Unless you have been living under a rock, it is highly probable you have seen a news program or read an article on the topic of increasing costs of college tuition. It seems that a lot of the coverage focuses on the associated student debt and the concerns that surround it, but little attention is paid to the incomes that graduates with Bachelor's Degrees actually earn. When discussing this topic in the office not too long ago, I was inspired to look at the empirical data. Here are some of the differences between 1984 and 2014.
It should be no surprise that cost of education rose over the 30 year period, what is startling is the pace at which it grew. The average cost of a Bachelor's degree grew at a pace that far exceeded inflation over the same period.
In 1984, the average cost of a four-year degree including tuition, fees, room, and board totaled $18,252. Over the next 30 years, inflation averaged 2.8% a year. If we inflate the cost of that education to today’s dollars, the cost should be $41,890, but in 2014, the average cost of a four-year degree program was $86,912. That’s a remarkable 476% increase, put another way the cost of education outpaced inflation by a whopping 207%!
At this point, I would like to add some perspective regarding the income for a group of workers in 2014 and compare them to the comparable group of workers 30 years earlier in 1984.
In 1984, the average income for college graduates aged 23-31 was $31,969. In 2014, the average income for the same group was $49,900. The inflation-adjusted income would be $73,386 in 2014 dollars. To compare these two income figures, consider this: the purchasing power that is associated with the 2014 group is only 68% of the purchasing power of the 1984 group.
In 1984, the total cost of a Bachelor's Degree represented 57% of the average annual salary a worker with that degree could expect to earn. In 2014, the total cost of a Bachelor's Degree represented 174% of the average annual salary a worker with that degree could expect to earn.
The costs of education have risen at a rapid pace, and indications show that this trend is continuing. What I find concerning is that the incomes associated with a Bachelor's Degree have not kept up with the rise in the education costs, but declined on an inflation-adjusted basis.
I find it hard to believe that this trend can continue for another 30 years, markets (whether it be stock, bond, labor, or education) experience corrections from time to time. I would expect to see a correction of some variety in the realm of college education in my lifetime. What will be the trigger? Who knows! It could come as a result of governmental policy changes, issues with the student debt market, or a gradual societal shift away from the current norm, etc.
I am confident that advanced education will remain a valuable experience worth pursuing in some fashion, however, we must take a moment to consider how the world is changing. Change is always on the horizon, we live in constantly evolving society, predicting the future is uncertain but this is no excuse to avoid planning for your own. It is our job to develop, implement and monitor our clients’ financial plans so that we can help them achieve their goals. Whether we see these changes soon or many years from now, the purpose of financial planning remains the same: identify your goals, develop a plan, follow the plan, and adapt when necessary.
Thanks for taking a look!
Charlie Achterkirch