Latest inflation data supports the view that college costs will increase +1% 2020 to 2021

This week’s release aligns with CTAS’ current 2021 pricing prediction

As you may have seen in the news, the latest consumer inflation figures were much higher than expected.  But the economy-wide surge in inflation is not showing up in the component covering college tuition and fees broken out in the Bureau of Labor Statistics (BLS) data.  College costs are in fact growing at the slowest rate in the last decade.

  • The BLS release on college tuition icosts reports an annualized inflation rate of 1.4% for January through April for the category (total US inflation for the period: 7.2%).
    • Seasonal adjustments made by BLS economists in the beginning of 2019 and 2020 were too large.  If this pattern of overestimation holds in 2021, the final annual tuition inflation rate would fall closer to 1.0%.
  • CTAS previously forecast +1% college pricing for the 2021 academic year vs 2020.
  • The BLS results are similar and support that forecast.  The BLS data-gathering process is entirely different from ours. The fact that two disparate systems yield results close to each other adds to the confidence that the metric is being measured reasonably accurately.

Two offsetting risks, one pushing college prices up, the other pushing them down, are in play:

  • CTAS has taken the position that family income drives net tuition costs (not inflation or what the colleges decide to charge), based on the close correlation of various income and college cost metrics in the 2010s.  The ample federal spending to counter the COVID impact on the US economy has flooded cash into the economy and pushed personal incomes much higher, suggesting the colleges will enjoy exceptional pricing power in the next couple of years.  Because this is a temporary government fiscal boost, will it in fact allow colleges to charge more?
  • Enrollment trends, CTAS methodology and BLS statistics are all flashing signs of weakening college pricing power.  Could there be a dislocating, downward shift in spending on college in the next few years?

The economic environment of higher ed has been exceptionally interesting since 2019.  We will continue to track it here as developments and data emerge.

The Bureau of Labor Statistics in Washington