According to data released Tuesday by the U.S. Bureau of Labor Statistics, continued high inflation is not a drag on the broader economy.
Free college tuition costs for households have risen 2.79 percent in the 12 months since August 2021, according to the bureau’s analysis. On the other hand, prices in the entire economy increased by 8.3 percent compared to a year ago.
Quiet tuition inflation, combined with rising prices for most goods and services, is likely to squeeze colleges financially, said Robert Kelchen, an education professor at the University of Tennessee in Knoxville. According to credit rating agency Moody’s Investors Service, revenue from students typically accounts for about 75 percent and 50 percent of the total revenue of private and public universities, respectively.
Certainly, some institutions will raise the 2022-2023 sticker prices for the school year to combat the effects of inflation. In Iowa, the Regents, who govern the state’s three public universities have voted raise tuition by 4.25 percent. The trustees of Pennsylvania State University took a similar approach, approval raising tuition fees by 5 percent. “We are in an inflationary frenzy,” wrote Boston University President Robert A. Brown in May when he announced a 4.25 percent tuition increase for the coming academic year.
Apart from these and other examples, there is no wider appetite to raise tuition fees. Indeed, the post-pandemic era of rising tuition prices bears no resemblance to the market that colleges enjoyed in the 1980s, ’90s, and 2000s — decades historically marked by skyrocketing tuition prices.
Why aren’t tuition prices rising like never before?
There are likely several factors at play. Over the past decade, some consumers have become more price-sensitive to the cost of college. This interest in affordability, in turn, reduced the commercial advantages of institutions and led to relatively modest increases in tuition fees. Meanwhile, the number of high school graduates has increased stagnated. With increased competition for freshmen recruiting, most institutions have lost additional leverage over pricing, although they still managed to generate revenue in a low-inflation environment. That is, of course, until the historic pandemic led to further loss of registrations and price increases rippled throughout the economy.
“Most colleges simply don’t have the market power to raise tuition anywhere near the rate of inflation,” Kelchen said.
According to Kelchen, institutions are likely to struggle unless enrollment increases and substantial revenue comes from non-tuition sources (such as donors), such as funding competitive staff salaries or subsidizing programs outside of certain core services.
“It’s a set of circumstances that most people with higher education have never seen before,” Kelchen said.
Bureau of Labor Statistics analysis shows that college tuition prices traditionally rise the most in August and September, compared with weaker increases calculated for the rest of the school year. September index values will be published next month. Although tuition fees do not appear to have increased over the past two months, this does not rule out the possibility of future tuition fee changes across the sector.