Here's a piece from Money Central lamenting the fact that college is so expensive. The piece notes that there are five main reasons college costs so much:
- Capital spending: Cornell economist Ronald G. Ehrenberg, in his book “Tuition Rising,” describes a kind of “arms race” among the nation’s top schools to have the best of everything: the best facilities, the best faculty and strong sports teams to engender loyalty among alumni donors.
- Faculty: Half to two-thirds of the typical college’s budget goes to paying instructional salaries. So rising paychecks are indeed a factor in higher college costs. The tenure system and the lack of mandatory retirement can make it tough to oust high-earning but less productive employees.
- Productivity: One factor that keeps inflation muted in the private sector is worker productivity. Technology, equipment and experience tend to help the average worker make widgets faster over time. That growing productivity allows a business to create more products for the same cost. But colleges aren’t in the business of making widgets. Those that try to force greater “productivity” out of their professors -- by increasing class sizes or class loads -- often find their strategies backfire. The best instructors leave for better environments, and the colleges’ reputations suffer among students and the ranking services that gauge university quality.
- Financial aid: As we’ve seen with the health-care system, if people aren’t feeling the real cost of their purchases, they have less incentive to change their behavior. If you’re paying the full tab and Elite University jacks up its rates 10%, you might opt for Just Fine State. If enough others followed your lead, Elite might rethink its pricing. As it stands, however, Elite just needs to boost your financial aid package by 8% or so, and you’ll grumble but stay put.
- Bigger pool of qualified applicants: This is the big kahuna and perhaps the strongest force affecting college prices: demographics. The number of college-age people is expected to grow from 17.5 million in 1997 to 21.2 million by 2010. The percentage actually attending college is bound to increase further, as fewer and fewer decent jobs remain for those with just a high school education. Meanwhile, the most selective schools haven’t expanded that much, even as the number of qualified applicants keeps rising. That’s why the SAT scores that would have gotten you into Harvard a decade ago might not get you accepted at your “safety” school today. With that kind of demand, college and universities can continue to boost prices almost at will.
Let me be sympathetic for just a few seconds. Yes, higher education is expensive. Yes, it's getting more expensive every day. Yes, the combination of paying for college while also trying to save for retirement is a tough financial challenge. I certainly can understand people's pain.
Ok, now back to reality.
Come on people, it's not like this expense is sneaking up on you. When you have a child, you know that in 18 years there's a good chance that you're going to have a major expense for four years. So, what do most people do about it? Nothing. (other than keep spending their money like crazy.) They don't even start thinking about it until their kids are in junior high (if that). Then they are appalled at the cost of college and complain that they can't possibly pay for it. Sheesh!
You think I'm making all of this up? Money magazine quotes Vanguard and Upromise in its May issue when stating:
The amount the average family with a teen has saved for college: $6,625.
This is for families with a TEEN -- translation: at least one child will be starting college in a maximum of five years!!! And this is all they have saved -- less than one semester's tuition at many colleges. I have more than twice this saved for each of my kids -- and they are both under 10!
Alright, enough said on the "why aren't you saving for college?" issue. The fact is, even at these high and increasing costs, a college education is still a great financial deal:
Despite two decades of rising prices, 68% of full-time undergraduates attending four-year colleges still pay less than $8,000 in annual tuition and fees. The payoff: post-college incomes that are 60% higher than those of high school graduates and that, on average, mean $1 million more in lifetime income.
Yes, there is a big, big difference in starting salaries and earning power over a lifetime with a college degree versus not having one. Want to earn even more? Get an MBA, then manage your career to maximize your net worth. Couple these with spending less than you earn and it's nearly impossible not to become wealthy.
So how should you save for college? Here are some tips from Money Central:
- Save early and often.
- Learn how to maximize your chances for financial aid.
- If you don’t expect to get financial aid, prepaid tuition plans might be worth investigating.
Then, here are some suggestions from Money:
- Tighten your belt. Every dollar that can be squeezed out of the family budget is worth two in loans and interest.
- Spend 529 money first. Spending it may qualify you for financial aid in later years.
- Share the cost. Overwhelming a kid with student loans isn't a good idea, but letting him take on some debt for his education is appropriate.
Finally, here are some posts from Free Money Finance that can help you out as well: