In addition to adding well over a million dollars to a worker's lifetime income, college educated workers enjoy other benefits that are more difficult to measure. (UBS)

According to the Education Data Initiative, the number of college students rose from 7.4 million in 1970 to 21 million in 2010, representing a key tailwind for rising college costs. More recently, US population growth has slowed. From 2010 to 2020, the number of college students actually fell from 21 million to 19 million, and college tuition inflation has fallen.

Forecasting college costs

But college costs are still rising—and we shouldn't blindly extrapolate the recent trend—but the pace of inflation has clearly slowed. Over the long-term, college tuition has outpaced inflation by about 2.1%, so we recommend using that as a starting point for any college cost forecast spread.¹ Paired with our expectation for a 2.4% annual increase in broad economic inflation, this implies a 2.4% + 2.1% = 4.5% annual increase in college costs.

Is college worth the cost?

In a word, yes. For the average high school graduate, getting an undergraduate college education is one of the most valuable investments that one can make. Based on one study by the St. Louis Federal Reserve, the average rate of return on college tuition payments has ranged from about 13.5% to 35.9%, depending on the demographic group.²

In addition to adding well over a million dollars to a worker's lifetime income, college educated workers enjoy other benefits that are more difficult to measure, such as a drastically lower risk and duration of unemployment, as well as more flexible and comfortable working conditions. With higher earnings potential also comes a greater ability to spend or to save and invest, which can allow college educated workers more freedom to retire early, enjoy a more comfortable lifestyle, or build multigenerational wealth.

Next steps

  • Learn more. Review our 529 College Savings FAQ report , which delves into 529 plan details such as which distributions are “qualified,” how they can impact financial aid, and how we recommend managing plan investments.
  • Save and invest. With compounding growth and tax-advantaged growth potential 529 College Savings Plans can help you reduce the financial strain of helping your family with their education costs—especially for families that start saving early.
  • Develop a plan with your financial advisor. Our financial planning software is able to pull cost estimates from a database of hundreds of individual colleges, which your advisor can incorporate with your family's specific goals and expectations in order to develop an education funding plan.
  • Talk with your family. There is truth to the proverb “it takes a village to raise a child.” Make sure that you coordinate your savings strategy with grandparents and other family members who are interested in helping. It's also important that you prepare your children for this decision, and communicate any expectations and stipulations that you have for providing financial assistance. Choosing a college is one of the first large and impactful financial decisions that they will need to make. To learn more, please read UBS Wealth Way: Money talk.

Read the original report, How much will college cost? 5 February, 2024.

1- Our analysis is based on historical data starting in January 1993, which is the earliest date for which we have data for all the individual CPI subcomponents, such as the CPI Consumer Education Index. To verify our methodology, we cross-referenced the historical CPI data with historical college inflation estimates from other organizations, such as The College Board, Commonfund, and the Federal Reserve.

2 - Vandenbroucke, Guillaume,"The Return on Investing in a College Education", March 23, 2023, publications/regional-economist/2023/mar/return-investing-collegeeducation.