College tuition vs. the stock market
Is college getting less affordable over time?
That’s certainly conventional wisdom. A Pew Research Center survey in 2011 found that 75% of adults believe “college is too expensive for most Americans to afford”. That same study found that economics is the single biggest reason many young adults choose not to go to college at all.
Of course, most parents and students know this, and they start preparing financially for the possibility of college years beforehand by saving money and investing it in the stock market. But does that work? How does the growth of college costs really match up with the typical growth of stock investments?
Here’s what it looks like over the past 30 years.
Hey, that’s great! Over the past generation, the money you invested in the S+P 500 would’ve grown faster than the rise in college costs (tuition plus fees) at both private and public institutions. (By the way, the pattern for two-year schools looks very similar to that of four-year private schools.)
But before you pop open your nice bottle of champagne… here’s the same chart for just the past 15 years:
Well, that’s a big ball of suck. Both public and private college costs have continued to climb steadily throughout the 2000’s, while the stock market has barely treaded water. Public schools obviously started at lower cost levels than private schools, but that gap is narrowing somewhat.
So yes, college is getting less affordable over time, even after adjusting for inflation and your money growing. For those of us with young kids (or thinking of having kids), we’re left with a few choices:
- Push for legislative changes to cap college tuition cost increases, particularly at state-funded schools, and to continue or even expand tax incentives for college enrollment.
- Encourage donors and external funding sources to provide more scholarships and grants for students. And research the hell out of existing sources.
- Hope the stock market has a decade-long upswing. It’s happened before (see the mid- to late-1990’s), so at least there’s precedent.
- Somehow find ways to save up a lot more money in the years ahead.
- Find occupations that don’t require a college education. Millions of Americans are doing very well without a college degree. Unfortunately, the overall number of non-degree jobs available continues to shrink, which leads to higher long-term unemployment for that segment, as well as other potential disadvantages.
- If all else fails, consider creative means of supplemental income generation.