One of the most common questions prospective clients ask me is, “Why does college cost so much?”
But what they’re really asking is, “Why does college cost so F****** much, and how the F*** am I going to pay for it without taking on a huge F****** pile of debt or working until I’m F****** 80?!”
At least this is what I imagine the Gen X parents are really thinking (Millennials and Boomers might not think this way, I don’t know…).
In case you’ve been living under a rock for the last 10 years, let me share some shocking statistics about the cost of college today.
The average cost of attendance for a 4-year undergraduate degree at an in-state public university is now over $100k. That’s all in (tuition, fees, housing, food, textbooks you won’t read, etc.)
If you go to an out-of-state public, it’s around $175k.
Privates are around $225k.
Elites (Ivies and “Ivy Plus”) are over $300k.
By 2030 there will be numerous schools charging over $100k per year.
In fact, Vanderbilt is almost there now, coming in at over $98k/year.
WTF?
Why does college cost so F****** much?
People who study this have different theories. So let me share with you what they say, and then provide some advice for what you can do about it.
Theory 1 – Inflation
The first theory is pretty straightforward. As the Fed “prints” more money every year, the cost of goods and services goes up, college included. Professor salaries. Building costs (College Presidents LOVE to build shiny new buildings, see Theory 3). Utilities. Etc.
As operational costs go up every year, colleges have to raise prices to pay their bills.
Theory 2 – Reduced Public Support
This is a left-wing favorite. Over the past few decades, states have cut back on spending on higher education. Whenever tax revenue goes down (see the “crash” of 2008-2009), states have to cut budgets somewhere and higher education is an easy target. But since university operational budgets don’t go down (see Theory 1), this leaves a budget gap that colleges must meet by raising tuition and fees on students.
Even when states “freeze tuition,” you’ll see public schools get around this by raising “fees.” Smart, or shady? You decide.
There is some truth to this theory. But it only explains why the cost of public colleges has gone up, when in fact, it’s the private schools that have raised their prices the most.
Theory 3 – Amenities Arms Race
As public universities have had their state appropriations cut, they’ve become “enrollment dependent.” In other words, they need more students, and student dollars, to pay their bills. As such, they compete for students like businesses compete for customers (which can be a good thing for you…as I’ll explain at the end).
To attract more customers, universities have gotten into an amenities “arms race.” Fancy dorms. Sushi stations in the cafeteria. Big Time Football. Lazy rivers and rock-climbing walls. Mental Health counselors. The Office of Every Need Met (overseen by an Ass. Dean). Academic Tutoring Support. IT. Etc.
All of that stuff costs money, and colleges pass the costs to you, the customer.
By the way, this is why many in-state public schools now recruit aggressively from out-of-state. The OOS kids are…full pay! Cha-ching.
Theory 4 – Supply and Demand
Why do colleges charge so much? According to this theory, because they can. Full stop. This is why, for example, the elites charge the most (along with Theory 6 and 7). 40,000 kids applied to Harvard in 2024 for 2000 seats. When you have 40,000 students begging to get in, you can pretty much charge whatever you want.
I can hear the Harvard President saying, “Don’t want to pay the high cost? Ok, bye.” And then calling out like a barber shop, “Next!”
Theory 5 – Easy Money
This is a right-wing favorite. It blames the government for another well-intentioned bad idea. As college prices have gone up, the government has tried to “help” by offering families ways to cover the bill – in the form of easy-to-get (guaranteed, in some cases!) Federal loans. In doing so, they’ve made the problem worse.
Here’s how.
The amount of Federal loans a student can take out is capped at $27k for 4 years.
BUT…parents can take out Parent PLUS loans for up to the full amount of the cost of attendance (minus other financial aid).
So if a college charges $100k for 4 years, and the student can take out $27k, parents can take out $73k in PLUS loans to “fund the gap.”
And if a college charges $300k? Parents can take out $273k!
See the problem?
Because colleges know parents have access to easy and virtually unlimited loans, they keep raising the prices knowing that Mom and Dad will eat it because they don’t want to crush little Bobbi’s dreams. This is what Economists call “perverse incentives.”
Theory 6 – Chivas Regal Effect
This is my favorite, because I’m a Behavioral Finance nerd. The “Chivas Regal Effect” is when consumers mistake the price of something with its quality. “If something costs more, it must be better,” the (mistaken) thinking goes.
It’s called the “Chivas Regal Effect” because Chivas Regal famously (infamously?) used this marketing tactic. CR was always mediocre whiskey, but a few years ago they raised their prices significantly and people suddenly began to see it as a top shelf booze even though the recipe stayed the same. It was/is an illusion.
Colleges do the same thing. Research shows that the quality of education in our colleges has actually gotten worse over the years, yet colleges are charging more.
This is especially true for the fancy elites and private schools. Students and parents are obsessed with rankings. The more “prestigious” a school is, the more students want to go there. And, of course, the more students want to go there, the more the school can charge (see Theory 4 again).
So schools are charging much higher prices to appear to be higher quality, even though they really aren’t.
Theory 7 – Coupons
This last theory pairs nicely with Theory 6: “it’s a bullshit sales trick.”
The cost is an illusion; almost no one pays full price. Schools have figured out that a good strategy to hook students is to raise the price (a la Theory 6) and then give big “discounts” in the form of fancy-sounding scholarships (“The Whatever U Presidential Leadership and Academic Development Scholarship”).
Scholarships are just…coupons.
But they are emotionally powerful coupons.
Here’s how.
Fancy U charges $75k/year. Parents and students think, “wow – this must be a GREAT school because it’s so expensive!” (Chivas Regal)
Then, F.U. sends them an award letter saying, “Congratulations! You’ve been awarded the prestigious F.U. Presidential Leadership and Academic Achievement Scholarship of $25k per year!!! That’s a $100k scholarship in total!!”
The parents GLOW with pride and tell all their friends at pickleball.
“My daughter got into F.U., and they gave her a $100,000 scholarship!!!! I’m so proud!!!!!”
And the family is hooked–and on the hook for a net price of $50k/year.
It’s an amazingly powerful trick these schools are playing.
I hate this tactic so much.
F*** You, F.U.!
So What Can You Do About It?
Now that you know some of the reasons why college (seemingly) costs so much, you’re probably wondering, “What can we do about it?”
Here’s the answer: play the game, don’t let it play you.
First, optimize your income and assets from a Student Aid Index (SAI) perspective so you look as poor as possible when you file the FAFSA and CSS Profile. The way college pricing works at many schools is the lower the SAI, the lower the net price. There is a science to this, so get help from a professional like a Certified College Financial Consultant (CCFC) who knows how to do it right. If you don’t know your SAI, click here to get our FREE “College Money Report” with your SAI and the net prices of 3 schools of your choice.
Second, don’t be fooled by the marketing tricks. Know that every fancy thing you see on a campus visit is curated to get you excited about going there (and the cost of those things will be reflected in your bill). Know that the quality of education is basically the same at just about EVERY school in the country (I’m serious, this is an empirical fact – again, read this book). Lastly, and most importantly, know what the net price is going to be before applying so you don’t overlook schools that might give you a great deal or fall in love with schools that won’t.
Third, ask every single one of them for more help. When you get your award offer (Spring of Senior Year), appeal for more aid. Remember, other than the most elite schools, nearly all colleges are in competition with each other, especially for kids who have high grades and test scores. In fact, many schools actually hold back a pot of aid money until the Spring for this very reason. If they’re not on target to meet their enrollment goals, they might just give you more aid to get you to enroll.
Use this to your advantage.
Hate the game, not the player.
*The content contained herein is intended as education and entertainment, and does not constitute investment, tax, or legal advice. Please consult the relevant advisor before making any decisions. Additionally, any opinions expressed here are solely those of the author, and do not represent the opinion of Leetown Advisors or its affiliates.
