College tuition, like the temperature in late New Orleans summer, is on the rise.
To put it in perspective, tuition inflation has actually increased faster than both housing and child care services. The average cost of college is $35,720 per student per year and is growing at a staggering 6.8%. Why does it keep getting more expensive to educate kids, and what are families supposed to do about it?
Here’s a guide on why college is so expensive and how you can plan for it.
Top Reasons for Tuition Bumps
Supply and demand apply to college too! Nowadays, it can seem like it’s practically mandatory to attend college. Everyone wants to attend, so the market for a college education has skyrocketed. More students lead to more programs, faculty, academic offerings, student services, and more, which means more money is needed to cover those costs.
Another element that adds fuel to the fire is cuts in public funding. Ever since the 2008 economic recession, funding to public universities isn’t what it used to be. These deep cuts in public funding can’t keep pace with enrollment spikes.
Perhaps the most significant culprit for price increases is the prevalence and ease of obtaining student loans. Student loan debt ballooned to over $1.71 trillion and impacted nearly 45 million borrowers, making it one of the highest consumer debt categories.
Since it’s becoming easier and easier to procure loans, colleges can increase costs that are more easily passed down to students and their families. This type of pricing manipulation can lead to prices spiraling out of control. Generally speaking, student loans are not ‘bankrupt-able,’ so there is no incentive for lenders to cap borrowing costs.
Student loans are a massive undertaking, and as such, parents have a responsibility to explain to their kids how loans work and help them make a solid decision based on their career wishes.
You can’t expect an 18-year-old to take out $40,000+ worth of loans and know exactly how to manage the repayment schedule and interest once they graduate. Even if you decide to pay for all or some of your child’s college expenses, they need to understand how the financial process works.
Budget Busters Beyond Tuition
Tuition isn’t the only thing to blame for increased costs among higher education; it’s just a base number.
For starters, only 41% of those pursuing a bachelor’s degree graduate in four years, and only 59% of students earn a bachelor’s in 6 years. Unfortunately, you don’t get a discount the longer you’re a student, so the costs and debt continue to pile on.
Plus, transportation is a factor for those attending school in a different state (double whammy for out-of-state tuition and fees) or a few hours away from home, and it’s not cheap. You’ve got plane tickets, car payments, maintenance, parking, insurance, and gas to worry about. All of those elements add up fast.
Even before the COVID-19 and virtual classrooms, technology costs were on the rise. To succeed in college, students need access to a laptop and high-speed internet. Even class books, access codes, group assignments, and even exams are online now, but you still have to pay the same amount for it, and unfortunately, you can’t buy a used access code for an online book.
Another major factor for an increased college education is the idea of the college “experience.” From rock-climbing walls to ice cream socials to Greek life, these experiences run an expensive tab. It’s important to strike a balance between social and educational experiences.
Talk with your kids about finding a balance that works for them. Is a spring break trip really important to them? Help them make a plan to budget and save for it. Doing so gives them financial responsibility and teaches them about prioritizing and saving for the things that matter to them.
Four College Planning Opportunities Families Won’t Want To Miss
Before the costs get too overwhelming, here are a few tips to help you tackle them. Let’s evaluate four foundational planning and saving opportunities you can take advantage of:
- Leverage “Free” Money: Do your research to discover any grants, scholarships, or aid your college student may be eligible for. Louisiana also has the TOPS program, which is a set of state scholarships for Louisiana residents who attend either one of the Louisiana Public Colleges and Universities, Louisiana approved Proprietary and Cosmetology schools, and more.
- Make Cost-Effective College Choices: AKA, don’t go to fancy school just because you can. Make an informed decision about which college can take your child’s passion further. Ivy League degrees are all fine and dandy until you realize you’ll be paying off student loans for the next 40 years. Independence is an important part of the college experience but you don’t have to pay the higher out-of-state tuition rates just to get some space. Consider a cheaper in-state school that’s a few towns over so you’re not tempted to spend every weekend in your childhood bedroom.
- Set a Savings Goal and Automate it: There are multiple savings vehicles for college expenses, including 529 plans, Roth, and brokerage accounts. Louisiana has one of the best 529 plans available in the country. It allows parents (even high earners) to have a Roth-style savings account, and coupled with TOPS and state tax credits, can take away some of the sting of tuition costs.
- Balance and Prioritize: The cardinal rule of saving for college? Don’t give up retirement savings. You can have a balance between the two and not have to work until you’re 80 years old.
It’s essential to note that even though college is expensive, it can be a great step to helping your child discover a field (and life path) they are passionate about. Giving your child the gift of education is one that keeps on giving for the rest of their (and your) life. You just have to find the right balance between saving and paying for college while still staying on track to reach your own financial goals. It’s a challenge to be sure, but one that you can pursue with the right plan.
Tackle College Costs Together
So why is college so expensive? There are several reasons, from supply and demand to cuts in public funding to the student loan monopoly. And funding a degree is a significant undertaking, especially for young adults that haven’t had to manage with that large amount of money before.
So it’s vital to make financially informed decisions as a family and start saving early!
The choices you make today for how you save and strategize for college expenses will dramatically impact your future financial freedom.
Don’t wait to start saving for higher education if it’s your goal. Let’s talk about how you can achieve your goals and financial well-being while pursuing your dream of funding college costs.