Why Is College So Expensive?

College. It is the time of your life when you move out to live on your own and you gain some more independence. In the process, you are also trying to get an idea of what you want to be when you grow up. 

Some call it the best four years of their life. Others may say it was the most expensive four years of their life. 

The price for a decent education is only getting worse. Average tuition costs have raised by over 179% over the last two decades. 

So, why is college so expensive? Here are some of the biggest reasons. 

Student Loans 

One of the biggest reasons why college tuition is so expensive is because of student loans. If you do not handle these the right way, you could be paying your student loans off for decades. 

Student loans happen when people wish to borrow money from either the federal government or a private entity to cover their tuition costs. However, this is not a gift. They are going to have to pay these costs back with interest. 

That is where some students can run into trouble if they do not pay off their student loans in a timely matter. The interest can continue to accrue and before you know it, the student ends up in a big financial hole. 

Right now, student loans start at a minimum of 5% interest. However, the federal government is raising its student loan interest rate to 5.5% for the 2023-24 academic school year. 

That is just what the federal government charges for interest. On the high end, private student loans can have close to 14% interest on those. 

The interest rate on student loans can add to the expense that some students have to cover on their own to fund their tuition. With the interest rate currently continuing to increase, student loans are becoming a bigger burden on those who want a college education. 

Private Colleges 

Another thing you have to consider is whether you want to look at private colleges or public colleges. While private colleges may have more amenities and more programs for you to consider, it does come with a catch. It tends to be much more expensive than a public university. 

The average tuition costs of a private university are close to $40,000 per year. 

How much would you pay if you went to a local public university? The answer is just over $10,000. This means that if a private college is that important to you, you could be looking at four times the cost per year compared to a public college. 

If you do the math, that means someone could pay $160,000 for a private education compared to just $40,000 for a public education. With the reputation that certain private schools have, some students are willing to bite that bullet. 

Out-Of-State Students 

Where you are from can have a big impact on how much money you end up having to pay for tuition. The reason is that people that are coming from out-of-state tend to get charged more money by public universities. 

If you are from out-of-state, a public university can end up costing more than double the tuition per year compared to a public university in your own state. That means that you could be paying close to $90,000 over four years instead of around $40,000. 

This is even more prevalent because of how many students are willing to go to college outside of their home states these days. Now, about 31% of all American students go to college outside of their home state. 

Students are becoming more willing to travel for an education. As a result, some universities are charging them more money for this privilege. 

Room and Board 

Another thing that you have to consider is if a student is going to need room and board. If you plan on living on-campus, then this is an additional expense for college that you are going to have to pay for. 

Considering that 31% of college students are coming from a different state, there is reason to believe that the demand for dorm rooms is there. If that was not enough, more students are moving away from home to go to college than at any other time in the last 15 years. 

Since demand is clearly up to move away from home for college, one can safely assume that universities are going to take advantage of this. 

Think about it. Until they build more dorm rooms, there is only going to be a certain supply of dorm rooms available on-campus. If there is a big enough spike in demand, universities can justifiably raise their price for room and board costs. 

So, if this is something that you plan on doing for school, plan for that to be a big dent in your college expenses. 

Elite Universities 

There are some Americans that simply want the best of the best. When it comes to education, that field is certainly no exception. 

Americans can spend time and money chasing their way into top universities that have the best reputation. Think of universities such as Dartmouth, Harvard, Yale, Stanford, Princeton, etc. They are going to be places where every student in the country will strive to get accepted. 

Admittedly, for the top universities, only a small number of students are going to get accepted. However, those universities have the demand to charge whatever they want and have a pool of students from all over the country. 

Take Dartmouth for example. Their campus is located in New Hampshire. 

About 98% of the people that were admitted into Dartmouth resided in states outside of New Hampshire. On top of this, the average distance traveled to get to campus for students was over 1,000 miles. 

While not every school in the country is going to have these kinds of numbers, it is important to note how big of pools some of these universities have to choose from. As a result, it forces more students to pay for room and board, increases travel costs, and the demand allows those universities to charge higher tuition. 

The demand for elite education has made some people feel forced to pay these prices. 

More Education 

Back in the old days, it was uncommon for people to finish their education with a bachelor's degree. That was the symbol of people completing their college education and in the past, that would be a sign that someone is very educated. 

While it is still an achievement to get a bachelor's degree, it does not go as far as it used to. As a result, people have felt forced to pursue an even higher level of education to stand out. 

Because of this, people go on to graduate school to pursue a master's degree in whatever field they started in their undergraduate program. 

What does this mean? Obviously, it means adding on a couple of extra years of tuition costs. How long you do this depends on what kind of program you are trying to get a master's degree for. 

Another part of this goes back to the student loans. While federal student loans start at a 5% interest rate for undergraduate students, the interest rate increases for those pursuing graduate school. Those loans start at a 6.54% interest rate. 

What does this mean? It means that not only do students have to invest a couple of extra years of tuition costs for these more advanced degrees but they also have to do so at a higher interest rate if they do not have the money for it. 

For some people, this extra cost is worth it for the career path that they are on. You might want to check and see how far it may get you in your field. 

Earning Potential 

Some people consider education to be an investment for their future careers. In some ways, those people are right. 

It is an investment because it helps you gain some knowledge that you are going to need for your field. However, it is also an investment because it can be the qualifier that you need to help you earn a higher income in your career. 

Studies show that the more educated you are, the higher your likely earning potential you have. 

People with bachelor's degrees earn an average of $1,334 per month. If you compare that to people that start college but do not get a degree, those people earn less than $900 per month. 

While pursuing a bachelor's degree is not the only thing you have to do to land a good job, the numbers show that you are more likely to be financially successful if you have one. 

Hold a Job 

If you take another look at the graph in the link above, you will see the earning potential for each level of education. However, on the other side of that average earning chart is the average unemployment for each level of education. 

In rough times such as a recession, you want to have education and skills that are more difficult to replace. That is why people with a higher level of education tend to have a smaller unemployment rate. 

For people that have bachelor's degrees, the unemployment rate was just 3.5% in 2021. That number nearly doubles to 6.2% for those who just have a high school diploma. 

What does this mean? It means that the people with less education and fewer skills are going to be the first ones that get laid off or replaced if a company hits a rough patch. 

Some people equate having a bachelor's degree to making themselves distinguishable. While this is not the only thing you have to do, the numbers do show that it helps to have a degree in your back pocket. 

Less Public Funding 

Finally, there has been a noticeable decline in public funding for public universities. As a result, the universities have to cover more of these costs on their own, making it more expensive to keep their university operational. 

Just how bad has it gotten? The average state has seen a decline of around 6% in public funding. 

How does this affect the students? As stated above, it makes the university more expensive to operate. Public universities have to make up these losses somehow, so it makes sense to throw this onto the tuition costs. 

It can also affect students because there could be less room for student growth. Cuts in funding could mean cuts in facilities and staff. 

So, funding may no longer exist for more dorm rooms to keep up with demand or for extra professors that would allow more students to attend classes on that campus. 

Plus, public funding can be how some scholarships and grants from schools are given out. If that is the case with schools losing public funding, then fewer students will have a chance to get a free ride. 

Those students having to pay for their tuition themselves would obviously cause a massive increase in college expenses. 

Why Is College So Expensive? 

Why is college so expensive? Truthfully, several factors come into play. 

More people than ever are after elite education. That means people will do anything to attend the top universities, including leaving their home state and getting into a mountain of debt with student loans. On top of this, people will pursue more advanced education, such as a master's degree. 

People also think about their futures, such as their earning income and hold likely they are to hold a job. 

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