By BoLOBOOLNE payday loans

How fast is college tuition rising?

Many are concerned about the rapidly rising cost of higher education.  Recently this problem has gained a lot of attention, being somewhat integrated into the #occupy platform (insofar as there is one), and leading to abusive pepper spraying.  The problem is that college tuition costs are rising far faster than inflation, putting it out of reach of many Americans.

But this problem is not at all new.  Tuition has been outpacing inflation for decades.  The College Board‘s statistics show that tuition has increased faster than inflation almost every year going back to 1958.  On average it has outpaced inflation by about 2.8%.

(raw data)

With all the recent discussion about how unsustainable health care costs are, it’s very telling to note that the cost of higher education has been rising faster than health care for the last 30 years.  (Ref: freakonomics, seeking alpha.)

You might say this is all water under the bridge or sunk costs or what have you.  The important question is how fast will college tuition go up in the future? Of course, nobody knows for sure.  Past performance is no guarantee of future results, etc.  Some folks who pay attention to this think it will continue to go up about 6%/yr in the future, although long-term averages are more like 7%/yr or 8%/yr.  So something in that range is a reasonable guess.

Why is tuition going up so fast? That’s a great question which I won’t go into detail here.  But briefly, higher education is a good whose price is influenced strongly by market forces — supply and demand.  Demand must be increasing to keep up with the rising costs.  But another important factor is the unusual way that education is financed which distorts prices.  Also, many think we’re currently in a “bubble” in which higher education is overpriced.  I don’t subscribe to that point of view, but as I said more later…

  1. Jeffrey Drummond says:

    Leo, Here’s a good article on law schools that dives into this issue. I am curious what you think about its conclusions. –jd

    Law School Economics: Ka-Ching!

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