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Special section The ABCs of higher education

With the credit crunch hitting student loans and costs soaring, paying for college is daunting. But there are a few rays of hope.

Is there help on the horizon for college costs?

Help on the horizon for college costs?
 

Every spring, high school seniors watch their mailboxes, dreams of fat envelopes from their favorite schools dancing in their heads. Meanwhile, their parents are wondering just how they're going to swing covering the ever-climbing price tag for junior's first-choice school. Well, parents and students, take heart -- no tree grows to the sky, and the college tuition redwood may be due for a trimming.

A perfect chainsaw of shifting demographics, political pressure, increasing competition from online and for-profit schools, a cascading credit crunch and other factors may saw a chunk out of sky-high tuition in the coming years.

How did the tree of knowledge grow so high in the first place? Mostly, it's been a situation of demand growing much faster than supply. Over the last half-century, as more Americans sought a higher standard of living through college education, the nation's youth competed for a number of spots at colleges and universities that grew much more slowly.

Even public universities that have expanded rapidly, such as the University of Texas at Austin or Florida State University, have not, up to this point, been able to keep up with the demand for classroom spots. Demand was even higher for the most prestigious universities, as a degree from a top-tier college was considered, by students and parents, as a competitive advantage in the job market. This high level of demand basically has allowed universities, especially those in the higher echelons, to name their price -- and boy, have they.

To illustrate just how much college costs have gone up, let's pick on what many consider the top school in the nation: Harvard University. For the 1958-1959 school year, Harvard's tuition and fees amounted to $1,250. For the 2007-2008 school year, they totaled $31,456, a staggering 2,416 percent increase in just under 50 years. Even when you account for inflation, tuition is still up a whopping 245 percent since '58.

Public schools have not been immune from this rise. For the 1970-1971 school year, tuition and fees at the University of Virginia for in-state students were $484; this year, they were $8,500. That's a rise of almost 1,700 percent in less than 40 years.

The bottom line: Colleges keep boosting their prices, and we keep paying.

Factors that may lower costs
Financial aid for most.
Loans now create risk later.
Effect of online colleges.
Student loan credit crunch.
Government assistance.

"A few schools have announced they're cutting tuition, and a few schools have announced they're not going to increase their tuition," says Barbara Tornow, a higher-education consultant who was previously executive director of financial aid at Boston University. "If you have empty beds and empty classrooms, that may make sense, but it doesn't make sense for many and you haven't seen a lot of schools trying to do that."

Financial aid for most
According to classical economic theory, when prices go up too fast, demand falls. People either make the choice not to buy (not really an option in many people's minds when it comes to college), or they can no longer afford to buy. With the median family income being right around $48,000, according to the U.S. Census Bureau, and the average cost of a year of college with everything included ringing in at $14,589 at public universities and $24,044 at private ones, you'd think that college affordability would have already hit a wall. But one thing has helped parents and students keep pace with this meteoric rise in college costs: financial aid.

-- Updated: July 22, 2008
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