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updated 8/22/2005 4:45:31 PM ET 2005-08-22T20:45:31

Over the next several years, the four Murphy siblings of Colorado are together likely to find themselves more than $500,000 in debt.

Shannon Murphy, an undergraduate at Indiana's University of Notre Dame, is now considering medical schools. Her brother Chris is entering his first year at California's Claremont-McKenna College. Each expects to accumulate more than $130,000 in debt to finance their undergraduate degrees, and Shannon will accrue tens of thousands more for medical school.

But because their family income is too high to qualify for financial aid, they say that it will be difficult to pay, especially as prices rise. "It just keeps getting worse every year," Chris said.

While U.S. inflation has been contained for the past decade, the higher education sector has proved a glaring exception. The College Board, an educational testing and surveying group, says tuition and fees rose 10.5 percent in the 2004 academic term at four-year public (government-funded) universities, and 6 percent at four-year private universities.

Adjusted for inflation, students at four-year public institutions paid 51 percent more in 2004 than in 1994, while those at four-year private universities paid 36 percent more.

Over the same period, total student aid has risen 122 percent to $122 billion in 2004; grant aid has increased 84 percent; and the number of student loans has risen 137 percent, according to the College Board.

The rising cost of higher education in the U.S. is raising new questions about whether universities will still be able to serve as ladders of social mobility. While overall enrollment has been surprisingly unaffected by the growing expense, there are signs poorer students are being frozen out of the best schools, in spite of generous aid programs.

The rapid rise in costs stems largely from the way U.S. colleges are funded. At public institutions, operating budgets are supported by state budgets, and chronic budget deficits have led to cutbacks. Meanwhile, exploding enrolments have brought their own related costs, such as building new facilities, so universities have relied on increased tuition and fees to finance their needs.

U.S. higher education is already the most expensive among advanced industrialized countries. According to U.S. education department data, the U.S. spends $20,358 per student each year, equivalent to 2.7 percent of gross domestic product. Canada spends $14,983 per capita on post-secondary education, or 2.6 per cent of GDP. In the UK, higher education spending is just $9,657, or 1 percent of GDP. Yet enrollment at U.S. universities continues to surge, rising from 14 million in 1995 to 16 million last year. Indeed, the benefits have proved well worth the costs, in spite of the growing debt burdens for students. Census Bureau data show that average lifetime earnings of college graduates are $2.1 million, compared with $1.2 million for high school graduates.

Students from poorer families, for whom higher education has long been the best road out of poverty, are becoming especially concerned. Thomas Mortenson, a scholar with the Pell Institute, has found that poor students receiving Pell Grants the government's biggest educational grant program decreased by nearly 17 percent over the past decade at the top 20 schools, as ranked by U.S. News & World Report magazine. Mortenson's data, which correlates family income and degree attainment, shows that the number of bachelor degrees awarded to students from the poorest quarter of families has stayed nearly level over the past decade, and has improved only slightly since 1970.

In contrast, degrees given to students from the richest quarter of families have risen steadily from about 40 percent in 1970 to nearly 75 percent today. In 2003, 74.9 percent of the top income class attained degrees, compared with just 8.6 percent of the bottom income class.

Inequity at top schools is a particular problem, says Richard Kahlenberg of the Century Foundation, be-cause students attending these top schools are the ones who will join the "leadership class".

At the top 146 colleges and universities, 74 percent of students come from the wealthiest quarter of society, compared with 3 percent from the poorest quarter, Kahlenberg says.

To help correct the imbalance, such well endowed institutions as Harvard, Yale and the University of Virginia have pledged to start giving poor students more grants, rather than loans.

But Kahlenberg says, "We need to do a lot more. The news is worse, in a sense, because the degrees have become so much more important than they were 30 years ago, and yet low-income kids still haven't closed that gap."

The stress of paying for college is not exclusively felt by the lower-income bracket. But even with her debts, Shannon Murphy acknowledges that, for the poorest students and their families, "it's got to be that much harder".

Copyright The Financial Times Ltd. All rights reserved.

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