Tuesday, August 27, 2013

College Tuition Has Outpaced Inflation by 237% Since 1978

Everyone from President Obama on down seems to be talking about how expensive college has become. Amidst all this talk you hear plenty of statistics, usually quoted without much context, by people who have a political agenda. The Democrats want to make college more affordable for the poor, while the Republicans want to help the rich tap into the tuition gravy train. College professors and administrators want to protect their own salaries and budgets. Everyone, it seems, is an expert, and indeed, there is a vast body of literature on the economics of higher education.

So, being a typical curious physicist, I decided to ignore all this literature and try to get the big picture directly from the most obvious place: Consumer Price Index data from the U.S. Bureau of Labor Statistics. The CPI has included a college tuition (and fees) component since 1978, and it’s easy to download the data and compare it to the prices of other goods and services. The results are striking.

To visualize what has happened since 1978, I chose several other CPI data sets and divided each by its 1978 value to get a consistent baseline. Then, to more or less cancel out the effects of overall inflation, I divided each number for a specific CPI category by the “all items” value. Here, without further ado, are the results:

College tuition has risen far more quickly than any other CPI component that I looked at, with the exception of pre-college tuition (which tracks college tuition very closely). You think medical care has gotten more expensive? In the last 35 years the medical care CPI has exceeded overall inflation by only 92%, while college tuition has outpaced inflation by 237%.

Shelter (buying or renting a home) has risen in price only a little faster than the overall CPI during this time. The price of energy has been quite volatile, also rising somewhat on average. Food prices have not quite kept pace with the overall CPI. Virtually all categories of manufactured goods, from apparel to household furnishings to new cars, have become much more affordable than they were in 1978.

In fact, this one graph tells much of the story of the U.S. economy over the last 35 years. Manufactured goods are now cheap because the manufacturing has been either outsourced or automated—and the retailers who sell these goods don’t pay high wages. The money is in professional services like law and finance and medicine and education that can’t easily be outsourced or automated. These professions require a college education, so the demand for college has risen, further driving up its price.

But where is all that tuition money going? That’s an excellent question, which I’ll try to address in a subsequent post.

[Addendum: Of course I’m not the first to produce a graph like the one above. Here’s one that appeared online just yesterday, although it doesn’t show as wide a variety of CPI categories and it doesn’t divide by the overall CPI as I did.]