College is actually getting cheaper. Still, is it affordable?

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If Americans know — or at least think they know — one thing, it’s that college gets more expensive every year.

The Minnesota Star Tribune’s recent story listing the 10 most expensive colleges in Minnesota appears to confirm this, with an average tuition of $47,000. Add $13,000 for room and board and it looks like Minnesota’s private four-year colleges commonly cost $60,000 a year. Meanwhile, the median Minnesota family earns $90,000 a year, or $65,000 after taxes, so $60,000 seems … impossible.

OK, so how about public colleges? The in-state sticker price, including housing and food, at the University of Minnesota is $34,500. At Minnesota State University, Mankato, it’s $25,000. That’s better, but it’s still half the median family’s take-home pay.

Parents are understandably stunned into inaction by such overwhelming numbers. It’s a lot easier to binge-watch “Emily in Paris” than to talk about saving for college. With numbers like these, the whole conversation seems pointless anyway. This is a major problem because while we agree that college is still expensive, what college really costs has almost nothing in common with what’s often reported.

Here are the facts: Median-income families now pay less than half the sticker price at private and public colleges alike. High-income families also often pay less than half the sticker price. It is now possible to pay more than ever for college, which is what drives the headlines, but in truth, only a small number of families pay that kind of money to a small minority of schools.

It wasn’t always like this. The disconnect happened because college pricing became — similar in some ways to airline and hotel pricing — variable. With tuition, the list price is the most you can pay, not what you’d expect to pay. This is the main thing that has happened to the cost of college since about 2005. It didn’t necessarily go up, but it did become a lot harder to understand.

Colleges don’t like how this system has developed, but no single school can really change it. Some Minnesota schools like Bethel University and Concordia College have responded by reducing their price tags, since families weren’t paying the full price anyway. But they still have variable pricing because it’s all but impossible not to.

When we look at what families actually pay, using data colleges report to the Department of Education, we see that the real cost of college — adjusting for inflation — has been dropping for 15 years, and there’s reason to believe it will continue to fall. For example, in 2008 a family earning $110,000 paid $39,896 for tuition, room and board — on average — at one of Minnesota’s 10 most expensive colleges. In 2022, they paid $6,000 less at the same schools in inflation-adjusted dollars, according to an independent analysis we did. (Details at tinyurl.com/currell-harris.)

The fact that college is getting cheaper is as commonly known as the formula for Coke — it’s just not part of the conversation. But other facts confirm that it’s true. For example, college faculty have earned less in real dollars every year since at least 2010, and S&P Global Ratings has been downgrading college debt for a decade because college revenues are falling.

College is getting cheaper because there’s a shrinking number of students, and colleges are competing to enroll them by offering a better price. It’s Econ 101. Nathan Grawe, a professor at Carleton, wrote the book — literally — on demographics and college enrollment. He told us that “nationally, we’ve seen enrollments decline in an unprecedented way over the last dozen years. In Minnesota, that’s compounded by the out-migration of students — more leave the state for college than come here.”

College costs will likely keep falling. Couples started having fewer kids 17 years ago during the Great Recession, so the college-bound cohort of 2025 will be the largest for many years. As colleges compete for fewer students, today’s parents are likely to pay less in inflation-adjusted dollars for their kids to go to private college than they paid for themselves to do so.

That said, college still won’t be cheap, so how can a family figure out its likely cost? A good first stop is the U.S. College Scorecard, which reports college-specific costs by family income. The next is each college’s net price calculator, which provides more tailored answers. Then you can use a tool like TuitionFit.org, which uses crowdsourced financial aid offers to predict what a college will cost based on family income and your student’s grades or test scores. New tools like these give families far more accurate cost estimates.

Bottom line: How much do families need to save?

Let’s say a family thinks college will cost $29,000 a year, or $116,000 over four years, including room and board. Saving $288 a month from when the child is born will likely cover college. Waiting to save until the child is 10 years old more than doubles the monthly savings number to $678. The key is for the money to grow over time, so start early if you can. These estimates assume 6% real annual growth, which tracks with how investments have grown in the past.

Saving this much would pay for all of college in advance, which is great, but it’s common to pay some of the cost as it happens. A family that pays for half of college in real time could save the same amounts noted above to cover two children.

It’s best if your college savings grow tax-free, which they can in a Coverdell education savings account or 529 plan. Money grows tax-free in these accounts, and won’t be taxed when it is withdrawn as long as it is spent on education. In a Coverdell, you can only put $2,000 a year into the account for each student, while a 529 doesn’t have this limitation.

Another option is a Roth IRA, where funds can be used to pay for college without penalty, though, unlike the Coverdell and the 529, investment gains will be taxed. How much that matters depends on your income level. It’s details like these that make it important to get good advice.

What about student loans? They are important for many families, yet they are widely misunderstood.

First, students can’t pay for all of college with federal student loans because total borrowing is, in most cases, capped at $31,000 for a bachelor’s degree. Federal student loans can help pay for college, but they can’t cover it all.

Second, many students are avoiding them. Fewer than half of college students take out federal student loans, and those who do typically have less than $25,000 in debt when they graduate. Students are less likely to borrow than they were 15 years ago, and they borrow less money. For example, Augsburg University students who take out federal loans average $25,000 in debt when they graduate. University of Minnesota students average $19,500, and those at Minnesota State Mankato owe $21,000. These numbers are typical.

The trend toward undergraduates taking out less debt is encouraging. It’s consistent with rising household incomes as well as the falling cost of college. But student borrowing isn’t going to go away. In light of the problems with student debt, some innovators have been working to come up with a better way to finance college, particularly for lower-income students. One example is Better Future Forward, which works with organizations like Minnesota’s College Possible to provide college financing that students pay back in proportion to what they earn. When the education is good and the cost is reasonable, it’s a no-brainer.

That core idea — balancing cost and value — is what should motivate any approach to paying for college. The system is wrapped in variable pricing, confusing vocabulary and complex student aid forms. But on the other side of all that, as millions of American families are surprised to discover every year, college isn’t impossible. And for most, it’s affordable.

Dan Currell, a lawyer and management consultant, was deputy undersecretary and senior adviser at the U.S. Department of Education from 2018 to 2021. He is a trustee of Gustavus Adolphus College. Ken Harris helps families with college and retirement planning as a Thrivent associate. They both live in St. Paul and have children who are currently in college.