According to the , the cost of one year of graduate study (tuition, fees, room and board) during the 1963–64 academic year was only $1,286. National Center for Education Statistics (NCES).
By 2022-23, this figure had reached $30,884. Even after adjusting for inflation, the cost of attending a four-year institution has nearly tripled since the early 1960s, far outpacing increases in median household income, consumer prices, and wages.
Why has higher education become so expensive, and why have there been no reforms?
The answer is complex – many factors have come together to create this issue. Some come from within the college, some from outside it. Collectively, they have created an environment where costs increase regardless of economic conditions.
Here’s what the data actually shows and why costs are unlikely to decline.
administrative detail
One of the most frequently cited internal cost drivers is the growth of university administration or administrative bloat.
A Goldwater Institute study found among 198 leading research universities that between 1993 and 2007, the number of full-time administrators per 100 students increased by 39.3%, while the number of full-time teaching, research and service staff increased by only 17.6%. Inflation-adjusted spending on administration per student increased 61.2% over the same period, while that for education increased 39.3%.
more recent Data from the American Council of Trustees and Alumni (ACTA) This indicates that this trend continued into the 2010s. From 2010 to 2018, ACTA found that nonacademic spending, including student services (up 29%) and administration (up 19%), grew faster than tuition spending (up 17%) at 1,529 four-year public and private institutions.
Between 2016 and 2021, administrative spending per full-time equivalent student increased 6.3% from $3,549 to $3,771, while academic spending per FTE fell 4.7% from $14,352 to $13,685.
However, it is important to have some context for this and realize that some of this data is skewed, and much of the growth tracks with both student growth and government requirements. In some medical schools, hospital staff are included in the data as non-teaching staff.
At the end of the day, Data shows that staffing growth has exceeded inflation and enrollment trendsEven taking into account what new administrative mandates would be required.
cuts in state funding
At public institutions, tuition is largely dependent on state funding: when state appropriations increase, there is less pressure to raise tuition, but when it decreases, students pay more.
This relationship is documented annually by the State Higher Education Executives Association (SHEEO) in its State Higher Education Finance (SHEF) report.
SHEF FY2024 Report Finds that state and local government funding for higher education totaled $139.1 billion in fiscal year 2024, with an education appropriation per FTE of $11,683, about 18% of 2019 levels. This sounds good, but the picture is uneven from state to state.
Twenty-two states fund higher education at levels below 2008 levels, with the lowest being Arizona (down 40.3%), Iowa (down 29.9%), and Delaware (down 29.8%). Per-FTE appropriations ranged from $4,629 in New Hampshire to $25,529 in Illinois – a 5x difference across the country.
The largest reductions occurred after the recessions of 2001 and 2008. State legislatures cut higher education budgets and then only partially restored them during the reform. Students absorbed the difference through higher tuition.
Crucially, even when state funding increases, tuition does not decrease. SHEEO data shows that between 2012 and 2022, state funding increased, yet colleges and universities saw Average revenue per student increased by $730 over the same period. Once tuition goes up, it keeps going up.
supply and demand
Between 1970 and 2020, undergraduate enrollment in the US increased from 7.4 million to 15.9 million – a 115% increase, according to Education Data Initiative. This increase far exceeds the overall US population growth of approximately 60% over the same period.
Meanwhile, the number of post-secondary institutions offering degrees is declining. NCES data shows there were 4,599 degree-granting two- and four-year schools during the 2010–11 academic year. By 2020–21, there were only 3,931 – a decrease of 14.5%.
Many of the closings have occurred at small, private colleges and for-profit institutions, but the net effect is the same: fewer seats relative to the number of students who want them.
It’s a textbook supply-and-demand dynamic. When demand increases and supply shrinks, prices rise.
However, unlike most markets, the prices of higher education are not transparent. Prospective students typically select schools based on rankings, prestige, location, and perceived prestige, rather than a strict cost-benefit analysis. This protects colleges from downward pressure on prices.
It is also important to realize that demographic changes are taking place. Undergraduate enrollment peaked at approximately 18.1 million in 2010 and will decline to approximately 15.4 million by 2022, the lowest since 2006. There is a small improvement in 2024 (reaching 10.4 million students) but demographic barriers remain.
The U.S. birth rate is projected to decline by approximately 23% between 2007 and 2022, meaning the pool of traditional college-aged students will shrink significantly in the coming years. Its estimated National “peak” high school graduation was in 2025, and will continue to decline until 2041 unless the birth rate changes.
Whether this will ultimately put pressure on pricing remains an open question.
Bennett hypothesis: Do financial subsidies increase fuel prices?
In 1987, then-Secretary of Education under President Reagan, William J. Bennett wrote an op-ed in The New York Times titled “Our Greedy Colleges”.
Their argument: Increases in federal financial aid (grants, loans, work-study) were enabling colleges to raise tuition, because institutions knew students had easier access to money. came to be known as the theory bennett hypothesis (PDF file), and this has been debated for nearly four decades.
Research evidence is mixed and varies by type of institution. A Study by Lucca, Nadauld and Shen (2019)Using student-level borrowing data, found that increases in subsidized and non-subsidized federal loans significantly increased tuition, with the largest impact at expensive private institutions and for-profit schools.
A Federal Reserve Study It is estimated that colleges increased tuition fees by approximately 55 cents for each additional dollar of Pell Grant aid and by 65 cents for each dollar of subsidized loan aid.
one more Study found that for-profit institutions eligible for federal aid charged tuition 78% higher than those not eligible, with the tuition premium closely matching the dollar value of grants and loan subsidies available to students at eligible schools.
However, other studies reach different conclusions. a 2001 NCES statistical analysis No relationship was found between federal or state aid subsidies and tuition costs, covering 1988–1998.
When Martin Center for Academic Renewal In a 2017 study that evaluated 25 scholarly studies on the topic, the conclusion was that federal financial aid has at least some effect on tuition, but it is probably smaller than Bennett argued and is one of many factors.
Looking at all the studies, it’s likely The Bennett hypothesis probably holds for some areas of higher education (notably for-profit colleges) and some types of aid (notably no-limit student loans), but it is not a universal explanation for tuition inflation.
“College Experience” Premium
American higher education has evolved into much more than credential delivery. Students (and their families) are purchasing an experience in addition to an education: residential life, dining, entertainment, social programming, athletics, and campus aesthetics. This expectation increases expenses.
In 2022 student voice survey Powered by Inside Higher Ed and College Pulse, 63% of students said campus amenities played a role in their decision to attend school.
Colleges have responded to the ongoing arms race of construction: state-of-the-art gyms, upgraded dining halls, high-class dormitories, and research laboratories.
That construction has to be paid for, and most of it is financed through loans, which are then repaid through tuition revenue. Maintaining these facilities adds ongoing operating costs on top of the initial capital expenditure. And this cycle is self-reinforcing: Schools that do not invest in facilities risk losing students to schools that do, and perpetuate closure statistics.
Room and board costs have reflected this trend. According to the Education Data Initiative, the average annual cost of room and board is now approximately $12,986. Adjusted for inflation, this is 68% more than the cost in the 1990–91 academic year.
While room and board inflation has moved closer to the general CPI than tuition inflation Still represents a significant and growing share of the total cost of attendance.
Attending college out of state further increases the cost. The average student pays $9,596 per year for in-state tuition compared to $27,457 for out-of-state.
according to Institute for College Access and Success (PDF file), 22% of students attend college out of state, effectively volunteering for a higher price level.
Cumulative Effect: How These Forces Interact
No single factor fully explains why college is so expensive. And that’s why it’s really hard to curb the continued rise in college prices.
The power of these forces lies in how they mix. State funding has declined so colleges have raised tuition prices. The availability of federal loans gives students the means to pay higher prices, which may reduce institutional incentives to control costs. Administrative development adds additional expense which is spent on tuition. Facility investment increases both capital and operating costs. And once prices go up, they rarely go down.
Each factor reinforces the other. A university facing cuts in state funding does not typically respond by cutting staff or postponing a building project. It increases tuition, knowing that students can borrow to cover the increase. The result is a system with too many accelerators and too few brakes.
These are the same issues that have created the student loan crisis, manifesting themselves in slightly different ways.
Meanwhile, demographic trends are about to test the system. With the college-aged population set to decline due to the decline in birth rates after 2007, schools that have relied on population growth for their operations may face losses.
Institutions that cannot differentiate themselves or control costs may face the same fate as the hundreds of colleges that have already closed.
What does this mean for families
For students and parents making enrollment decisions today, the “why” matters less than the practical reality: College is expensive, the sticker price is rarely the price you pay, and the entire system is opaque by design.
The most useful takeaway from the data is that families should approach the college financial decision with the same rigor that they apply to any investment. This means comparing net prices (not sticker prices) across schools, understanding the total cost of attendance including room, board, and fees, evaluating the return on investment of specific degrees at specific institutions, and borrowing only as much as the expected post-graduation income can reasonably support.
If you can’t afford to “buy” certain “experiences”, don’t go into debt for it. Instead, look for alternative paths that can achieve the same educational results without the additional cost.
The forces driving up the cost of college are structural and unlikely to be reversed. But individual students and families can still make financially sound decisions within the system.
