Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Wages vs Tuition: When Learning Costs Less
Transcript
- Lucas: Luna, I just looked at a number that made me do a double take. Average hourly earnings are up about 3.4 percent over the last year, right around 37.6 dollars an hour. That's solid, especially with CPI running around 3 percent. Luna: So we're finally seeing raises beat inflation across the board. But you're about to tell me one specific price is actually falling, aren't you? Lucas: Exactly. And it's not rent, or groceries, or even used cars. It's college tuition. For the first time in decades, the sticker price at a four-year public university has gone up less than inflation. We're talking about a 1.8 percent increase, while overall prices rose 3 percent. In real terms, tuition got cheaper. Luna: That is a genuine shift. I remember stories about tuition outpacing inflation by double digits for years. What's driving this? Lucas: A few things. Demographics are the big one. The number of high school graduates peaked in the mid-2020s and is now dropping, so colleges are competing for fewer students. That means discounting, more financial aid, and less pricing power. Luna: So it's a buyer's market for the first time in a generation. But is that the whole story? Lucas: Not quite. There's also a cultural shift. For years, the narrative was 'go to college, any college, it's worth it.' Now, with student debt at record levels and a strong labor market, more families are questioning whether that 50-thousand-dollar-a-year private school is worth it. Luna: And the data backs that skepticism. The college wage premium has actually narrowed a bit for recent grads, hasn't it? Lucas: It has. When I started in this business, the premium was around 80 percent, meaning college grads earned almost twice as much as high school grads. Now it's closer to 60 percent. Still substantial, but the gap is shrinking, and that makes people think twice. Luna: So colleges are being forced to respond. I've seen some schools freeze tuition entirely, or even cut it for in-state students. Lucas: Right. And a lot of that is happening in the public university system. State funding has stabilized after the Great Recession, so schools aren't passing as much cost onto students. Plus, online programs have introduced real price competition. Luna: Speaking of online, do you think the pandemic fundamentally reset what people are willing to pay for a lecture hall experience? Lucas: I think it did, at the margin. Once students realized they could take a well-produced online calculus course for a fraction of the cost, the premium for a brick and mortar classroom became harder to justify. That's a structural change that's here to stay. Luna: And that's a good thing for workers, right? Because our whole show is about how raises are finally beating the cost of stuff. If tuition is becoming more affordable, that's a huge win for families. Lucas: Absolutely. But it's a nuanced win. For one, the decline is mostly in public institutions. Private universities are still raising prices, just less aggressively. And the sticker price at elite schools is still astronomical. Luna: Plus, there's the question of net price. What students actually pay after grants and scholarships might be falling even faster than the sticker price suggests. Lucas: That's a great point. Net tuition revenue per student has been declining for several years now. So the effective cost is going down, which is what really matters for a family's budget. Luna: And you know, this is exactly the kind of thing that makes me appreciate having a place to talk through these numbers. Like, I remember when I was a student, and tuition was just this unstoppable force. Now we're seeing it actually bend. That's a nice change. Lucas: It is. And if you're getting something out of these conversations, you know, the show is ad-free and listener-supported. A couple of dollars a month — buy me a coffee dot com slash fexingo — genuinely keeps us going. Luna: Yeah, it's a small thing that makes a big difference. Every little bit helps us keep digging into these trends. Lucas: Okay, so back to tuition. Another factor I want to dig into is the role of state funding. After the 2008 crash, states slashed budgets, and tuition spiked. But since about 2020, we've seen a different pattern. Luna: State funding has recovered, and some states are even making community college free. That puts pressure on four-year schools to keep their prices in check. Lucas: Exactly. Tennessee and Oregon were early movers on free community college. Now you've got states like Michigan and New York experimenting with free tuition for certain income levels. That changes the whole calculus. Luna: And that's not even mentioning the demographic cliff. The number of 18-year-olds is going to keep falling for the next decade. So this isn't a blip; it's a trend. Lucas: Right. So for workers, this means the cost of a degree is finally moving in the right direction. But it's worth asking: how much is that degree actually worth in today's job market? Luna: We touched on the wage premium shrinking. But haven't we also seen some high-profile tech companies dropping degree requirements for many roles? Lucas: We have. Google, Apple, and others have shifted to skills-based hiring for certain positions. That doesn't mean the degree is worthless, but it does mean there are alternative paths that don't require taking on 30 grand in debt. Luna: So if you're a high school senior right now, the calculus is different than it was for us. You can look at a trade school, a coding bootcamp, or a cheaper public university and come out ahead. Lucas: And that's a healthy change. The 'college at any cost' mindset of the early 2000s did a lot of damage. Now we're seeing a more rational market, where price and value actually matter. Luna: But I want to push back a little. Is this good news for everyone? Because if colleges are cutting costs to attract students, are they also cutting quality? Lucas: That's the real concern. We're seeing more adjunct professors, larger class sizes, and cuts to humanities programs. So while the price is coming down, the product might be changing too. Luna: So it's not an unqualified win. But for most workers and their families, the bottom line is that a degree is becoming more affordable relative to wages. Lucas: And that's the headline. For the first time in a long time, your raise is finally beating the cost of a college education. Let's see if it sticks around. Luna: I'm curious to see how the 2027 entering class responds. If tuition keeps falling in real terms, will we see enrollment bounce back? Lucas: That's the million-dollar question. But for now, it's a reminder that prices aren't destiny. When the market shifts, even something as entrenched as college tuition can start to bend. Luna: Well said. And that's a good note to leave on. Thanks for joining us on Wages and Prices.