The Cost of College is Not Rising

Everyone knows that the cost of college has gone through the roof. But everyone might be wrong. An analysis of the net cost of college by Scott A. Wolla of the Federal Reserve Bank of St. Louis finds that the net cost of college has not changed over the past decade—after adjusting for inflation and financial aid.

Although average college tuition and fees climbed from $24,070 in 2003-04 to $30,090 in 2013-14, the net cost (minus financial aid) fell from $13,600 to $12,460 during those years (in 2013 dollars), reports Wolla. The reason for the difference between the sticker price and the net price is price discrimination.

"Price discrimination allows colleges to charge many different prices for essentially the same service. This practice benefits students from low-income families," explains Wolla. In other words, middle and upper-income families are subsidizing the cost for low-income families. But there is no free lunch, he says. "The cost burden has become increasingly progressive as wealthier families are paying more for education and subsiding needier students."

Source: Federal Reserve Bank of St. Louis, Page One Economics Newsletter, "The Rising Cost of College: Tuition, Financial Aid, and Price Discrimination"