Economist Writing Every Day

It’s time to head back to school! Which means it’s time for college students to once again ask the question: How am I going to pay for this?

It’s common knowledge that college is expensive and getting more expensive every year. A Google search for “skyrocketing tuition” produces almost 60,000 results. But whenever a fact is so commonly accepted, it’s worth asking if it’s really true.

Here’s one way to think about: are college tuition and fees increasing faster than the overall rate of inflation? For much of recent history, the answer has been most definitely “yes.” I start the series here in 2006, because there were some methodological changes to the index just before 2006. Cumulatively, college tuition and fees (as measured in the CPI) have increased by 78%, while prices overall have only increased by about 38%.

But for the very recent history, since 2017, the answer is “no.” College tuition and fees have often been increasing at slower rates than overall prices in the CPI, and the difference is especially dramatic in 2021. Since 2017, overall prices have increased by about 12.4%, but college tuition and fees has only increased by 7.8%.

However, even this data overstates how much tuition and fees have gone up for undergraduates in the US!

The College Board annually produces a report called Trends in College Pricing and Student Aid. It’s full of data relevant to this issue, but for me the most interesting data is on what they call the “net price” of attending college. The net price is distinguished from the published price, or what is sometimes called the “sticker price,” in that the net price shows what students actually pay.

Scholarships and grants have long been part of the college pricing, but in recent years the practice of “discounting” has been an increasingly important part of the equation. For example, at private 4-year colleges, the average institutional discount rate has increased by 10 percentage points in just the last decade, and now stands at about 50%. That’s right: for the typical private college, whatever “sticker price” you see on the college website, cut it in half. That’s on average, of course, but it’s extremely important to know.

What do the trends in college pricing look like, according to the College Board. For public 4-year colleges, in 2006-07 average net tuition and fees was $3,210 (in 2020 dollars). In 2019-2020: also $3,210. In other words, the net price of public college (what students actually pay) has increased at *exactly* the same rate as prices overall! All these figures are for a full academic year, not just a semester. For reference, almost 80% of undergrads are in public colleges.

What about private 4-year colleges? In 2006-07, average net tuition and fees was $15,800 (in 2020 dollars). In 2019-2020: $15,580, which is slightly less than 13 years ago. (I pick 2006-07 because it is the earliest year in the current publication, so it’s not me cherry picking). But basically, private tuition and fees have increased at the same rate as overall inflation.

Ah, but what about housing prices. We all know about fancy university housing. And lazy rivers! Well, the College Board also has a net tuition, fees, room, and board figure. For 4-year public colleges, there has been an increase since 2006-07, but probably less than you think: about 22% in inflation-adjusted dollars, from $12,180 to $14,840. That’s under 2% per year (to be clear: 2% above the overall inflation rate). An increase, to be sure, but not really the “skyrocketing” inflation we hear about. Part of this could also be explained by the rising cost of rental housing in urban areas generally: even students living in off-campus rental housing probably saw a similar increase.

The increase at private colleges (including room and board) was even less: just 9.5% from 2006-07 to 2019-2020 (again, that’s above and beyond the general rate of inflation). But of course, this is starting from a higher base. Both private and public colleges saw a roughly $3,000 increase for net tuition, fees, room, and board. Over 13 years. That’s around $200 per year. That’s nothing to sneeze at, but for most students, this seems wildly different from the narratives you may have heard.

Of course, the BLS is aware of discounting. In fact, they have taken account of it in the CPI for college tuition and fees since 2004. So why the discrepancy between BLS and College Board since 2006? One shows college tuition increasing at roughly double the rate of overall inflation, the other shows them being roughly equal.

My suspicion: graduate and professional school tuition and fees. The CPI component includes not only undergraduate tuition, but also post-graduate degrees and professional schools such as law and medicine.

Graduate schools are the real area of growth in college prices. As one point of reference: graduate students are just 15% of students, about 25% of student loan borrowers, but account for around 50% of total student loan debt. Graduate school is expensive, and graduate student are borrowing a lot more than in the recent past. See this chart from Brookings.

Here’s my bottom line on this question: college is expensive, but it’s not quite as expensive as you think. And when you hear about increases in the cost of college this primarily means graduate school tuition, plus to some extent undergraduate room and board. But if you are an average student, going to the average public 4-year college, you can complete a 4-year degree for under $20,000. That’s a good deal considering that the value of a college degree is worth at least $1 million, and possibly much more. On average, of course.