top of page
Search

The High Costs of Grad School (Pt. 1)

Updated: Mar 23, 2023

This is part 1 in a 3 part series on education costs. This will discuss the basic cost increases in undergraduate education. The second will compare these increases to graduate cost increases. The third will discuss how graduate institutions are used as slush funds for “university businesses,” that is a university that operates like a holding company.

Ah the massive increase in the cost of education. The four year institution holds a special place in the hearts of many young people, and disruptive technologies aside (MIT Open Courseware, Coursera, Khan Academy, the list goes on), it is still the best option for pursuing a career in your field of choice.

Your education, lest you think of it this way, is an investment in your future career and future self. The vast majority of us are not fortunate enough to be borne to families that can outright afford the cost of an undergraduate, let alone graduate school, education. Many of our parents lament the current cost structure that appeared to, relative to the cost of living, be significantly more expensive than the costs they incurred.

The National Center for Education Statistics provided the data for the following information that summarizes the increase in education costs as a function of 2009-2010 dollars. What that means is that all costs have been normalized to what they would cost if you looked at them in 2009-2010 (the normalization occurs through the use of the Consumer Price Index, which allows us to adjust for inflation, and has been adjusted to the school year schedule). Here are the figures:


There’s good news, and bad news with the above charts[1]. First, the quasi-good news: Costs (an average of the public and private institutions) appear to increase at an average clip of anywhere between 30% and 40% over ten years. As long as you know that, you can plan, right? Remember that little trick your mom taught you about saving your chore money called compounded interest? Well it applies here too. The increases above are calculated relative to the decade before it (our 1st level derivative). Thus, the increase from the beginning of the century to the 2010-2011 year factors in all prior increases, and compounds these rising numbers. This is why the red number looks so much higher. What we can see from a very small sample size is that private institutions are decelerating the rate of increases while public institutions are accelerating the rate of the increases over the last three decades. Given where the costs started, this can be expected as the public sector attempts to capture the gains in the private sector (all other factors being equal, which they most definitely are not).

As you can guess, the bad news is that the costs of tuition have increased by a factor of one and a half with respect to normalized (inflation-adjusted) figures. The income per person in the United States in 2009 (per capita income) was $38,846. Thus, as a function of your income, the total cost of one year of tuition went from being 22.54% of your income to 55.75% of your income. Again, the numbers above ARE adjusted for inflation, so at the drop of a hat you have lost an additional 30% of your income. Of course, you can’t pay that at once, right? Ah, the beauty of financing. Drawing out my inner used-car salesman, let’s amortize the cost of one year of college as it would cost in 1980 versus the cost of one year of education in 2010[2].


As you can see, not only are you paying additional upfront costs that actually relate to the cost of tuition, you are ALSO paying significant interest (again…these are adjusted for inflation!). The total dollar cost has thus risen an ADDITIONAL $3,519.21 per year of education. Obviously, this is because our principal is higher (the cost of education).

Numbers are all fun and games until someone gets hurt. So Brian, what about my great grand kids? How much am I going to need to save for them at the dawn of the 22nd century when my body is frozen in carbonite and my head is placed next to Ted Williams at an obscure cryogenic facility in the mountains of Utah[3]?

Let’s take an average of our first three years of increase relative to 2009 monies: an average increase of 35.31%[4] per decade. Here we go:

Option A) Pony Up. Option B) Time for MOOCs [5].


[1] Figures are for 4-year institutions only, please see http://nces.ed.gov/fastfacts/display.asp?id=76 for complete statistics [2] Numbers amortized using www.amortization-calc.com [3] *NERD ALERT* [4] The average of the first three decades used above came from each decade’s average percentage increases of 4(0.51% +30.02% + 35.39%)/3 = approximately 35% increase per decade. The underlying assumption is that costs do not decelerate or accelerate, but instead maintain this average increase.

0 views0 comments

Recent Posts

See All

Comments


bottom of page