Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating College Tuition Hikes
Transcript
- Lucas: So there's this one expense that's been eating raises for literally decades — college tuition. And the data we got this spring suggests that for the first time in a long time, wage growth is actually keeping up. Luna: Keeping up meaning... my raise is bigger than the tuition hike? Lucas: Exactly. I want to be careful here — this isn't a victory lap. But the numbers are real. Average hourly earnings for private workers hit $37.50 in May, up from $37.41 in April. That's not a huge jump, but it's part of a trend. Median weekly earnings are now $1,204, up from $1,159 a year ago. Luna: And tuition? Because the College Board data I've seen has been brutal — like 3 to 4 percent a year for public four-year schools. Lucas: Right. For the 2025-2026 academic year, in-state tuition and fees at public four-year colleges rose about 2.8 percent. That's actually below the overall inflation rate for much of that period. But the key is wage growth: average hourly earnings are up about 4.2 percent year-over-year. So wages are growing faster than tuition. Luna: That feels like a big deal. I mean, for how long have we heard 'tuition always outpaces inflation'? Lucas: Decades. Since the early 1980s, college costs have risen at roughly twice the rate of general inflation. But the labor market has been so tight that employers have had to bid up wages, especially for workers without degrees. That's pulling up the bottom of the wage distribution. And those are exactly the households that feel tuition increases the most. Luna: So is this a permanent shift or just a moment? Lucas: That's the million-dollar question. A lot depends on whether the Fed can keep inflation under control without tipping us into a recession. Right now the ten-year breakeven inflation rate is 2.25 percent, which suggests the bond market thinks inflation will stay modest. If that holds, and if the labor market stays strong, wage growth could continue to outpace tuition. Luna: But there's a 'but' coming, right? Lucas: Yeah. The 'but' is that tuition increases have been moderating partly because enrollment dropped during the pandemic and schools got spooked. If enrollment surges back, schools might regain pricing power. Also, state funding for higher ed is still uneven. Some states are increasing appropriations; others are cutting. Luna: So the window might be narrow. But for now, a family with a kid heading to college next year could actually feel like their raise isn't being eaten by tuition. That's a real change in the conversation. Lucas: Absolutely. And it's one of those rare moments where the macro data actually lines up with what people might be experiencing. If your household income went up 4 percent and your in-state tuition went up 2.8, you're ahead. That hasn't been true for most of the last 40 years. Luna: And if today was actually useful to you, the way these shows stay ad-free is listener support. Buy me a coffee dot com slash fexingo. Just a small way to keep the conversation going without commercials. Lucas: Yeah, we really appreciate that. It makes a difference. So back to tuition — one other thing I want to highlight is the variation by state. Luna: Because not every state is the same. Lucas: Not at all. In states like California and New York, where tuition has been relatively flat due to policy freezes, wage growth is easily outpacing. But in states like Arizona and Pennsylvania, where tuition has risen 4 or 5 percent, the gap is much narrower. So the national average masks real differences. Luna: And that matters if you're a listener in one of those states. You might be thinking 'my raise didn't beat tuition by much'. Lucas: Exactly. The other nuance is that the wage growth is concentrated at the lower end. The Employment Cost Index for wages rose to 177.5 in the first quarter, up from 176.23. That's a 3.6 percent annualized rate. But for the bottom quartile of earners, wage growth has been closer to 5 or 6 percent. Those are the workers most likely to be sending kids to community college or state schools. Luna: So the raise is actually hitting where it's needed most. Lucas: Yes. And that could have implications for student debt. If wages keep outpacing tuition, the burden of new loans might start to decline relative to income. We've seen average debt at graduation level off around $30,000. If wages grow faster than that for a few years, the debt to income ratio improves. Luna: That would be a huge psychological shift. Young people might feel less like they're starting their careers in a hole. Lucas: Right. But again, it's fragile. If we get a recession, wage growth stalls, tuition might not. And there's the wildcard of federal policy. The Biden administration's student loan forgiveness plan was struck down, but the current administration is pushing different approaches. That could change the calculus. Luna: So for now, the takeaway is: check your own numbers. If your raise was 4 percent and your local public university raised tuition 2.8, you're winning. But stay tuned. Lucas: Exactly. And we'll keep tracking it. This is one of those stories where the data changes every quarter. Next time we'll look at whether this trend holds for private universities and community colleges too. Luna: That sounds like a plan. Thanks, Lucas. Lucas: Thanks, Luna. Talk soon.