Cutter Family Finances: The Real Cost of College


I met a very nice couple from Mashpee last Thursday night in my office. They wanted help planning for upcoming college expenses for their two kids, in the hopes that they won't be in any danger of missing any meals or needing to sell off jewelry to pay for their kids' education. I empathize with them since I have three kids myself. I told them that when I begin writing those checks every semester, I am sure it will make me wonder if the education my girls are receiving is truly worth the price of a used car every single semester.

Since July, I have been interviewed by Fox News, WGBH, the Wall Street Journal and Public Radio. I have also written a couple of Cutter Family Finance columns—all pertaining to the rising costs of college, our surmounting debt and its impact on American youth.

My wife, Jill, tells me I should admit when I am wrong more often. Well, according to a recent College Board report, I am wrong.

This report, titled "Trends in College Pricing" says that the cost of an education is not rising, as I have been writing for so many months. In fact, it says, if we just look at tuition, the price of a college education has actually fallen over the last 10 years. The report claims that the average student pays roughly 57 percent of "list" price for college, whereas in 2003-2004, it was 68 percent. So now, after adjusting for discounts off of "list," tax incentives and inflation, magically education is cheaper now in terms of what people actually pay.

Hmmm... unless, of course it's not.

The challenge I see with this report is that it jumbles up several items to arrive at an average, and then reports the information as if it applies to everyone. In my opinion, not a true reflection to what is actually happening to the cost of education.

Federal grants, which the US government funds, are only available to those in the lower-income brackets. While this makes college education attainable for those from modest incomes, it neither applies to everyone, nor does it mean that college costs less. Instead, it means that US taxpayers foot some (or all) of the bill.

No matter what the College Board Report tells us (or the Affordable Care Act for that matter—we will talk about that later), shifting the cost to a third party doesn't make the cost go away.

And how come the College Board does not explain that the tax benefits in receiving tax credits of higher education actually flow to the same people that receive those grants? Isn't that illogical on its face? The report does not explain that the discounts off of "list" price are not given to every student. Schools are permitted to offer discounts on whatever basis they want—athletic scholarships, merit scholarships, hardship allowances. What happens to the average kid from the nice middle income family who doesn't qualify for one of these scholarships or allowances? Oh, that's right, they pay.

Now let's talk about the inflation lie. My head is going to pop off if I hear one more financial genius from Bloomberg or CNBC tell the world that something costs the same or less, as long as the price is adjusted for inflation. This only makes sense if everyone's income is also adjusted for inflation, which is not the case. Given that the median household income has failed to keep pace with inflation for the last five years, and is lower now than it was in 1999, more than half of all American households are falling behind.

So it appears that college tuition cost less today than it did 10 years ago, as long as your income is increasing at least as fast as inflation, your income is low enough to qualify for grants, your income is high enough that you just don't care, and/or your student has been offered tuition discounts.

To me it seems highly unlikely that any family actually fits this description, especially in middle class America. What seems more likely is that the College Board is serving its main constituents, colleges, by putting out a flawed piece of research surrounded by misinformation and misconceptions that gets to a desired outcome. This is disappointing, but not surprising to me.

What shocks me is that an article reporting this study received a third of a page in the October 23 New York Times with no rebuttals in the article at all. I'd imagine that the reporter did not take many classes in math or statistics.

No matter how many times I read the College Board report that tells me that costs are down, the fact is education costs have actually moved dramatically higher in the last 10 years. I find it irresponsible to tell parents and our youth that "on average" things are cheaper today, after the cost is adjusted for inflation. It does not lower the bills that show up every semester and that will continue to come for years following college.

However, if colleges tossed in a free car, well, now we are talking. Until that happens, I'll keep reading such reports and news stories with a skeptical eye.

Be vigilant and stay alert, Cutter Family Finance readers, because you deserve more!

Investment advice is offered by Horter Investment Management, LLC, a registered investment adviser. Insurance and annuity products are sold separately through Cutter Financial. Securities transactions for Horter Investment Management clients are placed through Pershing Advisor Solutions, Trust Company of America, Jefferson National Monument Advisor, Fidelity,  Security Benefit Life and FC Stone.  1.


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