This could be the 'single most important' reason why college tuition is skyrocketing

obama student loans

Reuters/Larry Downing

U.S. President Barack Obama talks about the rising costs of student loans while at the University of Iowa in Iowa City.

Student loan debt in the US has reached a staggering $1.2 trillion, and the average 2015 graduate will have to repay more than $35,000.

This likely stems from the explosion of college tuition since the 1970s.

But it can be tough to explain why college tuition has skyrocketed, and in fact the growth in tuition likely stems from a variety of factors.Advertisement

For example, a paper from the Federal Reserve Bank of New York suggested that colleges were raising their sticker prices because the federal government was giving students more and more loans.

However, writing in The New York Times Magazine, Adam Davidson said the "single most important factor behind the rise in tuition" is that high tuitions allow colleges to "shape" their student bodies.

In essence, the higher the tuition cost, the easier it is for universities to be able to recruit the exact type of student they want at their school by offering them tuition discounts, according to Kevin Crockett, a consultant with Ruffalo Noel Levitz, a firm that helps colleges and universities set prices.

"I've got to have enough room under the top-line sticker price,'' Crockett told the Times.

Davidson explained: "A school that charges $50,000 is able to offer a huge range of inducements to different sorts of students: some could pay $10,000, others $30,000 or $40,000. And a handful can pay the full price."A college is able to then recruit a diverse set of students with competitive test scores and accomplishments.Advertisement

This of course explains primarily the reason for tuition increases at private colleges that do not get any state funding. At public universities there additional factors for tuition increases, such as students, rather than state governments, absorbing more of the costs of college.

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