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College Tuition Grows at Slowest Pace in Decades
00:07:21
The Wall Street Journal's Josh Mitchell says college prices are now rising just 1.9 percent, in line with inflation. He says stagnant enrollment is a big reason for slowing price growth.
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This is yous Money Matters from the Wall Street Journal. Welcome to youo Money Matters. I'm Charlie Turner in New York. Amid complaints about how expensive it is to attend college, in fact, college tuition is growing at the slowest pace in decades. It follows a rise of nearly 400% over the past three decades that helped fuel a surge in student debt. According to the College Board, tuition at college and graduate school, after scholarships and grants are factored in, rose 1.9% in June. That's within the growth of overall inflation. Some schools are offering discounts and cutting their prices. Let's find out why this is happening with Wall Street Journal reporter Josh Mitchell, who joins us from Washington. Josh, I imagine tuition growth is slowing because so is enrollment.
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C
Yeah. So this is a question of supply and demand. And we've seen lower demand for college and higher education in general as the labor market has improved. This is what happens when the economy is doing pretty well. People decide to go out in the labor force and get jobs and hold jobs as opposed to going back to school or going to graduate school. So when the economy is good, people are less inclined to go to school. When the economy is bad, that's a good opportunity to go back to school if there's not many jobs out there. And that's what we saw during the recession. There was this big boom in college enrollment and higher education enrollment in general. And now that that enrollment has come down about more than 4% in terms of how many undergraduates are in school, that's come down about 4% or so since 2010. So you have fewer, fewer people out there going to school, which means fewer applicants coming into colleges. This is also partly a demographic issue. There are lower birth rates. So that means that the pool of high school graduates is growing at nearly the pace that it had been. Just to throw some numbers out there, new high school graduates grew 18% between 2000 and 2010, but that number is only 2% in terms of how many new high school graduates we're seeing in the past year compared to 2010. So this decade, the pool of high school graduates is growing at a much slower pace, which Means the colleges themselves just are increasingly competing for what you could call a stagnant pool of potential students.
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B
And there's the loan factor. You write that Congress last increased the maximum amount undergraduates could borrow from the government in 2008. That's almost a decade ago.
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Right. So if students are already borrowing close to the maximum or at the maximum in their. In their undergraduate loans, that constrains how much colleges can charge many students. Perhaps most students don't have access to private lenders if they don't have someone with a good credit score that they can co sign on that loan with. So for many students, your only option is borrowing from the federal government. And if those loan limits haven't increased in a while, then basically colleges themselves are constrained with how much they can charge.
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And also there is the matter of competition.
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Right. So I think that is the supply side of the equation is that between, you know, the 90s through about 2010 or so, we saw, you know, this increase in just the number of schools that there are in the United States. And not only that, but with the rise of online classes, we have, you have students who have more options now. And so that's injected some competition in certain corners of higher education. And so that. And so we might have an oversupply problem. We have, you know, lower demand, and then we have in some cases, oversupply. And I think what you're seeing is some type of market, market correction going on right now where those forces are pushing down price growth. I must emphasize, prices are still growing. They're just not growing at the same pace that they were. And we're also starting to see some schools close. So, you know, I think over the next few years, we're going to see, you know, sort of, I don't know if you could call it a popping of the bubble, but you're going to see some slower price increases than we have seen. Than we have seen. I must also point out that public schools and private schools are affected by different forces. Public schools, which most people go to, have seen an increase in state funding in recent years as the economy has improved and tax revenues have improved. You've seen states increase their direct funding to colleges, which in turn relieves the pressure on them to charge higher prices for students. If they can get more, if they can get a bigger source of their revenue from the states and the students, then that in and of itself is going to affect tuition. So there's a lot of different factors at play here.
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B
I'm speaking with Josh Mitchell of the Wall Street Journal and you're listening to your Money Matters. Thanks for listening, everyone. But Josh, you also write that there are pressures that could keep prices rising, right?
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C
So couple things. If schools are closing, then you might have leverage returns to the schools that remain open. So if we have in some cases oversupply in some parts of the country, well, as more schools close, then that means fewer options for consumers. And so that may, you know, return some leverage to the schools to charge higher prices. Also, state budgets, you know, I mentioned that states have been increasing aid in recent years as the economy improves. But anyone who looks at state budgets knows that there's a storm, there's a storm down the road where there's going to be a lot of pressure on states to rein in their spending or find ways to cover health care costs, pension costs. We do have an aging population and these expenses associated with people entering retirement age are really going to hit states hard in the next few years. And when that happens, the expectation is states are going to cut other types of discretionary spending like higher education. So if states start to cut their direct funding to higher education, you might see colleges, as they have in the past, raise tuition to try and offset those cuts. So look for that to possibly happen in a few years. And I must also point out that, you know, there are some schools that are still charging a premium. A lot of these prestigious private colleges, for example, people are willing to pay a lot of money to go there because if you go there, you know, you do have a decent chance at getting a well paying job. So there is still a decent return on investment when you go to school, particularly at some of these prestigious schools. So that that still allows these schools to charge higher prices.
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Wall Street Journal reporter Josh Mitchell reporting from Washington. Josh, thanks a lot.
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C
Sure, thank you.
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And that's your money Matters. I'm Charlie Turner at the Wall Street
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