Trends in Postsecondary Education - Just How Much Has Tuition Gone Up?

Tuition and fees rose during the 1990 to 2000 decade. They rose both at private and at public institutions of higher learning. Obviously, costs went up. The average price tag for a year at a private college rose from $10,348 to $19,312, an increase of 86%. Costs for a year at a public college rose 85%, from $2,035 to $3,774.

Keep in mind that these tuition figures are averages. A year at the "best" colleges is going to cost much more. Tuition at Stanford University (undergraduate alma mater of four of the nine justices on the U.S. Supreme Court) would have set you back $26,192 for the 2001-2002 school year. That year at MIT would have cost $26,960.

The figures on the right scale of the chart are from the Consumer Price Index (CPI). They represent annual averages of monthly out-of-pocket payments for college tuition/fees. These figures reinforce what we already see on the left scale — that tuition just keeps going up. Between 1990 and 2000, the Consumer Price Index for tuition plus fees rose 355%, compared to a 109% rise in the cost of all other goods and services.

American Express Financial Advisors reports that annual tuition increases of 5% will probably continue into the foreseeable future. By 2020, they say, tuition, fees, room and board at a four-year public school could approach $100,000.

Is it worth it? Considering the value of an education in monetary terms, the College Board reports that a person with a Bachelor of Arts degree can expect to earn more than $1 million more over a lifetime than a person with a high school diploma.

Is it worth it to pay more than $100,000 for four years at a selective college? Maybe so. In a widely quoted 1999 working paper for the National Bureau of Economic Research, the authors concluded: "Students who attend colleges with higher average tuition costs or spending per student tend to earn higher incomes later on." On the other hand, Atlantic Monthly notes: "The four richest people in America, all of whom made rather than inherited their wealth, are a dropout from Harvard, a dropout from the University of Illinois, a dropout from Washington State University, and a graduate of the University of Nebraska."

What's behind the tuition increases? Is it incompetence on the part of college administrators, as some critics charge? Colleges counter that their buildings are crumbling, faculty clamor for raises, technology needs updating.

A 2002 report released by the National Center for Education Statistics found that tuition increases at public four-year institutions were largely due to decreases in state appropriations. Tuition increases at private institutions were due to increases in faculty salaries and the provision of more financial aid to students and to decreases in endowment revenue and private gifts.

Tuition and the state of the economy are inextricably intertwined. In good times, state legislatures appropriate more money. Some of the money goes to students in the form of grants and aid. Tuition stays flat. When the economy sours, state support for higher education drops. Students must bear a higher share of the college costs. In the late 1980s and early 1990s, a period of recession, states reduced their budget allotments to higher education. Funding fell from an average of 13% in 1988 to less than 9% in 1996. The graphic above shows what happened to tuition in that period — it went up.

Tuition at a private school is affected by the size of the school's endowment. Booming markets make endowments bloom. When the market goes bust, endowment returns are sickly — tuition goes up.

At the time of writing, preliminary reports were that tuition would go up significantly in the 2002-2003 school year at both public and private institutions.

Tuition goes up, but maybe not as much as people think it does. The next panel looks at peoples' perceptions of college costs.

Sources: Chart: Statistical Abstract of the United States: 2001, Table 278, "Institutions of Higher Education — Charges: 1985 to 2000," and Table 694, "Consumer Price Indexes for All Urban Consumers (CPI-U) for Selected Items and Groups: 1980 to 2000"; National Center for Education Statistics, Digest of Education Statistics, annual, and Bureau of Labor Statistics, Monthly Labor Review and CPI Detailed Report, January issues. American Express Financial Advisors. Online. Available: http://finance.americanexpress.com/finance/fshub.asp. March 10, 2002. Zhao, Yilu. "As Endowments Slip at Colleges, Big Tuition Increases Fill the Void." New York Times. 22 February 2002, p.1A. "Estimating the Payoff to Attending a More Selective College: An Application of Selection on Observables and Unobservables." Stacy Berg Dale, Alan B. Krueger. NBER Working Paper No. 7322. August 1999. Online. Available: http://papers.nber.org/papers/. March 7, 2002. Fallows, James. "The Early-Decision Racket." Atlantic Monthly. (September 2001), p. 37. "New ED Report Shows College Tuition Increases Related to Many Factors." U.S. Department of Education Press Release, February 15, 2002. Online. Available: http://www.ed.gov/PressReleases. April 9, 2002.