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While costs continue to rise, income is not improving. There are four basic sources of income for colleges and universities: private donations; local, state and government support; tuition; and partnerships and collaborations with private corporations and businesses. Revenues from all but the last are declining and are unlikely to recover in the foreseeable future. Donations always go up and down with the overall economy and the movement of financial markets. Though it is too early to know what lasting impact current economic problems will have on charitable giving, donations and bequests are declining and will probably take a long time to recover. According to a recent report in The Chronicle of Higher Education, 60 percent of institutions reported a decline in giving in 2009. The median decrease was 45.7 percent. The situation in the public sector is no better than in the private. With declining tax revenues and increasing demands on budgets, the support of local, state and federal governments for education is decreasing at every level. In the 1960s and 1970s, it was assumed that the public should pay for 70 to 80 percent of the cost of higher education; today many public universities receive less than 10 percent of their operating budgets from the government. If this continues, the line separating public and private institutions, which is already obscure, will disappear altogether. The privatization of all higher education would leave colleges and universities free to raise prices even higher.

These developments further increase the financial pressure on students and their families. Income has to come from somewhere. During the past twenty-five years, tuition and fees have gone up 440 percent, which is four times the rate of inflation.

According to a 2009 Congressional report,8 since 1981, the average cost of four years of college has increased 202 percent, while the consumer price index has gone up only 80 percent.

Numbers and graphs remain abstract until they are applied to individual cases. Consider what the increase in the cost of college will mean for students and their parents in the next two decades. Using figures from the College Board, The SmartStudent Guide to Financial Aid concludes, “It would be reasonable to expect an average inflation rate of 7 percent or 8 percent for the next ten years.”9 The implications of this prediction are staggering. The chart shows the price of a four-year college education at a top-tier school for the next two decades. I have based these calculations on a current cost of $50,000 and have the more conservative estimate of a 6 percent annual increase. It is hard to comprehend these figures. In 2020 four years at a private college will cost $328,890, a decade later the price will have increased to $588,992 and by 2035 the sticker price will be $788,205. Obviously, this situation is unsustainable.

Increase in Cost of College, 1971–2008

Fortune, April 27, 2009

Financial aid and government support will not be able to keep pace with inflation. Pell Grants already cover less than half of what they covered for a year at a state college or university three decades ago. During the recent economic boom, many colleges and universities increased student aid. A few elite schools remain committed to aid-blind admissions policies, and Harvard and Princeton went so far as to institute a zero family contribution for applicants from families with incomes below $60,000. These laudable programs, which have been financed by healthy endowments, are now in jeopardy. Williams recently announced that it is reinstituting student loans rather than providing scholarships to cover all financial aid. With dwindling resources and increasing demand for financial aid, fewer students who need assistance are going to be admitted. In the spring of 2009 prestigious Reed College dropped more than one hundred needy students who had been judged worthy of acceptance and substituted less-qualified students who could pay what is commonly