Why Is College So Expensive? 5 Reasons

Student loan debt in the U.S. passed the $1.75 trillion mark this year, and while rising tuition may be slowing down, some variables continue to drive up the cost of earning a degree.
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Updated on October 12, 2023
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  • Higher education costs have increased more than 170% over the last 40 years.
  • Lack of regulation of tuition costs, along with increased expenses, raises total costs for students.
  • Administrative overhead and demand for more student services also increase costs.

The cost of a college education has risen exponentially over the last few decades. According to data from the National Center for Education Statistics (NCES), between 1979-1980 and 2021-2022, college costs increased by 136% when adjusted for inflation.

So how do institutions actually determine how to set these exorbitant costs? A 2022 report from the State Higher Education Executive Officers Association revealed that at both two-year and four-year institutions, student affordability, the level of state general fund appropriations, and the cost of instruction were the most significant factors influencing how tuition prices were set.

Yet, the cost of college continues to be unaffordable for many and leaves a growing number of students with considerable debt.

More than ever, students and families have to weigh the burden of college expenses against the benefit of a postsecondary degree. But why is college so expensive in the first place? Here are a few of the reasons why the average cost of tuition has skyrocketed.

Why Is College So Expensive in the U.S.?

As All Expenses Rise, the Full Cost of College Rises Too

Between the 1992-1993 and 2022-2023 academic years, the total cost of college nearly doubled at private four-year institutions and more than doubled at public four-year institutions.

One reason colleges charge more now is because of increasing expenses for educating and housing students at both public and private universities, according to research from the Lumina Foundation, an education nonprofit. These expenses include instruction and administration, athletic programs, student healthcare, food service, housing, maintenance, as well as a more modern expense — marketing.

In fact, colleges' expenditures are rising even faster than tuition.

Between 2009-2010 and 2020-2021, universities' total expenditures increased by 49% at public institutions and 54% at private nonprofit institutions, according to NCES. Only at private for-profit institutions did expenditures actually decrease over time.

During the same period, average tuition and fees increased by approximately 27% at public institutions and by 16% at private nonprofit institutions. Tuition and fees decreased by approximately 10% at private for-profit institutions.

Universities Are Investing in More Student Services

As college enrollment declines, universities are upping their offerings to ensure they attract a robust student body.

Some of these additional add-ons include improved career services to help students find internships and jobs after graduation, updated facilities, and standout technology offerings — from VR headsets to 3D printers.

As schools invest more to attract students, costs for students go up. Between the 2009-2010 and 2020-2021 academic years, student services expenditures increased by 58% at private institutions and 43% at public institutions, per NCES.

Tuition Prices in the U.S. Aren't Regulated

One-third of developed countries around the world provide free higher education while another third cap tuition at very low amounts — often less than $2,400 a year. But the U.S. does not limit how much institutions can charge for tuition, which allows these costs to continue rising without regulation.

To find students capable of paying high tuition costs, universities may target large numbers of out-of-state and international applicants. Out-of-state students may pay double the cost that in-state students do and international students often pay triple that amount, according to the American Council on Education.

And at private institutions, where tuition costs are considerably higher than at their public counterparts, factors like prestige and selectivity allow schools to charge exorbitant sticker prices. Though these institutions tend to offer generous financial aid packages, they also still tend to admit wealthier students, a recent report by Opportunity Insights reveals.

Funding for Public Universities Is on the Decline

While funding for public education across the U.S. varies greatly between states, higher education funds have generally declined all throughout the nation over the last few decades.

Lumina's research shows that government subsidies for higher education amount to little more than half of the total education revenue received by public colleges and universities. This is significantly less than during the late 1980s when state funding amounted to 77% of this same revenue nationally.

According to a 2022 National Education Association report, 32 states spent less on public colleges and universities in 2020 than they did in 2008. During the same period, many states instead spent more on institutional debt.

Costly Administrative Overhead

While administrative costs can't take all the blame for tuition increases, studies show that institutions have had to offset the expense of employing more non-academic staff by raising tuition rates. And for the most part, these institutions have no tracking systems in place for administrative spending, nor tools to compare budgets to actual spending.

For example, when California conducted a state audit on University of California colleges, they found hidden surpluses, misappropriated funds, and excessive administrative salaries.

How to Make College More Affordable

While no college affordability policies have passed into law as of 2023, a number of efforts at the state and national levels look to make college degrees more financially attainable.

For example, nearly half of U.S. states already offer some type of free tuition program for two-year institutions. Program participants can receive an associate degree for as much money as it takes to cover books and fees, then either enter the workforce or transfer to a four-year college.

Though plans for broader free community college seemed likely in early 2021 through Biden’s Build Back Better domestic spending bill, late last October the provision was cut from the bill in a bid to gain the support of Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona, who both opposed the policy.

With these plans stalled for the foreseeable future, degree-seekers' best choice is to take advantage of cost-efficient education options like free-tuition programs at two-year colleges and dual enrollment for high schoolers.

If you're struggling to figure out how to afford college amid rising costs, check out the BestColleges guide to graduating debt-free.