Why Exactly DOES College Cost So Much

I’ve written here on a couple of occasions about the ROI, or return on investment, associated with a college education.  However, in my discussions with families over the last year, it has become apparent that, while ROI is of concern to families, the real focus of most in the college selection process today is COST.  So, let’s spend a few moments on this topic.

When talking about the COST of college, it is important to consider what is meant by the term.  There are two numbers to pay attention to when considering cost: GROSS COST and NET COST.  GROSS COST refers to the sticker price – what the college prints in its materials as the cost of the institution.  This is usually broken out into three areas:  Tuition, Room & Board, and Fees.  As an example, here is a breakdown of the GROSS COST of Dean College per year:

Tuition:   $33,230
Room & Board:  $14,260
Fees:  $250

By comparison, here is a breakdown of the GROSS COST of UMASS Amherst per year:

Tuition:  $1,714 (MA Resident)
Room & Board:  $9,937 (MA Resident)
Fees:  $11,516 (MA Resident)

A couple points on the examples above.  You will note a higher tuition rate at Dean than UMASS.  This is due in part to Dean being a private school and therefore not receiving investment from the State to run the institution.  However, you will also note that the true GROSS COST of attendance at UMASS is actually calculated in FEES, not TUITION.  Fees at UMASS are 572% higher than tuition, but must be calculated into the GROSS COST of attendance.  So, the total difference in GROSS COST between Dean ($47,740) and UMASS ($22,877) is $24,573/year – significant.

BUT… GROSS COST is not what most students pay, particularly at private colleges.  In fact, college pricing is a lot like buying a car – you almost never pay sticker price.  Colleges and Universities offer students assistance to help bring down the GROSS COST, and when this assistance is taken into consideration, the remaining amount is referred to as NET COST. 

To explain, let’s look at our Dean and UMASS comparison again.  I utilized the NET PRICE CALCULATORS for both Dean College and UMASS.  When entering data, I used a mythical student from a family of 5 with a household income of $90,000/year and 1 student in college:

                                                                                          DEAN                    UMASS
GROSS COST                                                                   $47,740               $22,877
ESTIMATED ASSISTANCE FROM COLLEGE                $20,000               $818     
NET COST                                                                        $27,740               $22,059              

So, when comparing the NET COST, we see that the difference between Dean and UMASS is much less than originally seen when only comparing GROSS COST:  $5,681.  So, the actual cost difference to a family for a private school education (and a significantly smaller school in Dean’s case than a large school) is less than $6,000.  Note that these numbers do not take into consideration federal financial aid, student loans, or outside scholarships.

Now that we’ve tackled the intricacies of COST in dollars and cents, let’s look at what these dollars pay for.  Educating a student has a price tag, and that price tag can be substantial.  The infographic below illustrates well just how tuition dollars are allocated:



Let’s breakdown the categories:

·        Instruction is fairly self explanatory.  This includes salaries to faculty who teach classes (in most cases, people with advanced degrees).    

·        Research refers to dollars spent to set up labs and research projects, to purchase materials to support research, and the infrastructure required to facilitate research.

·        Public Service refers to dollars spent in the community, either in terms of donations of monetary support through sponsorships or advertising or the cost of providing volunteers and other resources to community agencies.

·        Academic Support refers to a variety of services provided to college students ranging from tutorial services and academic centers to academic advising to career development services to counseling services to disability support services.

·        Scholarships refers to money invested from tuition into scholarship funds to support future students.

·        Auxiliary Enterprises covers student life activities, athletics, on campus events and weekend activities, and the infrastructure costs of an institution from facilities maintenance to heat and electricity to campus security.

·        Independent Operations are dollars spent on the often unique offerings of educational institutions such as conference and meeting facilities, theatres, and athletic venues.
 

When viewing this infographic, many will make the mistake of suggesting that only 32.7% of tuition dollars go to instruction, but this view misses the point.  Many of the other categories highlighted here reflect direct expenditure on academic content delivery, such as the benefits that come from on campus research (11.2%) and academic support services necessary to the academic success of today’s students (30%).  So, when combining these three areas, 73.9% of tuition expenditures are paid to support academic content delivery.  The remaining 26.1% is no less important, because college is a living/learning experience that is dependent upon state-of-the-art facilities (everyone wants functional and reliable technology infrastructure) and student activities that help shape the personal development of students.

Let’s look more specifically at Room & Board expenditures.  Because college is a living/learning experience, the benefits of on campus living cannot be understated.  However, there is a monetary cost associated with supporting a student safely in on campus living.  As an example, the cost of Room & Board at Dean College is $14,260.  Where does this money go?  Consider what it would cost a student to move out of mom and dad’s house to live on their own per month:

RENT:                   $1,000
FOOD:                  $300
INTERNET:          $75
CABLE TV:           $80       
TOTAL:                 $1,455

Now, multiply that $1,455 by 10 months and you get a total expense of $14,550.  There is your Room & Board cost. 

Certainly, the cost of college is a concern to many in today’s challenging economic conditions.  However, it is only when we look critically at what is being delivered by the dollars actually paid for families to fund higher education that we see that NET COST (which has actually gone DOWN over the last 7 years as institutions increase grant and scholarship expenditures) that we see that the money invested is being well managed. 

When we consider recent studies that bring new light to the incomparable value of higher education toward economic stability and prosperity, we see that college remains one of the most worthwhile investments one can make.