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By Christine Benz and Adam Zoll | 10-15-2013 12:00 PM

How Much Will College Cost, and Is It Worth It?

Higher education can pay off financially down the road, but prospective students need to choose a school for the right reasons and be cognizant of what the ultimate price tag will be.

Note: This article is part of Morningstar's November 2013 Investor Starter Kit special report. This article originally appeared Sept. 9.


Christine Benz: We're talking about college funding today. Adam, give us the State of the State. You say one of the first questions that people should ask when they are thinking about college funding is just to get their arms around how much college will cost. What are the current statistics on how much college costs, such as with private schools versus public schools, and in-state versus out-of-state.

Adam Zoll: Christine, anybody who has been following the headlines knows that the cost of college has been going up and up, even beyond the rate of inflation recently, and currently the average of tuition, room, and board for a four-year in-state college is roughly about $18,000. If it's for an out-of-state school that climbs up to $30,000, and for a private school it’s higher still, close to $40,000. So, the rate of tuition inflation is continuing to outpace overall inflation. For public schools it's about 4% per year over the past decade and for private schools it's about 2% per year. But the good news is that rate of inflation does seem to be leveling off somewhat.

Benz: Why is it that schools can justify these very high costs? Because it is, obviously, a huge pressure for families attempting to afford this. What do schools say as sort of a rationale for charging such large amounts?

Zoll: One reason we're seeing families asked to contribute so much more to paying the cost of educating their family members at college is that state funding has decreased in a lot of cases, so therefore families are being asked to carry more of the load. That’s obviously not as much of an issue at private schools, but there are larger macroeconomic factors that play here also. There is competition among schools, where schools are trying to have the nicest facilities, and obviously the most prestigious faculty. So, there are real market forces at work here.

Benz: I guess a related question, Adam, given these skyrocketing costs is, does college definitely translate into a higher paycheck down the line?

Zoll: In fact, study after study does show that the more educated you are in general, the more lifetime earnings you're likely to have. For example, somebody who has a bachelor’s degree and then goes no further in school is likely to earn on average about $1 million more over the course of their career than somebody who stops after a high school diploma. As anybody who has looked at the want ads recently can attest, there are a lot of jobs out there that you have to have a bachelor’s degree at a minimum to even qualify for. So, at least getting that level of education is really likely to pay off down the road in your career.

Benz: You say that getting master’s degrees and professional degrees translates into an even higher payday down the line?

Zoll: Right. In general the higher your degree, as one might expect, the greater the salary you are likely to earn over the course of your career.

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