Why is the cost of college rising so fast?

In the last 20 years, college tuition has doubled, making tuition and required fees the major component of the rising costs of attending college. Figure 1 shows that the average tuition and fees at public four-year schools increased by 84% between the 1999-2000 and 2019-2020 academic years, far faster than the 15.7% increase in median household income during that period (note this period was chosen to avoid pandemic era swings in data).

Figure 1: Percentage change from reference year (1999) for bachelor’s tuition and required fees at 4-year universities and real median household income, fall 2000-2019.

In addition to tuition, EducationData.org reports that between 1999-2000 and 2019-20, when adjusted for inflation, the cost of the average dorm room for one year increased by 65%, while the average meal plan for one year increased by 35%. This lower rate of increase for room and board compared to that of tuition suggests that factors specific to the academic component of higher education are driving the overall cost increases. Room and board cost increases are in line with the inflation rate of 70% from 2000 to 2020 reported by the Federal Reserve Bank of St. Louis.

In 2020, the average cost of tuition and fees at a public four-year institution represented over 35% of median household income, up from approximately 18% in 1999. For private four-year institutions, tuition and fees represented 137% of median household income in 2020 (Figure 2). This trend has made college less affordable for many families, particularly those in the middle- and lower-income brackets. Consequently, many students and families face mounting debt or are deterred from pursuing higher education altogether.  

Figure 2. Tuition and fees at public and private four-year institutions as a percentage of median household income in current US dollars 1986 – 2022.

According to the National Center for Education Statistics, faculty salaries and benefits  accounted for 34% of overall operating budgets at 4-year public institutions in 2021. While rising faculty salaries can contribute to higher tuition, the American Council on Education, a higher education membership community, argues there are numerous contributing factors which are passed on to students through higher tuition and fees. Among these are:

• Growth in administrative positions and salaries at colleges and universities. These positions, often unrelated to teaching or research, have expanded due to increased regulatory compliance, student services, and marketing efforts.  
• Investments in new buildings, dormitories, and athletic facilities to attract students and enhance campus life.   
• Investments in technology, including software licenses, hardware upgrades, and IT support.
• Rising healthcare costs and other employee benefits.
• Inflation.
• Demand for higher education has remained strong despite rising costs, allowing universities to increase prices without experiencing a significant decrease in enrollment. 

In addition to the factors discussed above, many public colleges and universities experienced significant cuts in state funding particularly following the 2008 recession, forcing them to rely more heavily on tuition revenue (For more on state funding, see the SSTI article Changes in state support for higher education). According to the College Board, at public 4-year institutions, the share of total revenues coming from tuition increased from 31% in 2006-07 to 43% in 2016-17.

The College Board report, Trends in Higher Education Pricing, shows that when using inflation adjusted dollars (2023), there was a steady increase in tuition and fees at private 4-year institutions from $23,300 in 1993 to $44,120 in 2019. In the same 1993 to 2019 period, tuition and fees at public 4-year institutions also increased, though not as rapidly, from $5,380 to $12,490. As seen in Figure 3, the rate of growth in tuition at public institutions slowed beginning in 2013, when some states imposed freezes or limits on tuition increases that resulted from  state budget cuts following the 2008 recession. According to the American Association of University Professors (AAUP), one of the ways colleges and universities have attempted to reduce the tuition increases is to use adjunct faculty rather than higher new tenure-track faculty. Over the last few decades, the proportion of full-time tenured faculty has dwindled while the number of adjunct professors and graduate student instructors has surged. AAUP reports that 68% of faculty positions are now non-tenure-track (as compared to 22% in 1970. While adjuncts are paid less than full-time faculty, other associated costs may reduce the anticipated savings. These include training, coordination, turnover, and the need for additional administrative staff to manage a larger pool of part-time instructors.

As shown in Figure 3, data from the College Board shows that during the COVID-19 pandemic, average tuition and fees did not change between 2019 and 2020 at both public and private 4-year institutions. However, the data shows that when adjusted for inflation, average tuition and fees decreased annually from 2020 through 2023. This trend also holds true for public 2-year institutions.  

Figure 3. Average tuition and fees in 2023 USD for private 4-year, public in-state 4-year, and public in district 2-year institutions.

The path to affordable higher education is complex and involves a combination of financial support, cost containment, and structural reforms. By implementing comprehensive policies, states and universities can work towards a system that ensures equal access to quality education.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.