Why Tuition is Rising

If we examine figures from the past we see that tuition has been increasing at a rate higher than inflation for over 30 years, resulting is higher student debt for an entire generation of college grads. In 2011, the average student loan debt was nearly $30,000, while the government’s average Pell Grant aid remained below $5,000, as it has been since 1977. Why are college costs increasing faster than people can afford to pay for them?

Here are some facts that can help illustrate that college students at state schools, which is where the majority of Americans go to pursue their college degrees, are in a worsening financial situation:

– In the period of 2000 to 2010, funding per pupil at state universities fell by 21 percent – from $8,257 to $6,532 in inflation adjusted dollars.

– Since 2008, after the recession hit, total public funding for higher education declined by 14.6 percent.

– The situation varies greatly from state to state. For example, in 2010, the percentage change in public funding per pupil ranged from a negative 18 to a positive 16.7 percent. In California and New York, public funding declined by 11.6 and 7.5 percent respectively. The big winner was North Dakota, which boosted its commitment to higher education by 16.7 percent, followed by Texas at 6.6 percent.

– In every year from 2001 to 2011, a third of states experienced funding cuts and in more than half of those years, two-thirds of states did.

All in all, a wide variety of factors have contributed to the situation. Let’s look at a few.


Naturally, this comes at the top of the list of reasons for tuition rise. Natural economic processes affect all areas of life and educational institutions are no exception. This accounts for about a 2% annual increase in the nominal dollars charged for a year of tuition. On top of this, the rising nominal cost may discourage some students from enrolling, and the lost revenue is passed on to the students that remain.


One of the basic principles in economics is the notion that demand drives prices up. With more and more people attempting to enroll in college , schools are put in a position where they can name their price. It’s no longer a question of making higher education affordable, because there are plenty of students that can afford to pay the full fare. In turn educational institutions are actually on board with this increase as it allows for updating their base, staff salaries, facilities and programs. Colleges choose to maintain and increase quality at the expense of the tuition rise by spending more rather than by reducing costs or reallocating funds.


It’s a widely known fact that the distribution of scholarships is not uniform and students who do not receive one end up funding the grants for those that do. Private colleges as well as those that do not receive state funding are particularly vulnerable and contribute to this problem because as education costs rise, students start relying more on financial aid.

Of course, there are other contributing factors, such as availability of classes, popularity of majors and so on that can affect the cost of tuition. Naturally, ivy-league schools remain at the top of the list of educational institutions that are far from affordable, but still attract the most attention from students. This goes on to show that despite the cost, students will continue to be drawn to the most expensive schools in search of a combination of quality, prestige and value.