The skyrocketing costs of college can lead a parent to wonder if an investment in higher education still makes sense. This is especially true when the annual cost of attending a private college can easily exceed the annual salary a graduate receives during their first few years of work. For those parents who still have a number of years before their children reach college age, doing the math can make the dream of college sound more like a nightmare. For those within a year or two of college, the change in estimated costs can bring some major sticker shock.
So, here are some of the major contributors to rising college costs, and what it might mean for your budget and planning:
Inflation generally refers to the natural increase in the cost of living over time. While no one loves inflation, it's generally accepted as a fact of life. In the broad economy, this annual increase has historically averaged about 2%. In other words, you would need $1.02 today to purchase what $1.00 bought you one year ago. The inflation of college costs has not been so gentle, averaging 4-6% annually. In other words, a college education costing $10,000 this year will likely increase by $400-600 next year. In a nutshell, this means that college costs are doubling every 12-18 years, compared to everything else in the economy doubling in cost every 32 years.
Why do college costs “inflate” so much faster than other expenses? While it's hard to put an exact finger on it, we can see that large portions of a school’s budget are more sensitive to inflation that the typical American household.
For example, colleges need to replace technology more often than the typical family. Also, teachers have been historically underpaid, and are finally getting some of the raises they deserve. Lastly, insurance costs for running large institutions and businesses have risen significantly since 9/11.
One of life’s basic economic principles is that demand drives up prices. In...
Please join StudyMode to read the full document