Is college price inflation slowing down?

What is happening to rising higher education prices?  They might not be rising as quickly as they were of late, according to a new College Board report.  They may have hit a plateau, in fact.

This is very important for American colleges and universities, and, of course, for those of us paying for it.  But it’s also dry stuff, so I’ll break down what I see as some of the key points.

We’re all familiar with how the price of higher ed has soared over the past generation.  That soaring seems to be coming back to earth, or is at least now skimming along less ambitiously.  “Between 2008-09 and 2018-19, published in-state tuition and fees at public four-year institutions increased at an average rate of 3.1% per year beyond inflation.”  What was the comparable rate before that? “4.1% and 4.2% over the two prior decades.”

Last year?  “Published tuition and fee prices of colleges and universities were about the same in 2018-19 as in 2017-18, after adjusting for inflation.”

Wow!  As Doug Belkin put it, “After increasing for decades, the real cost of attending both public and private college is flat and in some cases even declined this year…”

We can watch the inflation numbers drop over time:

Between 2008-09 and 2013-14, as higher education struggled along with the rest of the economy, published tuition and fees rose by 14% after adjusting for inflation at private nonprofit four-year institutions and by almost 30% in the public two-year and four-year sectors. Over the five years ending in 2018-19, the largest increase was 10% from $32,500 (in 2018 dollars) in 2013-14 to $35,830 in the private nonprofit sector. Between 2013-14 and 2018-19, average tuition and fees rose by 7%, from $9,590 to $10,230 at public four-year colleges and universities, and by 5%, from $3,500 to $3,660, at public two-year colleges. [emphases added]

That’s published tuition, which most students do not pay.  This is a vital point, since most media and popular discussion sticks on this number.  What most students actually pay (“three-quarters of full-time undergraduate students”, according to the report) is less than that.  That’s why the net tuition number is so much more important.

Watch the curves here, rising and rising for years, then flattening out lately:

college prices 1998-2019

Now, at private institutions, prices are a bit higher:

After declining from $15,500 (in 2018 dollars) in 2007-08 to $13,200 in 2011-12, the average net tuition and fees paid by full-time students at private nonprofit four-year institutions rose to an estimated $14,600 in 2018-19…

While campuses took some weight off of the tuition and fees accelerator, they also spent more money on instruction.

Between 2005-06 and 2015-16, educational expenditures per FTE student at public doctoral universities increased by 17% in inflation-adjusted dollars. The increase over the decade was 18% at public master’s universities, 12% at public bachelor’s colleges, and 11% in the public two-year sector…

Did this mean more money for instructors?  Not exactly:

ƒBetween 2001-02 and 2016-17, average faculty salaries increased by less than 1% (after adjusting for inflation) at public doctoral universities, by 5% at private nonprofit bachelor’s colleges, and by 29% at for-profit institutions. Average faculty salaries did not keep up with inflation in other sectors.

A good chunk of that money went elsewhere.

Back to the main point, that price inflation decline, and two questions.  First, how much longer can this go on, or will it change – rising again, or maybe an actual price reduction?  Second, how can colleges and universities sustain this new strategy?

(thanks to Michael Berman for the nudge, and Doug Belkin for the reporting)

PS: ƒOne fun fact.  Remember how I keep telling people to pay attention to community colleges?

Overall, two-year colleges accounted for 43% of the public FTE undergraduate enrollment in 2016. In seven states, this share was 50% or more; in another seven states, it was less than 25%.

43%.  CCs are still the largest sector of American education.

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3 Responses to Is college price inflation slowing down?

  1. Bob Goldstein says:

    Bryan, I often see analysis of prices (not just tuition, and not just in higher ed) that are “adjusted for inflation”. And to be sure, adjustments do need to be made.

    However, the nature of Baumol’s cost disease is that productivity, and therefore inflation, differs between segments of society. Regardless of whether or not you think this is an explanation for tuition specifically, my question is — does a price adjusted for a single average inflation value provide all the insight we need? Or would it be useful to consider the differing price/cost trends of various economic segments over the same time period?

    For example, suppose inflation were higher in service industries than in manufacturing. Maybe tuition is rising in tandem with service, but not with manufacturing. If the economics of higher ed were to be more akin to one segment than another, we might understand better where higher ed trend lines were leading.

    Bob

    • John Cirigliano says:

      I agree with Bob on the need to be more granular on how inflation affects the education market. More importantly, how are the rising revenues invested? Can year-round scheduling produce advances in productivity (shorten time to a degree) within all parts of the educational institutions K-College?

      • Bryan Alexander says:

        Oh, I certainly agree that it would be great to break this data out in all kinds of ways. Hopefully someone will do that.

        Bob, your point about Baumol reminds me of David H Feldman and Robert B. Archibald’s work on college costs. Their thesis is that the main drive for tuition growth is that as a society we tend to pay more for people with advanced degrees (compare with legal and medical practices). When Baumol kicks in (efficiencies and automations aren’t really useful in this sector) as we try to increase student numbers, it’s only natural to expect costs and prices to rise.

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