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The Hidden Costs of Higher Education

Plus: Consumers Digest's Top 100 College Values

College prices are soaring as legislators slash funding for higher education. Universities are cutting budgets and trying to lure more out-of-state students, who pay a higher tuition rate. It’s now simpler to get a loan directly from a university’s financial-aid office, but it’s no easier to decipher the fees that you pay as part of your bill.

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Say this for recessions: Most people who sell products and services hold off on raising prices when their customers have less to spend.

But don’t tell that to Debra Altschiller of Stratham, N.H. In January, during a tour of Boston University, she got a look at what it will cost to send her only daughter, Marina, to college. Altschiller and her husband have been saving for their daughter’s education since Marina, now a high-school junior, was born.

 “The cost is far more than we ever imagined it would be,” Altschiller said, while she paused outside of the elegant riverside brownstone that serves as the university’s admissions office.

It’s $54,900 per year, to be exact. This includes tuition, room, board, fees, books and personal expenses. In fact, as of this year, the price of 1 year at BU and other top private universities has crossed a threshold that those schools would rather that no one noticed: It’s more than the median U.S. household income of $49,777.

The cost of a college education is rising faster than that of health care. It far outpaces inflation, increasing in the 2010-2011 academic year by 7.9 percent at public colleges and universities and 4.5 percent at private institutions from the 2009-2010 academic year, according to College Board. Other prices in the Consumer Price Index fell by 1 percent over the same period, and median household income as calculated by Census Bureau grew by only 1 percent.

Higher education is a seller’s market, and that’s why most universities have done so little in the past 4 years to contain their costs. Soon, parents will have to dig even deeper to send their kids to college. State legislators and governors are facing a collective $125 billion in budget shortfalls in the fiscal year that starts in most states on July 1. They’re slashing spending for public higher education across the country, because they know that such cuts likely won’t be blamed as much on them as on campus presidents and administrators.

“The political cost to a politician of cutting university spending is less than the political cost of cutting K-12 spending or cutting health care for the elderly or the poor,” says Richard Vedder, who is the director of Center for College Affordability and Productivity (CCAP), which is a higher-education research center that is often critical of college costs.

Top Values for Colleges and Universities

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Thirty-six states reduced their higher-education spending last year, according to National Association of State Budget Officers. Thirty-one plan to do it again this year. In California, a proposed $1 billion is to be stripped from public universities and colleges next year. Students and their parents will need to make up the difference.

On top of this, the $23 billion in federal stimulus money that’s for higher education, which some states used to keep tuition hikes from being even bigger, is about to run out. That will leave further holes for families to fill. And although private-university endowments rebounded last year, they’re still 20 percent below their pre-crash peak, according to National Association of College and University Business Officers and Commonfund Institute, which is one of the main investment firms for colleges and universities. Because returns from the investment of endowment money help to pay universities’ operating costs, that money also has to be made up on the backs of students.

“There’s real bewilderment as to how families are going to swing the cost” of tuition, says Barmak Nassirian, who is the associate executive director of American Association of Collegiate Registrars and Admissions Officers. “We’re seeing 30 percent tuition hikes becoming a reality.”

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