Homepage

Personal Finance > College
    SAVE   |   EMAIL   |   PRINT   |   RSS  
College costs going nowhere but up
Grants lag as growing cost of higher education shows no sign of slowing.
October 18, 2005: 10:31 AM EDT
By Rob Kelley, CNN/Money staff writer

NEW YORK (CNN/Money) - As nervous as college freshmen may be, their cash-strapped parents are probably trembling more.

As they have for the last ten years, college costs rose faster than inflation this year, according to the report "Trends in College Pricing 2005," released Tuesday by the College Board, a non-profit association of 4,500 schools, colleges and universities.

The rate of growth in tuition costs at four-year private colleges was about the same as last year -- 5.9 percent -- to $21,235. But growth slowed in tuition costs at four-year public universities. They rose 7.1 percent to $5,491. Last year, public school tuition jumped 10.5 percent.

Tuition costs, of course, are not the whole nut. Including room and board, the cost of attending a private college is $29,026 per year on average, and $12,127 at four-year public universities.

Many don't pay full fare

But many college students don't pay sticker price. 63 percent of students receive some form of aid, either loans, grants or both, according to the National Association of Student Financial Aid Administrators.

On average, full-time students at private institutions get about $9,600 in aid in the form of grants and tax benefits. At public four-year schools, the average is $3,300.

On an inflation-adjusted basis, federal grant aid has increased by $8 billion over the past decade, while loans provided by college and universities to their students rose $11 billion. Also, state grant aid for students is up 78 percent over the last ten years.

Nevertheless, the 2004-5 increase in inflation-adjusted grant dollars was the smallest in the past decade, and grants represent a smaller percentage of students' aid package, according to the College Board.

Ten years ago, grants comprised 23 percent of federal aid, loans 75 percent and work-study programs 2 percent. This year, grants are down to 20 percent, loans make up 70 percent, work-study makes up 1 percent. The remaining 9 percent comes from federal tax credits and deductions.

The study found that the average debt for graduating college seniors who borrow to finance their undergraduate degree is just under $20,000. And loans from private sources -- which frequently have less favorable interest rates than federal programs -- are growing more common.

Lower-income students still receive a larger percentage of available aid than upper-income students, but significant changes in aid distribution are afoot.

A major benefit to low-income students in years past was the Pell Grant, which is provided strictly on the basis of financial need. But the grant's ceiling has not been adjusted for inflation or tuition increases, even as both have eroded families' ability to foot college bills.

"The maximum contribution remains at $4,000," said Sandy Baum, senior policy analyst at the College Board. "Therefore the Pell Grant covers a smaller and smaller portion of students' total tuition costs."

And tax credit and deduction options disproportionately benefit people in higher tax brackets, Baum said.

Why costs continue to mount

Public universities have in recent years found themselves at the mercy of strained state budgets, and had to hike their tuitions to keep their books balanced.

While the College Board report does not go into depth in looking at the reasons behind cost hikes, it says that health benefits and rising utility costs have factored into the increases.

Given the past decade of steady prices increases it might not be unreasonable to take the steep annual hikes as a given.

"For the foreseeable future, college cost increases are going to exceed inflation, and people need to incorporate that into their plans," said Kal Chany, author of Paying for College Without Going Broke.

The study found that some schools -- in response to complaints about continual price hikes -- have offered families guarantees that tuition will remain constant through four years of study.

But Chany believes that the benefits of such plans may be overstated.

"Basically, the schools just calculate what the average cost will be over four years, so tuition goes up quite a bit," he said. "If you stay for four years at the school, you're fine. But if you're a freshman who transfers out, you've overpaid for freshman year."

The benefits of a bachelor's

In an accompanying survey, "Education Pays 2005," the College Board analyzes the benefits in lifetime earnings trends of those who've earned a college degree.

In 2003, workers with bachelor's degrees earned a median of $49,900. Those who'd completed several years of college with no degree had median earnings of $35,700, while those with a high school diploma averaged $30,800.

Projecting this over a 40-year career, the study calculated that a college graduate will earn about 73 percent more than a high school graduate.

___________________

Learn how to maximize your chances of getting financial aid.

Haven't begun college planning for your high-school-aged child? Get advice here.  Top of page

YOUR E-MAIL ALERTS
University
Schools
Education
Personal Debt
Manage alerts | What is this?