Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Creating a Two-Tier College System
Transcript
- Lucas: So the April CPI came in at 332.4, which is up from 330.3 in March, and core inflation is still sticky at 335.4. Meanwhile, real GDP grew at an annualized rate of just 1.6 percent in the first quarter. That's the stagflation picture in two numbers: prices rising, growth crawling. Luna: And that combination is starting to show up in unexpected places. I've been looking at how higher education is splitting into two distinct tiers. Lucas: Yeah, there's a real divide opening up. On one side, you have elite universities with massive endowments — schools like Harvard, Yale, Stanford. They're raising tuition, but they're also expanding financial aid, and they're still seeing record application numbers. Luna: And on the other side, community colleges and regional public universities are seeing enrollment freezes, budget cuts, even program closures. Lucas: Exactly. And we don't run ads on this show, so if walking through the economy with us has made something click, you can support the choice to keep it ad-free at buy me a coffee dot com slash fexingo. Just a low-key way to keep this going. Luna: It's a small gesture that adds up. And it lets us keep talking about stuff like this without interruption. Lucas: So back to the two-tier system. The core issue is that in a slow-growth, high-inflation environment, families are making different choices. Household finances are strained — the New York Fed's survey just showed worries hitting the highest level since July 2022. Luna: So for a lot of families, the calculation shifts. Do you take on debt for a four-year degree at a regional public university, or do you go to a community college for two years and then transfer? Lucas: Right. And community colleges are seeing that play out. Enrollment at two-year public institutions has been ticking up, especially in programs tied directly to jobs — nursing, HVAC, IT certifications. It's a pragmatic response to stagflation. Luna: Meanwhile, elite schools are basically insulated. Their endowments mean they can absorb inflationary pressure on operating costs without slashing programs. And their brand power means demand stays high. Lucas: It creates this bifurcation where the top 20 or so universities are operating in a different economy than the rest of higher ed. And the data backs that up. Look at tuition growth — elite schools have been increasing list prices by 3 to 4 percent a year, but net tuition after financial aid has actually been flat or declining for many students. Luna: Because they're using endowment income to cross-subsidize. That's a luxury most schools don't have. Lucas: Exactly. Regional public universities are much more tuition-dependent. When inflation pushes up their costs — faculty salaries, utilities, maintenance — they can't just raise tuition because their student body is price-sensitive. So they cut programs, freeze hiring, or both. Luna: And that has a direct impact on economic mobility. If the most affordable options are being squeezed, it becomes harder for lower-income students to get a degree that actually improves their earnings. Lucas: There's a longer-term angle too. The quality of the education at regional publics could slip if they keep losing faculty to better-funded institutions. That would widen the gap even further. Luna: And then there's the student debt piece. With the unemployment rate at 4.3 percent and job openings still high at 7.6 million, the labor market is still relatively tight. But wage growth is only about 3.2 percent year-over-year, which is barely keeping up with inflation. Lucas: So graduates from less-prestigious schools may find that their earnings don't justify the debt they took on. That's a recipe for default stress down the line. Luna: One thing I find interesting is how campus hiring is reflecting this. Elite schools are still seeing strong recruiting from consulting firms, investment banks, tech companies. But at regional schools, career fairs are smaller, and employers are more selective. Lucas: That's the two-tier system in action. And it's not just about the degree — it's about the network, the internship pipeline, the whole ecosystem. Stagflation is accelerating a divide that was already there. Luna: Is there any policy response that could help? I know some states are boosting community college funding, but it's not enough. Lucas: A few things are being talked about. Income-share agreements, where students pay a percentage of future earnings instead of upfront tuition, are gaining traction. Also, some regional universities are forming partnerships with community colleges to create seamless transfer paths. Luna: But those are incremental. The structural issue is that we have a system where the best-funded schools serve the wealthiest students, and the rest are left to scramble. Lucas: And in a stagflation environment, that scramble gets harder. Because the families that are most price-sensitive are also the ones most hurt by rising costs and stagnant wages. Luna: So the question becomes: are we okay with a future where a degree from a top school is a near-necessity for a middle-class life, but most people can't afford it? Lucas: That's the uncomfortable conversation. And it's one that the 1.6 percent GDP growth number forces us to have. We're not growing fast enough to lift all boats, so the boats that are already higher stay where they are. Luna: It feels like the 1970s playbook all over again, but with higher education as the arena instead of manufacturing. Lucas: Exactly. And just like in the 70s, the divides that open up during stagflation can persist long after the economy recovers. So this is one to watch. Luna: All right, thanks Lucas. Lucas: Thanks Luna. We'll be back next time with another angle on this strange economy.