Are Colleges Pricing Themselves Out of Business?

Barry Lenson

Everybody is saying that college costs are increasing at a rate that outpaces the rate of inflation for just about everything else. But is that true? Let’s have a little fun and look at some statistics from the last 40 years.

Incomes have increased by a factor of 5.5 since 1970. According to the U.S. Census, the median income for a U.S. household was $8,390 back in 1970.  By 2005, it was $46,326. So Americans are earning about 5.5 times the salaries that they netted 40 years ago.

Car costs have increased by a factor of 10. You could buy a nice shiny new Buick LeSabre in 1970 for $3,330. Today you can buy a nicely equipped Buick Lucerne – pretty much the equivalent of the LeSabre - for just about exactly 10 times that much, about $33,000. 

Housing costs have increased by a factor of 7. According to the U.S. Census, the median cost for a newly constructed house in 1970 was $24,000.  And according to the National Association of Realtors, the median selling prices for a home today is $176,900. That’s an increase by a factor of 7. (And bear in mind, houses in most parts of the country are selling for well beyond that median figure of $176,900.)

The envelope please . . . 

And just how much have college costs increased over those 40 years? According to the Congressional Budget Office, the average yearly tuition at a four-year public American university in 1970 was $480. The average tuition at a four-year private college or university was tons higher, at $1,980. 

Today, according to The College Board, tuition and fees at four-year state universities average $7,020 per year for students who live in-state, and $11,528 for students who live out of state. And private four-year colleges charge an average of $26,273 per year in tuition and fees.

So no matter how you work the numbers, the lesson is clear. Tuition costs are rising at a rate that far outpaces the growth of increase in all the things we listed above – income, cars, and houses.  While income has grown by a factor of only 5.5 in the last 40 years, for example, the cost of attending a state college has increased by a factor of 15 for in-state students and by a factor of about 24 for out-of-state students. And the cost of attending a private college has increased by a factor of more than 13. 

To be fair, colleges haven’t raised their prices in order to earn tons of money. Most of them are barely staying ahead of rising costs. Compared to 1970, it costs much more today for a college to pay faculty, heat the dorms, pay instructors, buy insurance – and you can take it from there. 

But from a consumer’s point of view, at what point does it simply not make sense to buy a college education? Is it at the point when a year of college costs about as much as a year’s income? But when you look at the numbers, that’s exactly where a lot of Americans find themselves today. 

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