Why college tuition keeps rising

(CBS MoneyWatch) For more than a decade, college tuition has been rising far beyond the rate of inflation at public colleges and universities. According to College Board figures, tuition and fees increased 5.4 percent annually above inflation in the decade since the 2001-2002 school year. Ouch.

A commentary that I saw from the Federal Reserve Bank of New York this week goes a long way towards explaining why students at public universities are getting pounded by soaring tuition. The main culprits seem to be state governments that have been ratcheting back their financial support.

Shrinking financial support for public universities

Here are some facts about why college students at state schools, which is where the majority of Americans receive their college degrees, are feeling the pinch:

1. From 2000 to 2010, funding per pupil at state universities fell by 21 percent - from $8,257 to $6,532 in inflation adjusted dollars.

2. Since 2008, when the recession hit, total public funding for higher education has declined by 14.6 percent.

3. Higher-ed support from states has varied dramatically. For instance, in 2010, the percentage change in public funding per pupil ranged from a negative 18 percent to a positive 16.7 percent. In California and New York, public funding declined by 11.6 percent and 7.5 percent respectively. The big winner was North Dakota, flush with energy money, which boosted its commitment to higher education by 16.7 percent, followed by Texas at 6.6 percent.

4. In every year from 2001 to 2011, at least a third of states experienced funding cuts and in more than half of those years, two-thirds of states did.

5. Real net average tuition at state universities, which is the price after grants are deducted, rose 33.1 percent ($3,415 to $4,546). In comparison, average net tuition at private institutions has risen 21.2 percent during the same period.

6. Before 2007, changes in tuition at public universities did not appear to be linked closely with public funding.

Tuition bottom line

What did economists at the Federal Reserve Bank make of these statistics?

They noted that federal funding, such as Pell Grants, is often blamed for driving up college costs. When low-income and middle-income students receive federal grants to attend college, the argument goes, the institutions simply raise their prices to reflect this aid.

The economists, however, suggest that there is "strong suggestive evidence" that decreases in state and local funding of public universities are linked to tuition increases, particularly since the recession. They find this troubling and suggest that college students will have to shoulder even more of the college cost burden in the future.

Image courtesy of Flickr user 401(K) 2012.

[Tom_Burnsed]

Remove the bankruptcy exemption from student loans. The entire system is feeding off of the easy government backed loans. There is very little or no counselling to families and prospective students about the career choice and the ability to repay after graduation if they actually graduate and are able to find work in the degree field.
It does not matter to the lender as there is no risk to them. If I was predatory lender and you wanted a tuition loan from me, all I would ask is how much and are you sure that is enough? I wouldn't care if you graduated because I could harass you until the day you jump off of a bridge. After that I could go after your parents or if you got married, your spouse. The educational system haS GOTTEN FAT OFF OF THIS SUPPLY OF EASY MONEY. For profit schools that many of which offer non-transferrable credits, seduce marginal students into loans with promises of "The good Life" once you graduate from college. Public Universities are not doing much better and have engaged in massive building programs to turn campuses into veritable resort destinations. What should matter is the quality of the Degree as measured by its ability to confer marketable job skills in the current economy. When measured against that, most degrees are worthless and in fact put a young person in so much debt that they would be better off without the degree if all they can find is entry level work barely above minimum wage. On the job training provided by an employer is currently the best deal available. Apprenticeships, or employer tuition reimbursement is much better then selling your future earnings to a loan shark.

By removing the bankruptcy exemption from Student loans AND the government guarantee, the tuition costs will collapse back to what is actually sustainable by the job market that exists. Lenders will then have to examine the ability of the borrower to repay the loan based upon the degree chosen as well as the academic performance of the student. The Universities, well, they will have to contract in size and cost to meet the actual demand instead of the falsely inflated demand that this distorted subsidized educational market is taking advantage of.

Not every student is going to be a Doctor, engineer or CFO. There is a growing shortage of skilled laobr. We have a generation of students that have been told that maual labor is beneath them. I call them the push button generation. That is all the effort they want to exert. We have to understand that when you click on your internet purchase, that it starts a chain of events rolling where someone, somewhere, is going to have to break a sweat. Our infrastructure must be maintained. The food must be grown, processed, transported and put on the shelf.
None of these are jobs that require a college degree but they are absolutely necessary. The market is starting to reward those that do break a sweat. A/C technicians, electricians, industrial maintenance technicians, warehouse supervisors, truck drivers, are all jobs that routinely pay as good or better than $40k-$60k per year. They can live much more comfortably than a young person with a $50k a year job and $100k of student debt. Do the math. If you are a programming major or engineering major you will be competing against H1b visa holders with the same degrees and no student debt. They can work for $35-$45k a year and live just as comfortably as a US educated student making twice as much but carrying no student debt. They are not competeing with tradesmen for work....

Just my 2 cents. My daughter is a student at SUNY in NYC and is working her way through school thanks to a generous tuition reimbursment from the hospital where she is a research assistant. She has no student debt. She has work experience in the career field she id getting her degree in. She already has the job and will get a raise when she graduates.....
Think outside the box.
Don't do what the bankers want you to do.
Don't take out a loan which leads to modern day endentured servitude.

[pgb]

This article misses the major issue, which is that student loans partially or mostly insulate families from increases in tuition costs. As tuitions rise, government makes more money available for student loans -- a vicious circle.

Any industry whose customers are mostly insulated from cost increases will experience higher than average price increases. Higher education and health care are the two obvious cases in the U.S.