Why Does College Cost So Much ... and What Can You Do About It?

Female student worrying about money
Getty Images

For anybody who has paid even the slightest amount of attention to higher education over the past few years, it should come as absolutely no surprise that college costs a lot of money. Countless writers and analysts -- including me -- have noted that higher ed costs more than it ever has before, and that more and more people are going insanely deep into debt to pay for it. But even amid the Sturm und Drang of the higher ed debate, the issue of how it impacts you -- and how you can maximize the value of your college dollar -- has sometimes gotten short shrift.

On The Washington Post's Wonkblog, Dylan Matthews' series "The Tuition Is Too Damn High" has unpacked several of the details of the tuition battle, looking at both why college is so expensive and why it is still the best investment you can make. The series is required reading for anyone interested in the college funding debate.

Here are some of Matthews' most interesting takeaways:

  • While the cost of college has risen far out of pace with the rest of the economy, your "investment" in tuition has an average annual return of between 15 percent and 17 percent. This far outpaces stocks, bonds, gold and real estate, and makes higher education one of the best investments you can make.

  • A large fraction of the increase in tuition comes from a drop in state funding for higher education. With the exception of Wyoming and North Dakota, every state is now spending less money per student, and public colleges and universities are making up the difference by passing the bill along to students. Between 2000 and 2012, the share of universities' revenue that came from tuition went up by over 35 percent.

  • States aren't the only ones to blame: At many colleges, use-it-or-lose-it funding rules discourage them from saving money. More importantly, colleges are in a crowded marketplace, where extravagant facilities can make a major difference in prestige and enrollment. In other words, colleges have every reason spend money that requires them to raise tuition, even if doing so doesn't improve educational outcomes for students.

So what can you do if you're a student looking for the best possible outcome for your college dollar? First of all, go to college -- and graduate. Studies have shown that, by age 25, college dropouts receive an average 11 percent income boost from their time in a classroom. For those who end up with a degree from a four-year university, however, the dividend at age 25 is a whopping 73 percent increase in earnings over a worker with a high school diploma.

Second, when you're choosing a major, give a little thought to the return on your investment. In the past, I've written about the value of choosing the right major and determining the most profitable grad school investment. Recently, Bankrate.com put the cost/profit ratio into even starker terms with an analysis of how long it will take for your degree to pay for itself.

Sponsored Links

On the top end, if you're in advertising or marketing, you can expect to be out of the red within six years of graduation. On the other side, if you choose to become a marriage and family therapist, you can expect to work for almost 35 years before you get into the black.

Third, while the time you spend at a four-year college is certainly valuable, you may want to wait a while before going there. Community colleges, on average, cost 32 percent less a year than public four-year institutions. Many state universities will allow students to transfer over their first 60 college credits -- a factor that could save you many thousands of dollars. And even if you decide to go straight to a four-year school, you can still save a lot of money by taking summer school classes at your local community college, and graduating earlier.

Fourth: Speaking of spending time outside the university, you also might want to spend some time outside the classroom. Despite all the recent scandals involving companies that take advantage of interns, it's still clear that an internship can make a huge difference when it comes to getting a job. A recent survey by the National Association of Colleges and Employers found that students who completed at least one paid internship received job offers 60 percent of the time.

Ultimately, the lesson is clear: College is pricey, and is likely to get even more so. But it remains the best investment you can make. What's more, with research, careful planning, and internships, you can make it turn a profit sooner -- and remain profitable longer.

Bruce Watson is DailyFinance's Savings Editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.