College Costs – Where Are They Heading?
The cost of a college education may arguably be the most expensive item parents plan for during their child’s life. The sticker shock of tuition, room-and-board charges and other fees may cause a sense of panic for parents when thinking about how to save for college, or wondering how much college will cost in the future.
Can the cost of college really continue to rise? The bad news—college has been and will likely continue to increase at a faster rate than inflation. The good news—the rate at which college costs have outpaced inflation has been declining over the last 20 years, and even more so over the past 10 years.
The chart below illustrates how college costs have changed during the last three decades. While costs have increased over the last decade, you can see that the pace of increase has significantly slowed from the decades before.
Ten-Year Percentage Changes in Inflation-Adjusted Published Prices by Decade
1990-91 to 2020-21
Source: College Board, Annual Survey of Colleges; NCES, IPEDS Fall Enrollment data.
Each bar in the figure above shows the percentage change in published prices in inflation-adjusted dollars over a 10-year period. For example, from 2010-11 to 2020-21, average published tuition and fees at private nonprofit four-year colleges increased by 18% beyond increases in the Consumer Price Index. Average tuition and fee prices reflect in-district charged for public two-year institutions and in-state charges for public four-year institutions.
With regard to college tuition and fees, Consumer Price Index (CPI) data from the period between January 1990 and November 2020 shows that college costs have grown at an average pace of 5.5% per year, which is 2.4 times more than standard inflation. Over the last 10 years, however, college costs have grown at an average annual pace of 3.4%, which is only about two times greater than the rate of inflation.
Additionally, with grant and institutional aid becoming more common at public and private institutions, the out-of-pocket costs for many undergraduate students over the last decade have grown at even lower rates than the CPI data shows. According to the College Board’s Trends in College Pricing and Student Aid 2020 report, grant aid per student since 2006 has increased 76% at four-year public institutions, and 72% at four-year private institutions.
Considering the recent slowing cost trend and rising outstanding student debt, as well as the spotlight that the COVID-19 pandemic and remote learning has put on the value of college tuition and fees, we believe that it’s hard to envision college costs rising at more than 4% (or about another 1% higher) above long-term inflation going forward. We are continuously re-evaluating our planning assumptions to ensure your plan reflects the most current research and our best thinking. With that in mind, we’ll be updating plans going forward to reflect a lower 4% inflation rate for college expenses. If you want to revisit your child’s college savings plan or put a new plan in place, please reach out to your Wealth Advisor to get the conversation started.
ABOUT THE AUTHOR
Steven Hollon CFP®, CPA, MS
Steven began his career as an auditor at a large public accounting firm and joined legacy firm CI BDF in 2019. He graduated with his Bachelor of Science in Accountancy in 2014 and completed his Masters of Accounting Science program in 2016, both from the University of Illinois at Urbana-Champaign. He is a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNER™ professional.
Outside of work, Steven enjoys spending time outdoors with his wife and daughter. Steven keeps an active lifestyle and enjoys watching sports, especially the Fighting Illini, White Sox, and Packers.
CONTENT DISCLOSURE
This information is for educational purposes and is not intended to provide, and should not be relied upon for, accounting, legal, tax, insurance, or investment advice. This does not constitute an offer to provide any services, nor a solicitation to purchase securities. The contents are not intended to be advice tailored to any particular person or situation. We believe the information provided is accurate and reliable, but do not warrant it as to completeness or accuracy. This information may include opinions or forecasts, including investment strategies and economic and market conditions; however, there is no guarantee that such opinions or forecasts will prove to be correct, and they also may change without notice. We encourage you to speak with a qualified professional regarding your scenario and the then-current applicable laws and rules.
Advisory services are offered through Corient Private Wealth LLC and its affiliates, each being a registered investment adviser (“RIA”) regulated by the U.S. Securities and Exchange Commission (“SEC”). The advisory services are only offered in jurisdictions where the RIA is appropriately registered. The use of the term “registered” does not imply any particular level of skill or training and does not imply any approval by the SEC. For a complete discussion of the scope of advisory services offered, fees, and other disclosures, please review the RIA’s Disclosure Brochure (Form ADV Part 2A) and Form CRS, available upon request from the RIA and online at https://adviserinfo.sec.gov/. We also encourage you to review the RIA’s Privacy Policy and Code of Ethics, which are available upon request.
Our clients must, in writing, advise us of personal, financial, or investment objective changes and any restrictions desired on our services so that we may re-evaluate any previous recommendations and adjust our advisory services as needed. For current clients, please advise us immediately if you are not receiving monthly account statements from your custodian. We encourage you to compare your custodial statements to any information we provide to you.