Tuition and Inflation

March 12th, 2012 by Jennifer Frankel

College costs are on the rise and are showing no signs of wavering. Economists predict that by 2015 state college costs may be as high as $120,000. US and international students are feeling the effects more so than ever as tuition is increasing at a faster rate than inflation. Since 1986, inflation has increased 115.06% whereas tuition has increased 498.31%.

So, what does this mean for you?

First, to understand, let’s discuss inflation. Inflation is the rate in which the price for goods/services rise but the purchasing power falls. For example, the price for a hamburger cost 15 cents back in 1955, but now the cost is $3.22 for that same burger. You are still getting a burger, but your money is worth less now. So, to put it in context, the higher inflation, the less your money buys.

Currently, tuition is increasing at twice the rate of inflation – meaning that you will need more money to get the same education – and the trend shows no indication of changing. Below is a graph that shows the increase in tuition and fees since 1986 (data collected from College Board):

You will notice that the rate has been steadily on the rise, with the largest increase coming from private nonprofit four-year colleges and universities. These rising costs can be attributed to a number of factors, including a decrease in state funding, increased costs to attract professors, and investment in facilities to create a competitive educational environment.

According to the latest data published by Bloomberg, tuition jumped 8.3% over last year doubling inflation. The increase in tuition is causing a new problem – student debt. Last year, according to the Milwaukee Journal Sentinel, the average student graduated with $27,000 in debt – quite an increase from just $5,000 back in 1982. If you adjust for inflation, then the debt amount would be $12,000 in real terms (less than half the current student debt amount!)

As tuition continues to increase, students will now need to think about their earning potential upon graduation, as well as alternative methods to help fund your education. Maximizing scholarships and grants is the first step in reducing your debt. By thinking smart, consider your career path and earning potential, look for ways to keep your finances low, and seek alternative methods to get additional funding to support your education.

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