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Transcript
- Lucas: If you've looked at a college tuition bill lately, you know it's gone up. But here's the part that doesn't get enough attention: inflation is actually making college more expensive than the published tuition increases suggest. And I've got the numbers to prove it. Luna: How does that work? Tuition's the headline number. What's hiding underneath? Lucas: Well, the College Board's data shows that over the past decade, published tuition and fees at four-year public universities rose about 28 percent. But the total cost of attendance — that's tuition plus room, board, books, transportation — rose about 34 percent. That six-point gap is almost entirely inflation in the non-tuition pieces. Luna: So room and board and fees are inflating faster than tuition itself? Lucas: Exactly. And it makes sense when you think about what drives those costs. Room and board is tied to the housing market — rents are up, utilities are up, food costs are up. Those are all things the CPI captures. The April CPI reading came in at 332.4, up from 330.29 a month earlier. Core CPI, which strips out food and energy, hit 335.4. Luna: Right, so the stuff that colleges have to buy to house and feed students — that's getting more expensive, and they pass it on. Lucas: Precisely. And it's not just room and board. Mandatory fees — things like technology fees, health center fees, activity fees — those have grown at about 4.5 percent annually over the last five years, which is roughly double the average tuition increase in that period. Colleges use fees to cover rising operational costs without having to announce a big tuition hike. Luna: So they're basically hiding inflation in the line items. That's frustrating for families who think they're budgeting based on tuition alone. Lucas: It is. And here's where the inflation angle gets really concrete. The purchasing power of a dollar in higher education has been eroding faster than the headline CPI because education-specific costs — what economists call the 'college CPI' — have consistently outpaced the general CPI. Over the past decade, education costs grew at a compound annual growth rate of about 3.2 percent, versus 2.8 percent for the overall CPI. Luna: That 0.4 percent gap compounds. Over ten years, that means the real cost of college is about 4 percent higher than what the tuition sticker suggests. Lucas: Right. And it's even worse if you're looking at private universities, where the gap is closer to 0.6 percent annually. So families who think 'tuition only went up 3 percent, that's in line with inflation' are actually falling behind. Luna: So what can people actually do about this? You can't negotiate your child's room and board charges. Lucas: You can't negotiate them, but you can plan around them. First, 529 plans are still the best vehicle, but you need to be aggressive about the investment choice. A lot of people put 529 money into conservative portfolios thinking they're protecting it, but over the long term, you need equity exposure to outpace education inflation. The Russell 2000, for example, is up over 6 percent just in the last five days — small caps have been on a run. That kind of growth matters if you're ten or fifteen years out. Luna: So don't hide the 529 in cash or bonds if you've got time horizon. Got it. Lucas: Exactly. Second, look at prepaid tuition plans if your state offers them. Those lock in tomorrow's tuition at today's price. They don't cover room and board, but they cover the piece that grows fastest — fees and tuition. Luna: And they're guaranteed by the state, so it's a direct hedge against education inflation. Lucas: Right. Third, and this is one people don't think about — scholarship timing. If your child gets a merit scholarship, it's often a fixed dollar amount. But if tuition and fees rise 4 percent a year, that scholarship's purchasing power drops each year. Some schools offer to increase scholarships with inflation, but most don't. So a $10,000 scholarship freshman year might only cover $9,200 worth of costs by senior year. Luna: That's a real hidden tax. So you'd want to front-load scholarship money if you can, or negotiate for an inflation escalator clause. Lucas: Exactly. And the same logic applies to any fixed financial aid package. Now, one other thing I want to mention — the Russell 2000 surge I just referenced isn't just relevant for 529s. It also ties into college endowments. A lot of endowments have significant small-cap exposure. When small caps rally, endowments grow, and that can translate into more institutional aid down the line. So a rising Russell is actually good news for financial aid budgets. Luna: Interesting. So the market environment right now — with the Russell up over 6 percent in a week — could mean more generous aid packages next year, all else equal. Lucas: That's the theory. Of course, endowments also have spending rules — they typically only spend about 5 percent of assets annually — so a short-term pop doesn't immediately change aid. But sustained gains do. Luna: Let's shift to something more tactical. What about the actual inflation data we're seeing right now? The CPI at 332.4 and core at 335.4 — how should a family with a high school junior interpret those numbers? Lucas: I think the key takeaway is that education inflation is still running above the headline number, even as the Fed has held rates steady. The fed funds rate is at 3.64 percent effective, and the ten-year breakeven inflation rate — that's the market's expectation of average inflation over the next decade — is at 2.40 percent. That's up slightly from 2.39 a week ago. Luna: So the market expects inflation to stay around 2.4 percent, but education costs are likely to be higher. Lucas: Right. If you assume education inflation runs 0.5 to 1 percent above the ten-year breakeven, you're looking at 3 to 3.4 percent annual cost growth for college. That's still manageable, but it means a family planning for a child entering college in 2030 should expect total costs to be about 15 to 20 percent higher than today's published numbers. Luna: So the classic 'college costs double every decade' isn't true anymore, but the erosion of purchasing power is real and persistent. Lucas: Exactly. And that's why I think shows like this one — where we actually dig into the specific numbers and mechanisms — can be genuinely useful. If today helped you think about college planning a little differently, or if you've ever gotten value from our breakdowns of how inflation hits your wallet, here's the thing: we keep this show ad-free because of listener support. It's at buy me a coffee dot com slash fexingo. Luna: Yeah, and it really does make a difference. A few dollars from people who find these conversations helpful is what lets us keep doing them without sponsors interrupting. Lucas: Exactly. So if you're inclined, that's buy me a coffee dot com slash fexingo. Now, back to the numbers — one more thing I want to layer in. The gold price has slipped a bit this week, down half a percent to about $4,508. That suggests near-term inflation expectations are stable, not accelerating. So the environment for college cost planning right now is relatively benign, but still elevated compared to pre-pandemic. Luna: Stable but not low. So the message for families is: don't panic, but do plan with realistic inflation assumptions. Lucas: Exactly. And use the tools we've talked about — 529s with equity exposure, prepaid plans where available, and scholarship timing awareness. Those are the real hedges against the inflation you can't see on the tuition bill. Luna: Well said. This is one of those episodes I wish I'd heard ten years ago. Lucas: Me too. On that note, I'm Lucas. Luna: And I'm Luna. Lucas: Thanks for listening. We'll be back tomorrow with another angle on protecting your purchasing power.