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Main Street Views | Policy insights from the Kansas City Fed

Main Street Views > The Rise and Fall of College Tuition Inflation
kcFED: Main Street Views

FEDERAL RESERVE BANK OF KANSAS CITY     |     APRIL 11, 2019

The Rise and Fall of College Tuition Inflation

Topics: Inflation | Student Loans
Brent Bundick, Research and Policy Advisor and Emily Pollard, Assistant Economist

Wages in the education sector and state appropriations to higher ed help explain changes in college tuition over time.
April 11, 2019 | Economic Review | Wages in the education sector and state appropriations to higher ed help explain changes in college tuition over time.

The cost of college tuition increased rapidly from 1980 to 2004 at a rate of about 7 percent per year, significantly outpacing the overall inflation rate. Since 2005, college tuition inflation has slowed markedly and has averaged closer to 2 percent per year for the last few years. Understanding what drives tuition inflation is important for predicting future tuition as well as personal income mobility. However, untangling the various supply and demand factors influencing college tuition can be challenging.

Brent Bundick and Emily Pollard document changes in college tuition inflation over time and attempt to explain the long rise and subsequent fall in college tuition inflation. They find that supply factors such as wages in the education sector and state appropriations to higher education both play important roles in explaining changes in college tuition inflation. In contrast, they find little evidence that demand factors such as changes in the availability of student loans have a significant effect on college tuition.

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Publication information: 1st Quarter 2019

DOI: 10.18651/ER/1q19BundickPollard


Topics: Inflation | Student Loans

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Main Street Views highlights the diverse range of economic research and programs of the Kansas City Fed, including the annual Jackson Hole Economic Policy Symposium; analysis of macroeconomic, banking, and payments issues; and insight into the seven states and industries of the Tenth Federal Reserve District. 

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