As federal and state budgets continue to shrink due to falling revenues and lawmakers attempts to reign in deficits and spending, the fallout is being increasingly absorbed by current and future college students and their families as they try to deal with the skyrocketing costs of post-secondary education around the country.
Two recent reports from the College Board Advocacy & Policy Center, Trends in College Pricing 2011 and Trends in Student Aid 2011 detail the rapid rise in tuition costs for the nation’s two- and four-year public, private and for-profit colleges and universities. The headline of the report is an 8.3% increase nationally in tuition and fees at public four-year colleges and universities (a 4.5% increase at private four-year colleges) between 2010-2011 and 2011-2012. The report also breaks out the increase state-by-state, however, and to no one’s surprise, California lead the way in tuition and fee increases during the same period.
“California, which enrolls about 10 percent of the nation’s full-time public four-year college students, had the highest percentage increase in published in-state tuition and fees (21 percent) for that sector in 2011-12.”
Those numbers are causing sticker shock to the millions of families trying to cope with current costs or plan for the future, and causing them and their financial advisors to completely re-evaluate their projections. And while the costs continue to rise, it has not become a deterrent for enrollment. Total post-secondary enrollment increased by about 22 percent between 2005-06 and 2010-11 according to the reports as young people clearly realize the importance of a college degree as it relates to future earnings power.
“While the importance of a college degree has never been greater, its rapidly rising price is an overwhelming obstacle to many students and families,” said College Board President Gaston Caperton. “Making matters worse is the variability of price from state to state.”
In California, already one of the nation’s most expensive states to attend college, a recent budget proposal by University of California officials is calling for steep rate increases of up to 16% per year over the next four years if the state doesn’t increase funding to the U.C system. According to a recent Associated Press report, “In July, UC officials approved a 9.8 percent tuition increase for the current school year -- on top of a previously approved 8 percent -- after the state reduced UC funding by $650 million, or about 20 percent. The system could lose another $100 million if the state generates less revenue than anticipated.”(Chea)1. While the regents have not yet taken action on the newest proposed increases, unless greater funding can be obtained from the state, which seems unlikely, it is hard to imagine that further large-scale increases will not be implemented.
It is important to understand that while the percentage increases in tuition and fees are eye-popping, the published charges are not always an accurate indicator of the actual total costs of attending various universities. The price variability of additional costs such as room and board, is often magnified due to the difference in cost of living from region to region. According to a recent article in the Daily Californian, “Although UC Berkeley’s in-state tuition and fees — which were $8,353 in 2009-10 — are the lowest of all the UC campuses with the exception of UCLA, the high cost of living in the Bay Area makes the total cost for students much higher. According to estimates from the report, the total cost of attending UC Berkeley in 2009-10 was $28,312.” (Bickham)2.
Students are increasingly forced to make tough budgetary decisions in the face of these additional costs in an effort to control their total debt obligations once they have finished school. One of our interns from U.C Berkeley recently explained the measures she and some of her classmates have made to this end: “…on-campus student housing has gotten so expensive, that for this year, 5 of us got together and found a one bedroom apartment to share which costs less than half of what we would be paying for student housing”.
Students are making these kinds of decisions because they are keenly aware that there is no guarantee of a good-paying job waiting for them once they graduate with their degree in-hand. “In the current economic climate, recent college graduates who borrowed for their education face particular challenges in paying back their student loans. The unemployment rate for young college graduates rose from 8.7 percent in 2009 to 9.1 percent in 2010, the highest annual rate on record.”(Reed)3. These numbers closely mirror the current national averages for unemployment which is surprising given that unemployment among college graduates has traditionally been considerably lower than the national average.
The rapidly rising prices of college tuition coupled with the deterioration of the labor market following the recent deep recession have contributed to soaring American student debt, which, by some estimates, now exceeds a trillion dollars and is larger than total US credit card debt. It is no wonder that among current students who are absorbing these higher costs, and recent graduates facing the realities of a stagnant job market, frustration is mounting. The huge debt burdens and the inability to service them are among the main undercurrents of the ‘Occupy’ movements around the country, and the recent clashes on college campuses highlight the growing concerns surrounding them.
Despite the fact that the state and federal governments have slashed funding for public higher education and all indications are that trend will continue for the foreseeable future, they have at least tried to provide some small amount of relief by way of tax credits and continued favorable tax treatment of certain college savings vehicles such as 529 plans. These measures are small consolation however for the growing numbers of over-leveraged, under-employed young people entering the workforce each year fresh out of America’s colleges and universities.
So what does all of this mean for the millions of families that are trying to save for future college costs? Certainly, the importance of a college degree is as great as ever, even if it doesn’t grant the holder an automatic path to financial freedom. Increasingly, we are seeing parents using these current conditions as a teaching moment for their children on the importance of financial literacy and the value of saving. Providing guidance and incentives for children to learn to budget and save for their own educations can have a lasting effect in preparing them for their post-education lives. As always, careful planning and saving are the keys to success, and the earlier the better.
1 Chea, Terence. "UC Tuition Could Nearly Double Under Budget Plan." Huff Post Los Angeles 09 Sept 2011. n. pag. Web. 16 Sept. 2011
2 Bickham, Travis. "UC Berkeley student loan debt less than nation’s average." Daily Californian 07 Nov 2011. n. pag. Web. 9 Nov. 2011
3 Reed, Matthew, Lauren Asher, Pauline Abernathy, Diane Cheng, Debbie Frankle Cochrane, and Laura Szabo-Kubitz. "Student Debt and the Class of 2010." Project on Student Debt. The Institute for College Access and Success, Nov 2011. Web. 9 Nov 2011.
