Tuition inflation is the annual rate of increase in college costs. College costs tend to increase, on average, by about twice the consumer inflation rate.
There are several different measures of tuition inflation, each of which yields a different estimate of increases in college costs. Each measure of tuition inflation has its own limitations.
The consumer inflation rate is usually reported based on the Consumer Price Index (CPI-U). One component of CPI-U measures increases in college tuition and fees. This chart compares the tuition inflation rate based solely on the college tuition and fees component of CPI-U with the overall CPI-U.
The tuition inflation component of CPI-U and CPI-U tend to fluctuate relative to each other. To better compare tuition inflation with CPI-U, one can smooth the data by using a 17-year moving average. A 17-year moving average is useful for predicting future college costs because it is the typical number of years from a child’s birth to the child’s matriculation in college.
This chart shows that tuition inflation is about 3.5% to 4.0% higher than CPI-U. The average tuition inflation rate is 7.4%, double the average CPI-U of 3.7%. The ratio of tuition inflation to CPI-U, however, has increased from about 2.0 to about 2.5.
The downward trend in tuition inflation is due partly because of efforts by colleges to control increases in college costs, but also due to shifts in student enrollment from higher-cost colleges to lower-cost colleges. This includes shifts in enrollment from private non-profit colleges to public colleges and from 4-year colleges to 2-year colleges. The percentage of undergraduate students receiving Bachelor’s degrees, especially among low-income students, has been decreasing.
The National Postsecondary Student Aid Study (NPSAS) surveyed 113,500 undergraduate students in 2007-08 and 95,000 undergraduate students in 2011-12 about how they paid for college. The survey includes data about tuition and fees, cost of attendance and net price. The annualized tuition inflation rate from 2007-08 to 2011-12 is 5.8%, similar to the tuition inflation rate in the CPI-U data. But, the NPSAS data allows more sophisticated analysis of the inflation rates, such as the data in this table. One may also disaggregate tuition inflation data by student characteristics, such as gender, race and Federal Pell Grant recipient status. (College cost inflation rates are similar by gender and race, but lower for Federal Pell Grant recipients than non-recipients.)
The College Board includes tuition inflation statistics in its annual Trends in College Pricing report, but this report is not based on a true index and as such may differ from the CPI-U and NPSAS statistics. This chart shows the college cost inflation rates (including tuition, fees, and room and board) for 4-year public and private non-profit colleges, based on College Board data.
The next chart shows tuition inflation for public 4-year colleges, private non-profit 4-year colleges and public 2-year colleges, based on College Board data.
Cumulative Impact of Tuition Inflation
This table demonstrates that college costs increase by about a factor of 3 from birth to matriculation.
College costs for a child are 4 to 8 times greater than the parent’s college costs. According to the Centers for Disease Control and Prevention (CDC), the mean age of U.S. mothers at first birth was 25.8 years in 2012 and the mean age across all births was 28 years. Fathers are about 3 years older than mothers, on average. This table shows the increase in college costs based on the age of the older parent in the household.
Why Does Tuition Increase at Twice the Inflation Rate?
Inflation rates are calculated by measuring changes in the price of a basket of goods and services. The consumer inflation rate, as measured by CPI-U, is based on a basket of goods and services used by consumers, such as food, clothing, housing, transportation, entertainment, insurance and medical care. Colleges use a different basket of goods and services than consumers, one that is more heavily weighted toward faculty and staff salaries and benefits, facility costs, equipment costs and energy costs, all of which increase faster than CPI-U. The Commonfund Institute tracks the Higher Education Price Index (HEPI), which measures increases in the main cost drivers at higher education institutions.
In addition to HEPI, college costs also increase because of the awarding of need-based grants. If a college provides grants to students equal, on average, to 40 percent of gross tuition revenue, then the college nets only 60 cents on the dollar. If the college needs to get a dollar of net tuition revenue, it must increase gross tuition by $1.67. This adds a multiplier effect on top of the increase in the HEPI.