You couldn’t avoid a conversation about college costs and student loans if you tried. Everyone is talking about the costs associated with higher education. So far the conversation has revolved around the growing student loan bubble and the escalating cost of education. The scrutiny has been focused on actual tuition costs, but as of yet there hasn’t been enough scrutiny on the percentage of non-tuition costs in relation to total college costs.
The full breakdown of college expenses looks like the bar tab for England’s national rugby team. The list is long, diverse, and it will leave everyone involved woozy. The actual cost of educating a student (tuition) is barely half the battle. Take for instance the list of colleges in Indiana and their expenses (above). Most of the public schools in Indiana charge just as much for non-tuition expenses (room, board, and fees), as they do for the cost of educating a student (tuition).
We’ve got to start asking the question: do schools want to educate you, or do they want to charge top dollar to house you? It’s a fair question based on the policies of most schools. Most schools REQUIRE freshman students to live in campus housing. And by campus housing, I mean housing that is rented from the college. Schools will tell you, as they told me, that these policies exist to maintain graduation and retention rates. Seems like a good explanation, right? But what is retention? To a school, retention is how they keep you there to educate you. To a business, retention is how they keep you there to sell you stuff. Is the freshman housing policy of most colleges a retention strategy or a retention strategy? To be fair, I’m about to oversimplify the housing issue. How big is a dorm room? 150 square feet or so? That seems about right. So why does it cost so much to live in a 150 foot cinder block room for less than nine months? Excellent question.
The cost to run another household
One of the most challenging aspects of divorce is the fact that two households are created. The economic challenges that come with running an additional household are vast. In many cases total income doesn’t change, yet housing, utility, and food costs rise significantly. Oddly enough, this phenomenon is repeated when a student goes to college. Income doesn’t change, yet the number of households does. Somehow this has slipped by the general public.
It’s important to step back and ask yourself a very uncomfortable question for 2012: “Do we need to forego the social college experience in order to make college costs efficient again?” I know it’s not exactly fun to read; I know I’m pretty uncomfortable typing it. For some people, the answer is yes. Some people can afford to spend money on a four year socialization experiment, some people can’t. I realize this isn’t a popular stance, but when has a popular stance ever solved anything? Right. Never.
The solution to your problem isn’t going to come from the institutions or government regulation. Feel free to wait for that to affect your life in a positive way, and in the meantime a select few will navigate their way through this avoidable financial maelstrom. The immediate solution to escalating (total) college cost is to expose yourself to as few of the costs associated with college as possible. This means pay your tuition and little else. Yet few people choose this solution. The numbers above support my assertion. Reduce your room and board costs, and you can significantly reduce the cost of your college education. This is especially true for public schools. The numbers suggest that private schools have done a much better job controlling non-tuition costs than public schools have.
In some cases, students are able to reduce the total cost of their college education by 50 percent simply by living at home with their parents. Is this socially acceptable? Ehhh. It’s no less socially awkward than graduating with tens of thousands of dollars in debt that you have no means to pay off.
Pete the Planner’s list of Indiana College Costs 2012-13 list outlines several different components relating to overall college costs. The total costs data, taken from each university or college’s website, includes tuition, room and board for the 2012-13 school year (fall and spring semesters). Based upon those numbers, the total non-tuition related costs are the approximate percentages outlining the non-tuition related fees paid directly to the university (e.g. additional fees, room and board). The middle column presents CNN Money’s total estimated costs after financial aid (scholarships and grants, not loans), which include tuition, fees, room and board, and books. Books were not included in our total costs data.
Peter Dunn a.k.a. Pete the Planner® is an award-winning financial mind and a former comedian. He’s a USA TODAY columnist, author of ten books, and is the host of the popular radio show and podcast, The Pete the Planner Show. Pete is considered one of the foremost experts on financial wellness in the world, but he’s just as likely to talk your ear off about bass fishing.
>So why does it cost so much to live in a 150 foot cinder block room for less than nine months?
Two words. “Captive audience.”
When you create your own economy, you can do whatever you want.
A few abstract notes:
1. Would it matter if the prospective student knew that that “tuition and fees” are actually less (like, less than half) than the cost to educate that student? Net tuition revenue (NFT) is actually only one component of an institutional budget.
2. I would argue that living a home during college is actually less of a social norm than incurring huge amounts of debt.
3. There are institutions that have gone to a “transparent” pricing model, eliminating the “discount rate.” Most of these institutions have been wildly successful in enrollment, but at the expense of lowering their perceived value.
4. Although you equate the “discount rate” pricing model to jewelry, you’re still describing higher education as a commodity. Could you place a value on your college experience? How would you price that experience in retrospect?
Fun topic, Pete.
Pete,
I definitely think rising costs are an issue and for some living at home can help with this. However, in most cases research shows that students graduate at a much faster rate when the live on campus – and work 12 hrs or less pw- than when they don’t.
One might argue that its a way to sell campus housing but the alternative is a student taking 5 or 6 years to graduate – because of family distractions – and it ends up costing just as much because they are not focused. Or, even worse, they don’t graduate at all.
Another big issue is that the “150 foot cinder block room” is no longer the dorm norm. Colleges are increasingly investing in fancy accommodations to attract students. Did you ever see with Hanover did to Crowe Hall? Schools are trying to emulate the apartment living experience to keep kids on campus, but they also expect kids to pay more for it.
I don’t think it’s just that schools raise tuition and then give grants to make kids think that they’re getting a bargain. They also feel like they need a higher sticker price to be taken seriously. People will automatically assume that a school that costs $45,000 a year must be better than a school that costs $20,000 a year, even if its admission standards are the same. It’s flawed logic, but the schools are aware that it exists and don’t want their reputations, admissions numbers, etc. to suffer because of it.