According to an article published by US News in September 2017, tuition at in-state public universities more than tripled from 1997 to 2017 (300% increase). Private university tuition increased by over 200%. Meanwhile, the US CPI (inflation index) increased only ~53%.
What does this tell us? College education inflation has significantly outpaced normal/broad-based inflation over the last 20 years by a very wide margin. If this persists, parents' ability to save for their kid's future college expenses will diminish to a point wheres all but the ultra rich will be priced out of the higher education market.
What or who was to blame? More kids going to college? More access to student loans (both federal and private)? An ever-increasing wage gap between college educated vs. high school GE individuals forcing more people to pile on debt to stay competitive?
We think it's a combination of all of the above. However, we are not convinced this significant disparity between broad inflation and education inflation will persist over the next 20 years.
It's simply not sustainable. At some point, demand should subside (because of unreasonable / unaffordable growth of college expenses relative to the incremental earnings a college degree generates) causing costs to fall. After all, the demand for higher education comes from people seeing the return on the investment in the education and from easy access to student loan credit. As costs go up, the return on education acts inversely... that is, it goes down all else being equal.
Online Education Is Here to Stay - many reputable higher education institutions are now offering 100% online degree programs that give students the opportunity to obtain an equivalent degree to those students going through the in-person (more expensive) programs. Some large employers are even paying for the cost of these online degree programs to retain employees long-term via work-study programs. That's a direct shout-out to Starbucks btw who has partnered with Arizona State University Online to provide this AWESOME employee benefit. Kudos to you Starbeez.
Peer to Peer Education Websites Are Gaining in Popularity - while they don't necessarily carry the "prestige" of a degree from an accredited institution, consumers of education can definitely find quality content at very low prices (we'd like to think Marriage Money Bootcamp will fall in this category). These alternative education sources will put downward pricing pressure on traditional 4 year universities.
Online "competency" testing tools may shift us to more of a meritocracy vs. a 4-year-degreeocracy. If technical / competency testing tools become more instrumental to the hiring process, more consumers will have the opportunity to "self-teach" a skill and prove themselves via these tests vs. having to provide evidence of a formal degree. For instance, there's now precedent in the software engineering industry to weigh results of an online skills test, like HackerRank, over what institution a candidate came from.
We love this trend as it should support more equality of opportunity in the future as lower-income people will have a less expensive path to gaining more job skills and access to higher paying jobs via persistence and self-teaching using online programs.
The Social Construct Is Changing, Politicians Are Once Again Urging a Re-Focus On Apprenticeships and Vocational Programs
There still seems to be a negative stigma against people in the workplace who don't have a 4 year degree. But, the idea that one most have a 4 year degree to be worthy of a high-paying job is changing. Just google "apprenticeships vs. college" and you will see a long list of reputable sources outlining the need and the attractiveness of going the vocational route vs. a 4 year degree.
As Forbes outlined in a March 2017 article, Germany, despite very high wage costs has been successful with their diversified apprenticeship system in building one of the world's strongest "export economies focused on high-value manufacturing". If more of our youth consider non-4 year degree vocational programs, there will be further downward pressure on traditional college costs.
Long-term, we believe that a financial plan that addresses college education funding needs can and should estimate future cost increases closer to broad-based inflation levels (3-4%) vs. the rates of increase seen in the last 20 years (~5-6%). This scaled back assumption should provide for more realistic monthly savings targets which will free up cash flow for other worthy financial planning uses such as increased funding of retirement accounts, debt payment plans, or insurance/protection programs.