Author: Mauricio Chandler, Graphics: Acasia Giannakouros
The BRB Bottomline:
The effects of inflation are being felt nationwide. However, despite the rise in inflation, college tuition has remained relatively consistent.
Over the past several months, inflation in the United States has been a topic of tremendous concern. As supply chain disruptions and other economic factors drive increases in the domestic inflation rate, Americans are feeling the negative effects of a post-pandemic economy. These effects are often manifested in their day-to-day experiences, ranging from filling up their car at the gas pump to browsing for a new home on the open market. However, although surrounded by a greater backdrop of economic chaos, the relative consistency of college tuition rates has stood out as a beacon of stability, intriguing economists.
As of August 2022, the U.S. has seen inflation skyrocket to over 9%, a rapid increase not experienced in nearly forty years. College tuition, however, a metric that has consistently exceeded inflation in recent decades, is inexplicably increasing at a significantly slower rate of just 2.7%.
Inflation in 2022
As of Q2 2022, the prices of many common consumer goods in the United States, measured by the Consumer Price Index, have gone up by 7.9% since 2021. But what is causing these monumental increases in price, and what does it mean for the greater American economy? According to the Bureau of Labor Statistics (BLS), the driving factors behind the recent trend of inflation can be attributed to large increases in demand for food, gasoline, and shelter from both households and corporations. These increases in demand are a consequence of the recovering economy following the initial COVID-19 outbreak and its subsequent economic shutdowns. As corporations concerned with the production of consumer goods scramble to accommodate for increases in demand, breakdowns in supply chains due to the pandemic’s effect on labor markets have prevented the reversion of product prices back down to pre-pandemic levels. Price hikes for everyday products are therefore becoming much more frequent as corporations attempt to compensate for supply chain breakdowns and unprecedented increases in consumer demand.
Why Tuition is Not Rising With Inflation
Interestingly, tuition has historically risen at rates greater than that of national inflation. Americans today, however, are witnessing a complete reversal of that trend. While the price of tuition is growing at a slow pace, prices of ordinary household commodities are increasing exponentially. But how? What exactly about the current state of our economy is causing tuition rates to behave contrary to historic trends?
Once again, COVID-19 and its impacts on consumers are a culprit. In times of economic hardship, individuals often strive to attend institutions of higher education. Financial difficulty often motivates people to search for ways to generate wealth—higher education being among the most prevalent opportunities identified. In fact, national economic emergencies are usually accompanied by an increased societal emphasis on higher education and increases in enrollment rates. In our post-pandemic economy, however, the exact opposite has occurred. Instead of college enrollment increasing, universities have seen sharp declines in enrollment over the past year. According to Bloomberg, universities across the U.S. have seen fewer overall enrollments throughout the course of the COVID-19 outbreak. This, of course, begs the question of why. Why has the pandemic-induced recession affected college enrollment so differently than other economically trying times have?
While this question relates to the intersections of various socioeconomic factors, its answer is simpler and deals mainly with the nature of COVID-19’s influence on societal behaviors. The pandemic has been an incredibly unique global issue that has changed the way the world functions. When examining data such as college enrollment, it is important to understand that a virus that spreads mainly through human interaction may negatively affect the desirability of highly interactive college environments. COVID-19 caused millions of people to pause and reflect upon their current situations and future plans, including possibilities for higher education. For many, leaving home during a global crisis just to deal with remote learning was a high-risk gamble that was unwarranted due to the payout simply not being high enough. These factors, as well as difficulties with international enrollment, have influenced the nationwide pattern of reduced college enrollment rates.
Downward trends in enrollment have had a ripple effect at institutions across the country. As decreases in enrollment continue, schools are feeling pressure to keep tuition affordable. Although inflation has pushed up the prices of most goods and services, the necessity for more students has incentivized institutions to keep tuition prices relatively low.
The Case of Berkeley
There is no doubt that these developments are occurring across the U.S., but how will they be manifested in the lives of U.C. Berkeley students? A recent report from the University of California Board of Regents has provided some resolution to these questions. The report lays out a multi-year tuition and financial aid plan that aims to provide tuition stability for systemwide student charges.
This plan aligns with both the rest of the U.C. system, as well as other institutions across the country, in a nationwide movement attempting to mitigate the effects of low enrollment rates. The University of South Carolina, the University of Nebraska, and Purdue University have all also announced holds or freezes on tuition rates. All in all, Berkeley and the U.C. system as a whole will continue to place limits on tuition rates that will make it easier for students to enroll, at least for the coming academic year.
Conclusion
Tuition rates over the next year will largely rely on inflation and the steps that government policymakers take to mitigate its effect. The last two fiscal years have seen billions of dollars in government subsidies distributed as higher education emergency relief funds, as well as significant policies implemented regarding university boards. Although there is evidence that the influence of inflation will eventually reach tuition, the continued implementation of these regulatory measures will likely curtail the rise of tuition costs.
Higher education is fundamentally an investment—one where students sacrifice upfront costs in both their time and money in the hopes that one day it will pay off in the form of a lucrative career. Moreover, hedges against currency devaluation, such as gold, are often seen as especially strong investments in times of high inflation. Therefore, college right now should theoretically be one attractive hedge, and see a rise in popularity. However, it is not—offering valuable insight into what might be a reversal of the popular narrative that college is an extremely appealing option for young students. Perhaps, it is no longer regarded as as strong an investment as it once was.
Take-Home Points
- Inflation rates have increased to values not measured in nearly four decades.
- Tuition rates, a metric that usually outpaces inflation, has remained relatively consistent.
- COVID-19’s impact on supply chains and demand has been a large factor in U.S. inflation.
- The pandemic’s effect on college enrollment has incentivized universities to place holds and freezes on tuition rates for the foreseeable future.
It was interesting to read about how recently the trend for enrollment in academic institutions was reversed after the recent pandemic. Lower enrollment goes to speak for just how unreasonably expensive higher education is.