Much has been reported from various news sources, investment firms and college foundations about “college inflation” or the costs that are associated with attending a four-year institution. News reports of students protesting and being generally unhappy with tuition increases have flooded the Internet news and print media with different claims.
Several studies put the increase in college costs between 5% and 8%, with 8% being the number most focused on. College costs in this cast take into account only tuition and fees. In the case of on-campus housing and meal plans, those costs are not included in the traditional inflation calculation for university costs.
There have been multiple studies done on why college is so expensive, but those reasons don’t really matter that much to the student (or parent) who is footing the tuition bill. According to the Bureau of Labor Statistics, over the last 30 years, college costs have increased on average each year at 7.25%, which is slightly less than the return on the S&P 500, what is termed “the stock market”.
Keep in mind a few factors though. When looking at the additional expenses associated with college (room and board, transportation, etc.), those costs follow CPI, or the consumer price index, which tracks the overall inflation rate (the increase in costs over the years), or normal inflation. Normal inflation over the last 30 years has averaged 4.35%, which is still very high.
However, averaged into the last 30 years has been the high inflation of the early 1980’s, where normal inflation was 10% and college costs were rising between 12% and 14% per year. The last 10 years have actually oscillated between 5% and 6%. In fact, the last twenty years have also averaged between 5% and 6%. Both are higher than CPI (which has averaged about 2.5% over both periods).
What does this mean exactly? A lot, actually. An in-state school in North Carolina carries tuition and fees of approximately $6400/year. This means that for a child born in 2010 and attending college for four years beginning in 2028, the cost for tuition and fees alone under the assumption of 7.25% will be $30,000 more than the actual college inflation rate of 5.5%. Throw in regular costs and that difference jumps to $70,000.
As you can see, college inflation, while significantly more than normal inflation, is exaggerated in the news. I’m not sure exactly why except that sensationalist claims usually make the news and it also helps sell investment products (529 plans, mutual funds, etc.) or even sells news.
So yes, college is going to be expensive for your baby. But regard with some skepticism calculations you are shown about “the true cost of a college degree”.