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College Cost Crisis: A Price or Income Problem?
12 Mar 2013
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Rising college tuition has been a “crisis” for much of the 15 years I have covered higher education as a journalist. But that crisis has now reached a fever pitch with President Obama dedicating parts of the last two State of the Union addresses to the issue, pricey private colleges cutting their tuition or putting in place other creative pricing models, and nearly every institution talking about affordability more than ever before.

The higher education establishment likes to make a big deal about how tuition increases are often taken out of context, and the rise in prices in recent years is actually smaller than in previous times. Tell that to the average consumer, who saw their prices rise just more than 1 percent last year but college tuition rise four times that amount. Or tell that to the Washington, D.C., cop I met in the grocery store a few weeks ago who hasn’t had a raise in five years.

Indeed, the rate of increase of tuition is slowing, but median income in the United States is moving in reverse. For the first time since the Great Depression, the incomes of middle-class families have dropped every year for more than a decade, nearly the entirety of the 21st century so far. So while higher education should certainly be put on notice by the president and others over their rising prices and unsustainable business model, the current consternation over prices might be less about the strategies of colleges and more about larger trends in the economy.

Look at the chart below, which comes from a Bain & Company white paper with numbers courtesy of the U.S. Education Department and the Bureau of Labor Statistics. Average tuition today eats up nearly 40 percent of the median earnings in the United States, where a decade ago it was less than a quarter of income. Take a closer look at the income line at the bottom. During this time period, median annual earnings fell by some $13,000.

This is why trimming around the edges of the college cost problem or gimmicks to make people think they are getting a great deal on tuition is not a long-term solution. The ironic thing is that higher education is exactly what’s needed to propel the economy forward and get median earnings moving in the other direction, but the people who need college the most often can’t afford tuition.

Banner Photo Credit: Thinkstock

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