Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, July 3, 1995 TAG: 9507030001
SECTION: BUSINESS PAGE: A12 EDITION: METRO
SOURCE: JANE BRYANT QUINN WASHINGTON POST WRITERS GROUP
DATELINE: NEW YORK LENGTH: Medium
The rise in the cost of college tuition soon will slow dramatically. When your young child goes to school, you will owe much less than the typical long-term projection shows.
The reason? Demographics, says Richard Hokenson, chief economist for the New York investment firm Donaldson, Lufkin & Jenrette. The number of young people reaching traditional college age is beginning to rise, after 15 years of decline.
The more students the colleges have, the less they need to raise their prices, Hokenson says. Over the next 15 years, he believes, tuitions will run only slightly above the general inflation rate. Family incomes should rise faster than that. The happy result: College should start to become more affordable again.
Hokenson turns to history to make his case.
From 1964 to 1980, when the baby boomers went to college, the schools had no trouble covering costs. Hordes of paying students crowded the classrooms, so tuition increases were small. At private four-year colleges, tuition rose by an average of 0.9 percent a year, after adjusting for inflation. Believe it or not, at the public colleges, real costs dropped by 0.4 percent. Comparatively speaking, those were the easy years.
But after the boom came the ``baby bust.'' The number of young people declined in almost every year from 1980 through 1993. The schools recruited more adults, but not enough. Many college administrators faced high fixed costs with not enough students to fill the seats.
To keep their institutions going, they had to raise the price per head. Tuition jumped about 5 percent, after inflation, at both private and public colleges and universities. At the same time, real household incomes were rising only by 1.1 percent. College became a burdensome buy. Parents got scared. Student indebtedness increased.
Happily, that's about to change, Hokenson says. The ``echo boom'' - children of the boomers - is starting to reach college age. For the next 15 years, the pool of young students will increase. It costs colleges very little extra to fill an empty classroom seat, so these new students will produce a lot of additional revenue. That means that the schools will be able to give their professors raises and keep the classrooms heated, even without tuition boosts.
Tuition isn't your only cost, of course. There are books, fees and, for residential students, room and board. But they've risen less than the costs of tuition, especially at public institutions.
Other things affect tuition, too, like government funding, the pace of economic growth and the supply of part-time students. But in Hokenson's studies, demographics matters most.
So what is his guess for tuition boosts, between now and 2010? At most, a mere 1 percent a year above the going inflation rate. If inflation runs at 2 percent, tuition would rise at a moderate 3 percent. With more rapidly rising family incomes, that cost should be easier to absorb.
This analysis has several implications for savers:
Future costs will be high, but not nearly as awful as the projections currently used by stockbrokers and financial planners. For a student graduating in 1994, four years of private-college tuition cost families about $40,000, plus books, fees, room and board. Assuming a flat annual 7 percent increase, as some planners do, you'd have to prepare to pay $79,000 for four years of tuition by 2004.
But if the increase in tuition turns out to be 3 percent, you'll pay maybe $54,000. Four years at a public college might cost only $12,000 in tuition, up from around $9,000 today.
The lower the price increases, the easier it will be to pay for college out of current income, savings and the savings of your children.
Although the echo boom will help ease the crisis of college costs, there still aren't enough workers to fully finance Social Security. So keep on saving.
by CNB