors now comprise 51% of total faculty compared to 30% in 1975, as can be seen in the chart below.

Plus, no longer are universities just places of learning and instruction—they are also becoming miniature ecosystems by themselves. Many institutions now have fully functional student services like counseling and healthcare. Operating these facilities can take a major chunk off a university’s strapped budget, which is already strained from administrative expenses like institutional support, research, and dormitories.