Going to university is expensive. Most people assume it’s because institutions have to pay professors and maintain large campus grounds, but it turns out this has little to do with tuition rates.

High tuition is the result of easily obtainable student funding in the form of loans and grants. Young people can borrow virtually any amount of money to attend school, and they don’t have to think about paying it back for years. This creates a false sense of financial security that starts to collapse the moment they get their degree.

Universities aren’t afraid to take advantage of these easily available funds by raising the price of tuition year after year. The more money potential students think they can access, the more universities will charge. This places people under an increasing burden of debt they will likely never recover from.

Rising Cost of Getting a Degree

The average tuition for private universities in the U.S. has more than tripled since 1987. Even public universities, which usually cost about two thirds less, have followed this trend. The situation is similar in the UK, where yearly fees rose sharply until they were capped at £9,250 ($11,836) in 2017.

Source: BBC

High tuition translates to high debt after graduation. The U.S. College Board calculates the average cumulative student debt balance for graduates of public four-year schools was $26,900 (£21,047) in 2017, and $32,600 (£25,507) for private non-profit four-year schools. It’s no better in the UK where the average student graduates with over £50,000 of loan debt.

Universities claim these increases are necessary. If we compare post-graduate degree fees with similar undergraduate courses, though, we see there is an unusual cost disparity. Around 80% of UK universities charge the maximum in tuition fees. Those same universities charge thousands less for post-grad courses in the same subjects. These programs are more competitive than undergraduate programs and should cost more as a result. The price difference shows that tuition rates do not necessarily parallel the cost of providing the education.

Easy Money for Universities, Hard Debt for Students

There is no driving will from universities to reduce costs or lower tuition fees, and there hasn’t been for decades. Two key factors have contributed to this: more students applying to university, and easy access to student loan funds.

Author and professor of economics Richard Vedder says universities will continue to raise prices, safe in the knowledge that students can always access loan funds to pay fees. Universities don’t have to worry about repeat customers, after all. They simply send graduates on their way and welcome a new crop of freshly indebted students the next year.

This financial cycle isn’t new. Universities have been called out many times for perpetuating it. A 1987 op-ed titled “Our Greedy Colleges” slams universities for taking advantage of federal aid policies to increase their bottom line. Over 30 years later the Foundation for Economic Education echoed the statement in a piece titled “Why College Tuition is So Expensive”, pointing out that the loan program offers what feels like “free money” to young people and encourages economically irrational behaviour.

Could university tuition fees be lowered without impacting education? It seems likely. Are universities willing to lower fees? Not as long as they can get easy money from students loaded with loans.

Degrees are Consumer Goods

The UK company All Car Leasing says its top five best-selling vehicles in 2018 included two Mercedes-Benz models and a BMW. These brands were once considered luxury vehicles, yet now they’re at the top of the most-leased list. What happened?

Those cars didn’t get cheaper; the initial financial barrier to get them simply lowered. People buy those cars on credit. We see this same economic model in the smartphone market where consumers get high-end phones in exchange for monthly payments. This allowed Apple to release $1,000+ iPhone models that pushed the company’s value above $1 trillion in 2019, despite a drop in overall sales growth. People are reluctant to pay $1,000 upfront for a phone. But $120 per month? Sign me up!

This same model is playing out with student loans and universities. Because there is no upfront cost to get a degree, young adults take the investment lightly, often seeing it as just a piece of paper to sign before matriculation.

We tend to think of going to university as a universally “good thing”, an investment in our future happiness and financial security. We need to stop thinking this way. Degrees actually have more in common with an ordinary consumer product that’s marketed and sold for profit.

In the TedX talk above, Sajay Samuel argues that a degree falls into the category of consumer goods. By engaging this shift in thinking, we can finally see that going into debt to get a degree isn’t always a sound investment. Most of the time it’s precisely the opposite.

Borrowed Money isn’t Free Money

When asked if the financial benefits of their degree outweighed the costs, just 51% of millennial graduates with student loan debt said yes.

What products would you use if the satisfaction rate was only 51%? If it was a smartphone or a TV, you probably wouldn’t bother, and you certainly wouldn’t go into debt to use it. Why, then, do we justify investing tens of thousands of pounds and years of our lives to get a degree that, by and large, doesn’t deliver the benefits it promises?

There is a fundamental error in the way we view the economics of going to university. We don’t look at our finances and calmly evaluate the cost of getting a degree weighed against real world benefits. We pick a university and borrow as much as it takes to pay tuition. It’s easy to spend money when it doesn’t come out of our own pocket. That spending will catch up to us, though. The majority of graduates are not prepared for that reality, and neither their university education nor their degree will help them out.

As I wrote in a previous article, degrees are not magic bullets that make life better for everyone. Degrees are a consumer product, packaged and marketed to teens, and we should treat them as such.

Thinking Like a Consumer

Before deciding to attend university, ask yourself the same questions you would ask before buying an expensive product:

  • What are the main benefits you will receive in exchange for the investment?
  • What will you be able to do with the degree once you have it in hand?
  • What are the alternatives, and how does their price to quality ratio stack up?

Don’t just ask these questions and accept an off-the-cuff answer from your family. Do the research. Look at data, find candid testimonies, search for both positive and negative opinions so you can be well-informed. Student loans often seem like free money that will be easy to pay back after graduation. There is an overwhelming amount of evidence that this is rarely the case.

The smart consumer looks beyond the marketing when making buying decisions. Potential university students should do the same. Don’t let easy funds from loans trick you into making a financially unsound decision.

John Alexander Adam writes for Universal Owl on topics relating to finance. An entrepreneur, he has one successful exit behind him. John has almost 10 years of experience as a writer and editor on consumer finance, investment and tech topics.

He currently writes and consults while studying for his purple belt in SEO and conversion science. In his spare time, he enthusiastically pursues hobbies he’s not very good at, such as football, squash and raising a small child.

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