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When it comes to finding scholarships, I know how to hustle.  When I wasn’t working part-time as a tutor, research assistant, or salesperson, I was on the prowl for scholarships.  

Why? Because for those not following cost trends of the last few decades, there has been a tremendous increase in the per year average cost of attending a 4-year college.  I had no desire to pay full freight nor should any of you.

To offset these rising costs, I found scholarships in a variety of places, be it from a real estate company, an internship, professors, a religious organization, some memorial funds, my state’s tuition opportunity program, and other sources.  

Needless to say, paying for college wasn’t on my list of things to do.

I am a lifelong learner and I’m grateful for my education.  What I’ve learned will last me a lifetime, but I made sure paying for it wouldn’t.  

And can you blame me?  Attending college has never been more unaffordable.  It’s not news to anyone who’s looking to attend college that the average attendance cost of our country’s finest institutions has gotten expensive.  

Even the affordable options have become, well, less affordable.  This post looks at the historical trends in the per year average cost of 4-year colleges.  

Spoiler alert: grab the Kleenex, because this will get sad.   

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Tuition Growth Has Vastly Outpaced Income Gains

Tuition growth has exploded in the last 30 years.  Inflation plays some part, certainly, but other factors have contributed far more.

To illustrate, take a look below.  This chart shows striking information.  

You will notice two concerning trends: (1) median household income has essentially flatlined since 1973, and (2) tuition per student has done nothing but increase since the mid-80s.  In a perfect world, these two trends would be switched.  

Inflation-adjusted average tuition and fees at public four-year institutions and income for select groups (1973 = 100%)

tuition income gains

Source: Center on Budget and Policy Priorities based on the College Board and Census Bureau, adjusted for inflation, as a percentage of 1973-1974 levels.  Years shown and income data are for the calendar year. Tuition data cover the school year beginning in the calendar year.

You will also notice how income for the top 1% of families has kept pace with tuition costs, even exceeded for a decade, until the housing bust in 2006-2007 took a bite out of the growth.  

It has since begun to climb again, while wages for the median household largely remain stagnant.  College still remains increasingly out of reach for those not in the 1%.

To put numbers to these percentage increases, I turn to data from the College Board.  The average cost of attending a 4-year in-state public college reached a bit over $21,000 this year.  And that’s a bargain!  

Compare this price to the four-year out-of-state public average cost of $37,430 (almost twice as much) or $48,510 for a private school.  But to appreciate how much these numbers have increased over time, we need a historical perspective.

Some Historical Context for the Per Year Average Cost of Attending a 4-Year College

Some might call the trend in the chart above a crisis (perhaps more than one).  In the case of the cost of college, the holders of $1.5 trillion in student loans would likely agree.

But before we bring up these eye-popping numbers, let’s look at some modest figures from a little over four decades ago.

In 1974, the median American family managed to bring home around $13,000 per year.  Seems low compared to today, but keep in mind, adjusted for inflation, you’re looking at $70,500 in 2018 dollars.  

Keeping things in 1974 dollars, what about a new house?  It could be had for around $35,000 (~$190,000 in 2018) while an average new vehicle cost $4,400 ($24,000 in 2018).

In the 1970s, attending a four-year college was the surefire pathway to a successful career and prosperous life.  At the time, a private university cost a measly $2,000 per year ($11,000 in 2018 dollars).  

A four-year public university? $510 per year ($2,800 in 2018). Talk about bargain bin prices for the virtual guarantee of a better life.

Flash forward 45 years and let’s look at some current figures for comparison.  

The median family income rests just above $61,000, depending on how you look at it, and Zillow says the national median home value is $220,000.

These numbers seem to have mostly risen at a similar pace as inflation, incomes a little less and housing a little more.

For higher education, however, many of you know the punchline to the cost of college joke.  I let the cat out of the bag at the beginning of the post. 

Almost anyone would attend college without hesitation for $2,800 per year or even $11,000 at a private school.  Honestly, most people would be fools not to enroll.

However, to get to the $1.5 trillion outstanding student loan number cited above, the cost of college needed to increase faster than inflation- way faster.  In no scenario could $2,000 (private) or $510 (public) per year of tuition swell to a number that large.  

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Tuition Inflation. You Wish It was Only 2% Per Year

Seeing as how two major indicators of economic success, income and home prices, largely grew at the rate of inflation, you would likely assume it’s safe to index college attendance cost figures for the consumer price index (CPI).  But you’d be terribly wrong.

School tuition and fees have risen in excess of that for many years now.  According to U.S. News, over the last 20 years, the national college per year average cost of 4-year college tuition, fees, room and board have increased significantly.  Look at the chart below to get an idea.

Category18-19 School Year Tuition, Fees, Room and Board% Increase Aug 1997 - Aug 2017Compound Annual Growth Rate (CAGR), %
Four-Year In-State Public Universities$21,370+237%+6.3%
Four-Year Out-of-State Public Universities$37,430+194%+5.5%
Private Universities$48,510+157%+4.8%
Consumer Price Index (CPI)+53%+2.2%

Depending on the category of higher educational institution, the average compound annual growth rate (CAGR) for tuition, fees, room and board was 2 to almost 3 times as high as CPI.  

Luckily, the trend seems to be tapering off a bit as evidenced between the 2017-2018 and 2018-2019 school years.  These schools witnessed more subdued increases between 2.6% to 3.2%

The increase in cost to attend college has thrown some question into the previous no-brainer choice to pursue a college education.  Depending on your intended choice of major and career, these historical trends have made a degree from a higher educational institution less lucrative than in the past.

Before, if you could not pay directly for your education, taking out debt to finance college enrollment was manageable.  Now, you might need to look into how to refinance student loans after departing with your degree.

The debt load graduates would incur in the past relative to the increase in income from the degree made complete financial sense in most situations.  This decision-making calculus has become harder now with the runaway cost of attending college.

However, with enough ingenuity and resourcefulness, you should be able to navigate the system to work to your advantage.  You just need to find a more affordable path to get what you need.

A Cheaper Way

I don’t say all of this to scare you (maybe a little), but more to say there’s always a better way than paying full freight.  Usually, attendees receive some sort of financial assistance.

For example, when you shop online, do you always go straight to the full-priced options or do you tend to navigate to the sale listings first?  

Even if you do, there are great services like Earny which can track those price drops on your behalf.  Unfortunately, no such app exists for college tuition costs, but mostly because costs never seem to drop!

Despite internet technology universally organizing useful information and democratizing access to knowledge learned inside and outside of the classroom, costs of college continue to rise.

Back to the online shopping analogy: you’ve also got other options to get the best deal, like coupons, sales promotions, or bargains.  Be sure to use your practical money management skills and stick to your personal budget plan!

In academics those discounts come in the form of financial aid, scholarships, jobs, or financial assistance. Because employers continue to place a premium on a college education, to avoid an unwieldy debt burden, you must look for clever ways to avoid paying full price.

Fortunately, in the college search process, you have many, many levers to pull to make school affordable:  

  • Attend a less expensive school for similar educational and career outcomes
  • Enrolling in a community college for your first couple of years and transferring down the road to graduate from a better school
  • Work-study opportunities
  • Getting your parents to help out and share the burden
  • Landing some scholarships to take the sting out of those tuition bills

What to Keep in Mind with the Runaway Average Cost of College

When deciding on your school of choice, weighing the cost of attendance with the resulting benefit (return on investment) is imperative.  Not doing so can run the risk of carrying an unaffordable debt burden without the matching career outcomes resulting from your choices.

  1. Cost of Attendance and Graduation Rates

When evaluating the cost-effectiveness of a degree program or school, you should first tally the total cost of attendance.  Do this for any school under consideration and do a simple comparison to see the costs of enrollment in each school for a comparable program.

From there, look at the odds of finishing your degree.  Graduation rates will likely differ between your school selections and should be used as a weighting on your school choice.  

If a school costs more and has a lower graduation rate on average, this should decrease the school’s attractiveness.  In this case, the cost heads higher while the risk of not graduating to finance the possible cost increases as well.

An undesirable combination for consideration in this thought exercise and one surely to serve as a major roadblock to reaching financial independence.

You want the school which balances cost of attendance with a higher probability of graduating.  If the odds of graduating are within an acceptable range, your next step is to assess the outcomes of graduates for job placement and career earnings trajectory. 

  1. Superior Career Outcomes for an Affordable Price

If two schools carry similar cost and graduation rate profiles but one provides superior placement statistics with higher starting and lifetime salaries, choosing this more rewarding school would be the obvious choice.  

The starting and lifetime salaries should also be compared to the industry as a whole.  

Does the school provide an above-average return compared to the market compensation?  Perhaps this school provides an advantage worth considering, even if at a higher cost.  

The ability to make a return on this higher cost over your career could be a wise choice to make.

Conclusion

In light of the rising average annual cost of attending a 4-year college, whether private or public in- or out-of-state, you need to make your choice count. 

The certain cost (tuition, fees, room & board, etc) may not justify the expected career trajectory/earnings.

This remains especially true when an expensive school does not provide a better career trajectory than a more affordable school. All outcomes being equal, choose the least expensive option to get there.  

In other words, be confident the costs you are certain to incur will be offset and worth the resulting career opportunities.

To combat the continuing rise in the cost of attending college, you need to be savvy when it comes to securing your education and financial future.  It’s only going to get more expensive going forward, so you should be prepared to navigate the smartest way you know how.  

Maybe you can even experience success of a level which would put you on pace to have your income rise as fast the 1% of families in the chart above.  To do this though, I’d suggest finding a cheaper, more cost-effective way to get your college education by weighing the costs and benefits.

About the Site Author and Blog

In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time.  My job routinely required extended work hours, complex assignments, and tight deadlines.  Seeking to maintain my momentum, I wanted to chase something ambitious.

I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity.  I launched the site with encouragement from my wife as a means to lay out our financial independence journey and connect with and help others who share the same goal.

Some of my favorite things to discuss include investing in index funds, how to save money, travel hacking with help from the Reddit churning (r/churning) community, house hacking and optimizing the benefits of my condo vs. apartment living, and tax topics like the earned income tax credit, common tax deductions,  tax reform in 2018, or other useful tax topics.  I want this to be a journey for us all to learn how to make a lot of money and pursue the lives we want.

Disclaimer

I have not been compensated by any of the companies listed in this post at the time of this writing.  Any recommendations made by me are my own.  Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.

Looking for Financial Independence?

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