College Costs – Where Are They Going?

January 5, 2021

The cost of college may arguably be the most expensive item parents plan for during their child’s life.  The sticker shock of tuition, fees, and room and board charges may cause a sense of panic for parents when thinking about how to save for college or wondering how much college will cost in the future.  Can the cost of college really continue to rise?  The bad news – college has been and will likely continue to increase at a faster rate than inflation.  The good news – the rate at which college costs have outpaced inflation has been declining over the last twenty years, and even more so over the last ten years.

The chart below illustrates how college costs have been changing over the last three decades. While costs have increased over the last decade, the pace of increase has significantly slowed from the decades before.

According to college tuition and fees, CPI data from January 1990 – November 2020, college costs have grown at an average pace of 5.5% per year, which is 2.4 times more than standard inflation.  Over the last ten years, however, college costs have grown at an average pace of 3.4% per year, which is only ~two times more than inflation.

Additionally, with grant and institutional aid becoming more common at public and private institutions, the out-of-pocket costs for many undergraduate students over the last ten years have grown at even lower rates than the CPI data shows.  According to College Board’s Trends in College Pricing and Student Aid 2020 report, grant aid per student has increased 76% since 2006 at 4-year public institutions and 72% at 4-year private institutions.

Considering the recent slowing cost trend, rising outstanding student debt, as well as the spotlight COVID and remote learning has put on the value of college tuition and fees, it’s hard to envision college costs rising at more than 4% or 1% more than long-term inflation going forward. We are constantly reevaluating our planning assumptions to ensure your plan reflects the most current research and our best thinking. With that in mind, we will be updating plans going forward to reflect a lower 4% college inflation rate. If you want to re-visit your college savings plan or put a plan in place, please reach out to your BDF team to get the conversation started!