Sep 21, 2017

Rising College Costs and Financial Aid


Today, college tuition costs are historically on the rise. Each year, college costs increase more than the average income. Various factors contribute to rising college costs, including inflation, demand, course availability, and scholarships. Understand the relationship between rising tuition rates and the size of your financial aid package here.


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In general, inflation refers to the natural rise in the cost of living over time. These days, inflation is usually accepted as a part of life. In a broad economy, the average increase in inflation is about 2 percent each year. That being said, the inflation of college costs are not so slim, with an annual increase of anywhere from 4 to 6 percent. Basically, this means that the cost of tuition is doubling every 12 to 18 years, while everything else in the economy is doubling every 32 years. It is hard to fully understand why college costs go up so much faster than other expenses. The need to replace technology, salary raises for instructors, and increasing insurance costs are some of the possible reasons for these high increases in tuition rates.


A basic economic principle states that a rise in demand will cause the price to also increase. This holds true for college costs. Since the amount of students enrolling in college is constantly on the rise, universities are able to price tuition costs quite aggressively. Colleges do not have to worry about a few individuals deciding not to go to college because of the high tuition rates, as many other students are more than willing to pay the full cost, taking their place. Schools welcome increased demand because it enables them to expand programs, add new structures and services, and increase staff salaries.

Class Availability

Amazingly, the increased popularity of certain programs and courses can lead to higher costs overall. While many schools limit class sizes, particularly for upper-division courses, many students cannot finish their education as fast as they would like, sometimes being forced to add on an extra semester or two of college, ultimately increasing their overall college costs.


You probably didn’t know this, but when you receive a scholarship, you help pay for other student’s education costs. This is especially true of scholarships awarded at private institutions not receiving much government funding. While it might sound like a positive concept at first, this can lead to a lot of problems. As college costs increase, more students require scholarships. As more scholarships are given, the price of education rises higher for other students.

How Financial Aid Plays a Role

Students have to keep in mind that actual college costs are significantly lower than published tuition rates due to various types of financial aid. Financial aid is supposed to make up the difference between what students can afford and the actual costs of higher education. Many students receive some form of financial aid. In fact, out-of-pocket education costs may decrease overall due to the rise of generous financial aid options, such as grants and federal tax benefits. Not all students will pay the same price, as the amount of financial aid you are awarded varies greatly depending on financial need and academic merit.

The Bottom Line

Today, the size of a student’s financial aid package plays a big part in deciding where he or she will ultimately go to college. When a student receives a generous financial aid package, they often feel it is too good to pass up. These students do not have to rule out attending schools with higher tuition costs because the size of their financial aid package depends on their school’s tuition costs. The Expected Family Contribution (EFC), determined by the Free Student Application for Federal Financial Aid (FAFSA), takes the overall tuition costs of an institution into consideration. For example, at a school with a total tuition cost of $8,000, a student is eligible to receive up to $3,000 in financial aid. On the other, if the total tuition price was $25,000, the student would be eligible to receive up to $20,000 in financial aid.

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