In this TEN Talk episode, Brent Bundick and Emily Pollard look at the rise and fall of inflation in college tuition and find that following a period of steady increase, inflation in college tuition now is steady.
All across the country this summer, newly minted high school graduates and their families are preparing for the greatly anticipated freshman year of college.
And whether that pivotal year takes place at a mega-campus or small school, state-funded institution or private university, these young adults will face the same stark reality that greeted their parents’ generation: tuition costs that seem to climb every year. Although many disparate factors can impact what a student ultimately pays for a college education, new research by the Federal Reserve Bank of Kansas City shows that the overall pace of college tuition inflation actually has slowed in recent years after more than 20 years of rapid growth. The research, published in April by Research and Policy Advisor Brent Bundick and Assistant Economist Emily Pollard, found that the cost of college tuition in the United States increased about 7 percent per year from 1980 to 2004.
“During that time, the average cost of tuition and required fees for one year of college rose from $1,289 to $7,122, significantly outpacing the inflation rate of the overall basket of goods and services purchased by households,” Bundick and Pollard wrote. However, since 2005 the annual rate of college tuition inflation has slowed significantly, averaging closer to 2 percent for the last few years.
“The increase in the cost of college has received a great deal of attention in the media and other public discussions,” Bundick said. “However, the slowdown in tuition inflation that occurred over the last few years has received much less attention.”
Bundick said that understanding the forces driving tuition inflation is important for projecting future tuition costs as well as evaluating personal income mobility.
Numerous research studies have shown that higher-skill—and higher-paying—positions in the modern economy increasingly require a college degree, and for some individuals and families the costs associated with a college education could represent a significant barrier to upward mobility.
In a separate study, published in June in the Federal Reserve Bank of New York’s Liberty Street Economics blog, economists found that college graduates continue to earn a substantial “wage premium” in the U.S. labor market. The New York Fed economists found that in recent years the average college graduate with a bachelor’s degree earned about $78,000 per year, compared with $45,000 per year for the average worker with only a high school diploma. Therefore a typical college graduate earns a “premium” of more than $30,000, or nearly 75 percent.
The Kansas City Fed study sheds some light on the factors that could influence changes in the pace of college tuition inflation. For example, the analysis shows that such supply-side factors as labor costs in the education sector or declines in state appropriations could cause institutions to pass on those changes to students in the form of higher tuition.
At the same time, changes in demand factors—such as increased availability of student loan programs—also might be contributing to higher tuition costs by increasing overall demand for higher education. Bundick notes that while the Bank’s study mentions the increased availability of student loans as a possible factor in tuition inflation changes, the research does not delve into the highly publicized topic of student debt.
Another finding is that public institutions had a greater effect than private colleges on the overall slowdown in tuition inflation rates. The research found that tuition inflation rates at public colleges tended to rise sharply after recessions but have trended downward in recent years. Tuition rates at private colleges trended down slightly in the 1980s but have been less volatile since then.
Even as tuition inflation has slowed, there is no question that a college education in the United States today is more expensive than ever. The Kansas City Fed research reflects that fact, noting how costs soared during the 25 years following 1980.
“Just to further put it into perspective, we calculate that one year of college tuition at a four-year public university was equal to about 7 percent of the median household’s income in 1980,” Bundick said. “After the rapid growth of college tuition inflation over the subsequent 25 years, a year of college tuition represented about 16 percent of median annual income in 2005.” Costs, change over time, and the increases are most easily tracked at state colleges and universities, whose funding continually is subject to governing boards’ decisions, legislative action and public scrutiny. Around the Federal Reserve’s Tenth District:
- About a year ago, a tuition and fee increase averaging 4 percent was implemented for Oklahoma public colleges.
- Last fall, Wyoming officials increased community college tuition $5 per credit hour. Separately the University of Wyoming’s Board of Trustees announced a 4 percent tuition increase effective in the 2019-20 academic year.
- In April, the University of New Mexico’s Board of Regents, following a 4 percent salary increase for faculty and staff, increased tuition 3.1 percent.
- In May, the University of Kansas and Wichita State University each proposed 1 percent tuition increases to the state’s Board of Regents; Kansas State University proposed a 3.1 percent increase.
- In May, the University of Missouri System’s Board of Curators approved a tuition increase of 5 percent at all four campuses — Columbia, Kansas City, Rolla and St. Louis. Elsewhere in the state, Lincoln University’s curators in June approved a 4 percent tuition increase, while Missouri Southern University’s governing board approved an increase of 9.3 percent.
- In June, for the first time in its history, the Nebraska State College System approved two consecutive years of tuition increases. The increases are about 2.5 percent in each of the next two academic years.
- In June, the University of Colorado’s Board of Regents approved a fiscal year 2019-20 operating budget that includes what its senior vice chancellor called a “zero percent tuition increase” for incoming resident students.
Dealing with Reality
Such developments are a fact of life for college administrators and students. As costs rise, “We try to help students know and understand the resources that are available to them to pay for the tuition and fees and the expenses to attend and live while they go to college,’’ said Scott Young, director of the Office of Financial Aid and Scholarships at the University of Missouri-Kansas City. Young has worked in the collegiate financial aid field for 13 years. “I think there’s definitely a growth trend in terms of more students having more needs as costs have gone up.”
Sarah Valdivia has worked in financial aid-related positions for 10 years and recently became assistant director of financial aid at Creighton University in Omaha.
As a private institution, Creighton’s finances aren’t subject to state appropriations and are more likely to be bolstered by endowments and similar funding. Valdivia, who mainly works with graduate and professional-level students, said she has observed the slowdown in tuition inflation in recent years, though the overall cost of attendance remains formidable. Most of the students she advises, “are very proactive about pursuing scholarship opportunities first. Anything that is not made up in the scholarship opportunities, they have to make up in loans.”
Carnayla Johnson knows firsthand that facing such costs can be a harsh dose of reality. Johnson, a native of Kansas City, said she was the first person in her family to attend college, earning a “full” scholarship to Howard University in Washington, D.C. She chose Howard because her first choice, Hampton University in Virginia, offered a partial scholarship. However, as she earned a bachelor’s degree in psychology and human development, she quickly realized her Howard scholarship wouldn’t be enough to pay for everything she would need.
“Coming from a home that really didn’t have the money to send me off to college, I took out loans to cover living expenses,” Johnson said.
After graduating from Howard with several thousands of dollars in debt, she had a similar experience earning a master’s degree in social work at Washington University in St. Louis. Many basic living expenses weren’t covered by scholarships and a work-study job in a research laboratory, so she took on more loans. “Looking back, if I could do it without loans I would do it that way,” said Johnson, now a clinical trials associate at the Hennepin Healthcare Research Institute in Minneapolis. Such experiences are common. In the Kansas City Fed research, Bundick and Pollard conclude that as long as college-educated workers continue to earn significantly more than workers with only a high school education, the changes in tuition costs likely will have “important implications for current and future household incomes.”
“Certainly, college still remains expensive, but the rate of growth in tuition prices have slowed down in recent years, which is what we wanted to document,” Bundick said.
Read the complete analysis by Brent Bundick and Emily Pollard.