NEW YORK—You should probably run from anyone who makes positive statements about the future, But the following forecast is so interesting I wouldn’t want anyone to miss it.
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 Longterm 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. More students on way.
The more students that 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 could be small 1 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 per cent. 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, In 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. 1% a year projected So what is his guess for tuition hikes between now and 20107 At most, a mere percent 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 he 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.
The lower the price hikes, the easier it will be to pay for college out of ‘current income, savings and the sayings of your children.
Contrary to predictions, the burden of student loans could decrease in the years ahead. » Although the echo boom will help. case the crisis of college costs, there still aren’t enough workers to fully finance Social Security. So keep on saving. Any money not spent for college will go toward your retirement instead.
COURTESY: STOCKTON RECORD.
Article extracted from this publication >> July 7, 1995
