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Introducing ‘The Tuition is Too Damn High’

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"The Tuition is Too Damn High" is a 10-part series that will run in Wonkblog over the next two weeks exploring the causes and consequences of -- and potential fixes for -- the skyrocketing costs of higher education. This is part one.

My mom graduated from college in 1975. Her senior year at the University of Hawaii at Manoa, the state's flagship campus, cost $322 (around $1,400 today), financed by generous state subsidies. Not only did she graduate with no debt, but she managed to pay her way through college by working part-time.

I also worked part-time in college (writing Wonkbook!) but there was no way that was going to pay my tuition. In total, my senior year of college in 2011-2012 cost $36,305 in tuition, or $52,652 including room and board. Sure, I chose a more expensive school than my mom did. But it wasn’t just that. As parents of high schoolers know, college tuition has been skyrocketing in the past few decades.

According to the U.S. Department of Education, the average annual tuition, fees and room and board at a public college or university in 1964-65 — the first year for which there’s data — was $6,592, in 2011 dollars. By 2010-2011, that had increased to $13,297 -- a 101.7 percent increase. The increase for private schools was even more dramatic. Average tuition, fees and room and board in 1964-65 was $13,233 a year; in 2010-2011, it was $31,395, an 137.2 percent increase.

That’s after accounting for inflation. But some experts think that the adjustment lets colleges off the hook -- after all, the rising price of college tuition is itself a significant driver of inflation. If you don't adjust for inflation, college tuition prices increased 297 percent from September 1990 to September 2012, according to the Bureau of Labor Statistics. Medical care prices, by contrast, only increased 152 percent.

You’d think that such enormous price increases would keep consumers away. You’d be wrong. In 1967, 4.3 million people were enrolled in full-time in colleges and universities as undergraduates, amounting to 2.2 percent of the U.S. population.

About 11.5 million were enrolled full-time in 2010, or about 3.7 percent of the population. That’s a nearly 70 percent increase in college enrollment as a share of the population.

Consumers aren’t being dumb here. They’re being rational. While the upfront price of college was increasing, so were the benefits. The result is that college is pretty much as good a deal today as it was in the past. Michael Greenstone and Adam Looney at the Hamilton Project calculate that the annual returns on investment in a college degree have stayed pretty constant at 15 to 17 percent for the past four decades. For comparison, annual returns are about 6.8 percent for the stock market, 2.9 percent for corporate bonds, 2.3 percent for gold and 0.4 percent for housing. College is a much better investment than any of those, even if you drop out.

Those returns don't include the impact of recent increases in financial aid. Once you take that into account, the returns on a college degree have arguably been growing. That shouldn't come as a surprise to people following economists' debates regarding skills and technology. As Harvard economists Claudia Goldin and Lawrence Katz's book "The Race Between Education and Technology" explains, the demand for highly skilled workers has been rising faster than the supply of late. That has pushed the wage premium for college-educated workers, and thus the returns on a college education, upward. If anything, it's surprising that the increase in enrollment hasn't been larger.

But if the upfront price of college is rising much faster than earnings, how are more and more families managing to pay for it? In large part, by going into debt. The total student loan burden now exceeds $1 trillion, with two-thirds of the class of 2011 taking out loans and over 40 percent of 25-year-olds still in student loan debt. About two-thirds of borrowers have debt loads under $25,000, but that means one-third are looking at more than $25,000 in debt. All in all, 17 percent of borrowers are at least 90 days delinquent on their payments. Maybe that's smart; college is a good investment, as we'll see in more detail in later segments, and some have even suggested that there might actually be too little student debt. But that debt is a new and major part of our financial world now.

It's a lot of money, be it paid by borrowers, by their parents through savings, by state governments, or by the federal government through everything from Pell Grants to loan guarantees.

This series will try to figure out where the money is going, why it's going there and what can be done about it. Stay tuned.