Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Reshaping College Enrollment Decisions
Transcript
- Lucas: So last week I was looking at the JOLTS report for March — job openings fell to about 6.9 million, down from 6.9 million the month before. The labor market is still tight, but it's clearly cooling. Luna: Right, and we've talked a lot about how stagflation is hitting businesses and consumers. But there's one area I think we haven't touched yet: higher education. Lucas: That's a good call. College enrollment is a massive economic decision — both for families and for the economy as a whole. And I think stagflation is reshaping it in ways that are only now becoming visible. Luna: What's the headline number? Lucas: The National Student Clearinghouse just released preliminary data for fall 2025 — and we're seeing freshman enrollment at private four-year universities drop about 6 percent year-over-year. Public universities are down around 2 percent. Meanwhile, community college enrollment is up roughly 4 percent. Luna: So people are trading down — opting for cheaper options. That makes sense when inflation is still running hot and wage growth is barely keeping up. Lucas: Exactly. Average hourly earnings are up about 3.5 percent year-over-year, but core CPI is still above 4 percent. So real wages are actually declining. That squeeze is making families much more price-sensitive about tuition. Luna: And it's not just about cost. It's also about perceived return. When the job market softens, people start questioning whether a $200,000 degree is worth it. Lucas: Right. And we're seeing that play out in survey data. A new poll from Gallup found that only 47 percent of Americans now have 'a great deal' or 'quite a lot' of confidence in higher education — down from 57 percent a decade ago. That's the lowest level ever recorded. Luna: Wow. So the stagflation environment is essentially accelerating a long-term trend. But I wonder — are there any structural changes happening on the supply side? Are colleges adapting? Lucas: Some are. A few private universities have started freezing tuition or offering more generous merit aid. But the bigger shift is happening in financing. Income-share agreements — or ISAs — are gaining traction. These are contracts where students agree to pay a percentage of their future income for a set number of years in exchange for tuition coverage. Luna: Right, so the risk shifts from the student to the investor. If you graduate and get a low-paying job, you pay less. If you hit it big, you pay more. Lucas: Exactly. Purdue University's 'Back a Boiler' program is one of the best-known examples. But now we're seeing for-profit ISA providers like Vemo Education and Stride Funding expanding rapidly. In 2025, ISA volume was up about 30 percent year-over-year. Luna: That's still a drop in the bucket compared to the $1.6 trillion student loan market. But it's a signal that the traditional model is under pressure. Lucas: And it's not just students changing behavior. Employers are also adapting. The percentage of job postings requiring a bachelor's degree has fallen from about 51 percent in 2019 to around 44 percent today, according to data from Indeed. Companies like Google, Apple, and IBM have all dropped degree requirements for many roles. Luna: That's a direct response to a tight labor market — but also to the stigma around student debt. If you can't find enough degreed workers, you start looking at skills-based hiring. Lucas: Exactly. And this feeds back into the enrollment decision. If more good jobs don't require a degree, the opportunity cost of spending four years in college — and taking on debt — becomes harder to justify. Luna: So we're seeing a kind of equilibrium shift. Lower demand for traditional degrees, more alternative pathways, and employers meeting them halfway. Lucas: Yeah. And I think the stagflation context makes this shift more permanent. When inflation is high and growth is slow, people become more risk-averse and more focused on short-term returns. A four-year degree is a long-term bet — and in this environment, people are less willing to make long-term bets. Luna: That's a really interesting way to frame it. So what does this mean for the broader economy? If fewer people are getting degrees, does that hurt productivity growth down the line? Lucas: It could. But there's also an argument that skills-based training and apprenticeships could be more efficient. The question is whether the private sector can scale those alternatives fast enough. Right now, the data is mixed. Apprenticeship registrations are up about 8 percent year-over-year, but they're still concentrated in construction and manufacturing. Luna: And community colleges are stepping in. They're partnering with local employers to create short-term credential programs. I saw that in my area, the community college launched a six-month data analytics certificate that's basically designed with a local bank. Lucas: That's exactly the kind of thing we need more of. But it's still early. And the risk is that if stagflation persists, we could see a drop in overall human capital investment — which would be a drag on potential growth for years. Luna: Let's zoom in on one specific number: the 6 percent drop in private university applications. That seems like a big move for one year. Lucas: It is. And it's not just about cost. It's also about demographics. The number of 18-year-olds in the US peaked in 2025 and is now declining. So there's a structural headwind. But the stagflation effect amplifies it. When families are squeezed, they make different choices. Luna: Are we seeing any regional variation? I'd guess the Sun Belt states with growing populations might be less affected. Lucas: Good question. Actually, the data shows that the decline in private university enrollment is fairly broad-based, but it's steeper in the Northeast and Midwest, where population growth is slower. In the South and West, public universities are holding up better. But even there, the shift to community colleges is visible. Luna: So the stagflation playbook for students seems to be: go local, go public, go cheap. And for employers: drop the degree requirement, train your own people. Lucas: That's a good summary. And I think it's important to note that this isn't just a cyclical reaction. The structural forces — demographics, technology, the rising cost of provision — are all pushing in the same direction. Stagflation is just accelerating a transition that was already underway. Luna: If today was actually useful to you — and I know for me, Lucas's breakdown of the enrollment numbers really helped me understand what's happening — the way these stay ad-free is listener support. Lucas: Yeah, it's a small thing that makes a big difference. If you've gotten value from the show, you can head to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash f-e-x-i-n-g-o. Totally optional, but it helps us keep going. Luna: And we really appreciate it. Now, back to the numbers — one thing I want to dig into is the impact on student loan markets. If enrollment is shifting, what happens to the $1.6 trillion in outstanding debt? Lucas: That's the million-dollar question. On the one hand, lower enrollment means less new debt. On the other hand, the existing borrowers are still struggling. Delinquency rates have been creeping up — about 12 percent of borrowers are now 90 days past due, according to the New York Fed. That's up from 10 percent a year ago. Luna: And with inflation eating into real wages, those payments become harder to make. It's a vicious cycle. Lucas: Exactly. And that's why the shift to income-share agreements is so interesting. They align the cost of education with actual earnings. If stagflation persists — meaning weak wage growth and high prices — ISAs could become much more mainstream. Luna: But they also come with risks. The terms can be opaque, and there's less regulatory oversight compared to federal student loans. Lucas: That's a fair point. The Consumer Financial Protection Bureau has started looking into ISAs more closely. So we'll see if regulation catches up. But for now, the market is growing. Luna: So to wrap up — stagflation is reshaping not just what people buy, but how they invest in themselves. And that has long-term implications for the labor market, productivity, and economic growth. Lucas: Right. The decision to go to college is one of the most important economic decisions a person makes. And if stagflation is changing that calculus, it's going to ripple through the economy for decades. Something to keep an eye on.