Inflation Might Be Tame, But College Costs Keep Soaring

The cost of attending a four-year nonprofit private college increased 4.3 percent in the 2009-2010 academic year compared to a year ago, bringing the average annual price to $35,636, according to an educational trade group.

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Growing at an even greater rate was the cost of going to a public college. Public in-state college costs rose 5.9 percent, bringing the average cost to $15,213. Out-of-state students saw their costs rise 6 percent to $26,741, according to the College Board, a non-profit association of schools, colleges and universities. (All costs include tuition, fees and room and board.)

“What you see is that over the past decade, public four-year colleges have increased in cost,” says Sandy Baum, an analyst at the College Board. “They get less money per student from the state. Tuition is replacing money from the state.”

That may be but it only partly explains why the rise in college costs continues to outpace that of general inflation. Over the past 12 months, for instance, the consumer price index is down 1.3 percent.

Another reason for price increases: colleges and universities are building new facilities like gymnasiums, dormitories and science centers to attract students and stay competitive.

Education And You -- A CNBC Special Report
Education And You -- A CNBC Special Report

“They’re constantly upgrading themselves,” says Katherine Cohen, CEO and founder of IvyWise and ApplyWise, which advises students on how to get into schools. “They have to keep up with the other colleges in their category.”

On top of paying for new digs, schools are suffering severe drops in their endowments due in large part to the financial crisis. Some of the largest endowments in the U.S. at places like Harvard, Princeton and the University of Michigan have suffered declines of over 20 percent during the fiscal year that ended June 30, 2009.

While colleges and universities will charge more because of this, it doesn’t necessarily mean that all students will have to pay more.

School and government awarded grants have made it more affordable for some students to attend these schools. This year, students are paying, on average, less than those in college during the 2004-2005 academic year.

Students at private schools received $14,400 in grants, cutting their average cost to $11,900, not including room and board. Those at public schools received an average of $5,400 in grant aid, reducing their average cost to $1,600, not including room and board. Students at private institutions are paying $1,100 less than students five years ago, and students at public institutions are paying $400 less.

The sticker price “shouldn’t dissuade students from applying,” adds Cohen, “There is financial aid and scholarship dollars out there."