How in the World Did College Costs Rise 15% in Only 2 Years?

These numbers look horrible. They're only a little bad. 


College students protest rising tuition in California (Reuters)

Yesterday, the Department of Education offered up yet another bit of awful sounding news about the cost of college, when it reported that tuition at four-year, public institutions had jumped up 15 percent in two years -- even faster than the cost of health care. At private schools, they rose by almost 10 percent on average. If there was suddenly a run on Xanax at your neighborhood CVS, you can safely blame it on anxiety-ridden parents.

But while everyone chews their meds, I'd like to offer a few reasons for calm.

First off, when it comes to the price of higher education, all statistics are local. One of the biggest factors influencing tuition is the amount of government support college systems receive, and budget cuts have varied wildly from state to state over the past few years. So perhaps it shouldn't be a surprise that the most drastic price hikes have been concentrated in just a few places. Of the 100 schools which raised tuition most between the 2008-2009 and the 2010-2011 school years, 70 were located in five states -- Arizona, California, Georgia, Florida, and Washington. Meanwhile, seven of the top twelve were in Puerto Rico (yes, they are included in this survey). Should it concern most American parents that the University of Puerto Rico -- Aguadilla raised its sticker price by 53 percent, or a little less than $1,000 dollars?  Probably not.*

In short, a relative minority of schools skewed the average upwards. The government included 649 four-year public colleges in its report. Only 234 actually saw a 15 percent hike or more. The median increase was 11 percent. And many of the colleges that were responsible for the biggest percent jumps, such as the Cal State system, were schools bringing up their tuition from bargain basement prices.

But 11 percent in two years.That still sounds pretty high. Again, medical costs, which everyone knows are supposed to be spiraling madly out of control, increased about 7 percent in the time frame we're talking about.

That brings us to the second big issue that should give parents solace. Tuition sticker prices are a terrible way to judge the actual cost of college, especially from a consumer's perspective. Net prices, which include government and institutional grants, say much more about how college costs are changing. Unfortunately, the government's net-price data is a year behind. But at four-year public schools, the average net price edged up just 4.6 percent between 2007-2008 and 2009-2010. Private college tuition increase just 6.4 percent on average. That's not completely outrageous when you consider the various financial pressures these institutions have been facing. The Higher Education Price Index, which essentially tracks the costs of running a college, rose about 3 percent over the time period we're looking at. Overall state funding fell about 3 percent, and the number of students enrolled rose.

Part of the reason the actual tuition students (and their parents) are paying is rising slower than advertised prices may have to do with President Obama's expansion of the Pell Grant program, which the awards low-income students money to help pay for school. An additional 1.5 million undergrads received Pell Grants in 2009-2010 compared with two years before. At the least expensive schools, that influx of federal money may have given them the leeway to up prices without penalizing students too seriously.**

The other issue at play may be tuition redistribution. Especially at large public and private universities, many administrations have begun charging higher overall fees while upping institutional aid to their neediest students. In other words, it's the Robin Hood effect -- charging the rich to pay for the poor.

So are four-year college costs rising across the country? Certainly. Are they rising faster than they should? Perhaps. But are they riding a tax-payer funded rocket to the moon? Not quite.


*For those who'd like to play along at home, here's the government's complete Excel file

**From a taxpayer's perspective, of course, this isn't an ideal outcome.