Why is college expensive?

Most products and services have become more affordable over the past half century due to lower prices or wages growing faster than prices. But not all products and services are more affordable. College stands out as a stark exception.

Why has college become less affordable?

Skyrocketing college cost

First, let’s look at some data to illustrate just how much the cost of college has increased. The graph below shows cumulative inflation since 1978 for college, and compares it to total inflation for all goods and services:

college inflation

As you can see, $100 worth of college in 1978 now costs $1,345. In contrast, $100 worth of overall goods and services now costs ‘only’ $368. This is a huge difference. The cost of college has zoomed far higher than overall inflation.

Vedder article

Richard Vedder wrote an insightful article on this topic in the February 16th Wall Street Journal. Vedder is a subject matter expert. He believes that a greater availability of student aid has played a key role in driving up the cost of college.

To evaluate this, he compared the growth rate of college tuition for (a) the decades after significant federal government aid became available to (b) the decades before such assistance existed. Vedder uses 1978 as his line of demarcation. The federal government created student aid programs in 1965, but they were small. The programs were then hugely expanded in 1978.

Vedder calculates that tuition rose about 1% per year more than overall inflation for the period 1840 to 1978, when federal student aid was small or nonexistent. In contrast, tuition rose about 3% per year more than overall inflation in the years since 1978, when student aid became a significant factor.

To be clear, the difference between a 3% annual cost increase and a 1% annual cost increase is enormous, if sustained over decades. This is precisely why the college inflation line in the graph above soars so much higher than overall inflation.

Vedder calculates that if tuition since 1978 had grown at the same rate as the four decades prior to 1978, college would today cost only half as much. How many strapped college students and parents would like to see that?

Vedder also cites other evidence that increased student aid has led to higher college cost. Researchers at the New York Federal Reserve studied the issue and suggested that every $1.00 increase in student aid has increased tuition by $0.60.

Is Vedder right?

Is Vedder right in saying that increased student aid has led to higher college tuition? It would be quite difficult to isolate all the different variables and conclude for sure, but his thoughts and conclusions seem reasonable to me.

The amount of government assistance going to college students has increased AND demand for college has increased AND the cost of college has increased. Can this be unrelated coincidence? Possibly, but it seems likelier that increases in student aid have indeed contributed to the higher cost of college.

Government has become heavily involved in funding for college. We know it is quite typical for government involvement to drive up the cost of things, such as housing and healthcare. On the other hand, we have not seen skyrocketing inflation for items that have little government involvement, such as electronics, clothing, and cosmetic surgery.

So, hard to say for sure, but Vedder’s hypothesis seems at least partly reasonable.

Other contributing factors?

Probably other issues also contribute to the higher cost of college. For example, although I have not looked at any data on this, it seems clear to me that colleges are spending much more money these days on student amenities. Many colleges now have startlingly nice amenities such as rock-climbing walls, lazy rivers, gourmet mocha lattes available 24/7, and so on.

Parents who have visited college campuses recently and compared what they see now to what they saw thirty years ago know what I mean.

Although it’s hard to say which direction the causation runs. That is, are colleges independently spending more money on amenities, which then drives up the cost of college? Or is higher student aid fueling higher spending on amenities, as with tuition itself?

College not for everyone

There seems to be a growing attitude that pretty much everyone should get a college degree. I think we should be more discerning. Not everyone needs to go to college.

Why do I say that? First, not everyone is well-suited for college. Some people are not good at book learning. Others just really dislike it. Why should these people be strong-armed into entering college?

Second, society needs some work to be done that does not require a college degree. For example, based on what I see, America is short of skilled tradesmen like electricians, welders, machinists, and carpenters. And entrepreneurs of various types are always welcome.

These are good jobs and noble professions. Society needs them. Let’s not sell these options short by over-glorifying college.

Don’t get me wrong; college is the right choice for many people. If college is right for you or your child, that’s great. Go for it.

But I think we’d be better off getting away from the mindset that we should shoehorn as many kids as possible into college. If someone is not well-suited for college, it likely does them no favor to cajole or browbeat them into college. There are other options.



5 thoughts on “Why is college expensive?

  1. I think also that the simplistic look at supply vs demand needs to be taken into consideration here. This also is altered by the ease of obtaining student financial aid. As aid becomes more easily obtained, the “demand” for the service of receiving a college education increases, and if the change in aid is great enough, the demand will increase faster than the “supply” of properly trained and capable educators, as well as classrooms and other needed suplies, can be provided. Thus by the basic law of supply and demand, price should increase.

    This also follows along the final point in the article which mentioned that nearly everyone is being “steered” toward college. This too will drive the demand upwards at a quicker rate than the schools can supply the desired service, causing further increases to cost.


  2. I love the subject of this post. It is so true in so many ways and sad that college debt becomes such a burden for many young people to bear. It is important when considering a college degree to actually look at the feasibility of getting a job with that degree when finished.


  3. Tony,
    I agree. Supply, demand, and pricing for college might work differently than for televisions, but no doubt there is some impact. And pushing kids into college that are not well-suited for college will unnecessarily increase demand.


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