Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the College Admissions Industry
Transcript
- Lucas: If you've been following the college admissions headlines over the past couple of years, you might have noticed something strange: applications to elite schools are up, but the share of students from middle-income families is down. And a lot of that, I think, ties directly back to the economic environment we're living in — high inflation, slow growth, real stagflationary pressure on household budgets. Luna: It makes sense intuitively. If everything costs more — rent, groceries, gas — there's less room in the budget for a $60,000-a-year tuition bill. But I didn't realize the numbers were already showing it in the admissions data. Lucas: They are. Look at the latest CPI print from last month — June 2026, consumer prices rose 3.5 percent annually, a bit less than expected because energy eased. But that's still well above the Fed's target, and core inflation remains sticky. Meanwhile, real GDP growth is running at just 2.1 percent annualized. So families are seeing their purchasing power erode while the economy barely expands. That combination, historically, is exactly when you see a shift toward lower-cost educational pathways. Luna: And one of the biggest shifts we're seeing is the rise of community college as a stepping stone to elite universities, right? I've read that transfer applications to schools like the University of California system have jumped double digits in the last two years. Lucas: Exactly. The UC system has its Transfer Admission Guarantee program, which promises admission to any eligible California community college student who completes certain requirements. And that program has seen a 15 percent increase in participation since 2024. Nationally, the number of community college transfers to four-year institutions is up about 8 percent year over year. It's a cost-avoidance strategy — you pay community college tuition, which averages around $5,000 a year, for two years, then transfer. You cut your total tuition bill almost in half. Luna: That's a huge savings. Especially when you consider that the average in-state tuition at a four-year public school is now over $11,000, and private non-profits are over $40,000. So families are making a rational economic calculation. Lucas: Right. And it's not just community college. We're also seeing a surge in dual-enrollment programs — high school students taking college courses for credit. Those have grown about 12 percent nationally since 2023. The logic is the same: knock out general education requirements before you even graduate high school, and you reduce the number of tuition-bearing semesters you need to pay for. Luna: But here's the thing — this trend might actually be widening the gap between the wealthy and everyone else. Because wealthy families can still pay full freight at elite schools, and they're using that to buy admissions advantages through consultants, test prep, legacy connections. Meanwhile, middle-class families are being squeezed out of the direct-entry path. Lucas: That's the uncomfortable truth. The data from places like Harvard and Stanford show that the share of students from families earning between $60,000 and $150,000 — that classic middle class — has dropped by about 4 percentage points over the last decade. Meanwhile, the share from families earning over $500,000 has held steady or even increased slightly. Stagflation accelerates that trend because it makes the middle class more price-sensitive and less willing to take on debt. Luna: And the end of affirmative action, after the Supreme Court's 2023 decision, has also changed things. Some schools have tried to compensate by expanding need-blind admissions and increasing financial aid, but those programs are expensive. And when the economy is sluggish, endowments don't grow as fast, which limits how much aid schools can offer. Lucas: That's a really important point. The endowment returns for many universities were down in fiscal 2025 and 2026, partly because of the volatile market environment. The S&P 500 is around 7,500 now, but it's been choppy. And that directly affects the budgets for financial aid. So even as schools talk about being need-blind, their capacity to actually fund that commitment is constrained. Luna: So if I'm a middle-class parent or a high school student right now, what's the smartest move? Is it community college transfer route? Trade school? Or just swallowing the debt and hoping the degree pays off? Lucas: I think the answer depends on your career goals and your risk tolerance. But one thing the data is very clear on is that the economic return on a college degree has been declining in real terms since about 2015. The College Board estimates the net lifetime premium of a bachelor's degree over a high school diploma has fallen by roughly 15 percent when adjusted for inflation and student loan costs. So the old calculus of 'just go to the best school you can, no matter the cost' is less reliable than it used to be. Luna: And I think that's why we're seeing more interest in competency-based programs, online degrees, and even employer-sponsored education — companies like Walmart and Starbucks have been expanding their tuition reimbursement programs. It's a way to get a credential without the full financial hit. Lucas: Absolutely. And that connects to something else: the rise of 'last-dollar' scholarship programs, where the government or a nonprofit covers the remaining tuition after other aid. Tennessee's Promise program, for example, offers two years of community college free. And enrollment in that program has grown 6 percent in the last year alone. It's a direct response to the affordability crisis. Luna: You know, it's interesting — we think of stagflation as a macroeconomic phenomenon, but it shows up in very personal decisions like where to go to college. And those decisions, in aggregate, reshape entire industries. Lucas: That's exactly what we try to do on this show — connect those dots. And honestly, if walking through the economy with us has made something click for you today, that's the whole point. If it was worth a coffee to you, you know the link: buy me a coffee dot com slash fexingo. It's the smallest way to keep this show ad-free and independent. And we mean it — a coffee. Not a subscription, not a pledge. Just that. Luna: Yeah, I think people sometimes underestimate how much that kind of support matters. It's what lets us spend the time digging into numbers like that 3.5 percent CPI print and what it actually means for families. Lucas: Exactly. So back to the admissions world — one more trend I want to highlight is the growth of income-share agreements, where students pay a percentage of their future income instead of upfront tuition. Those are still niche, but they've doubled in volume since 2023. Purdue University's 'Back a Boiler' program is the most well-known. It's an interesting experiment in aligning incentives, but it also raises questions about equity and risk. Luna: How so? Lucas: Well, if you're a student from a low-income background, an income-share agreement might seem attractive because you don't pay anything upfront. But if you end up in a high-paying field, you could end up paying back much more than you would have under a traditional loan. And the terms are often less regulated than federal student loans. So it's a trade-off. Luna: It feels like every solution comes with its own set of complications. But I guess that's the reality of stagflation — there are no easy answers. Lucas: No, there aren't. And I think that's why this conversation matters. College admissions is a window into how families are adapting to a world where prices are rising faster than incomes, and growth is too slow to create the opportunities they used to count on. The choices they make today will shape the workforce, the housing market, and even political alignments for the next generation. Luna: And the data we have — the CPI, the GDP growth, the enrollment numbers — they're all telling us that this adaptation is already happening. It's not theoretical. Lucas: Right. And if this episode made any of that clearer for you, we've done our job. We'll be back next time with another industry that's being quietly reshaped by these same forces.