According to the US Department of Labor statistics, the August 2020 College Tuition CPI dropped 0.7% from the month prior, the largest monthly drop since 1978.
College tuition CPI includes:
…annual consumer expenditures for undergraduate and post-graduate studies at 2-year colleges, 4-year colleges, universities, and professional schools (law, dental, medical, etc.)…throughout the United States [minus discounts for scholarships and grants, as well as in-state resident fees.]
U.S. Bureau of Labor Statistics
Thus, the August drop in college tuition CPI may be attributable to greater financial aid awarded to students in the 2020-21 school year. Though the question to be asked is, “Why are colleges discounting prices in the first place, even pre-COVID?”
Merit aid, which provides a discount on the overall cost of attendance, can be equally offered for achievement as to entice students to enroll, which translates into tuition or income, funding the cash flow for college institutions. The drop, though, in CPI could represent a change in the quantity of college education demanded, which might signal a forthcoming structural downward shift in demand with more broad ramifications to the supply of education, in essence potentially shrinking the modern higher education industry.
The economic upheaval centered around the COVID-induced March 2020 economic shock, the trigger for the recession now impacting the United States as well as the rest of the globe has led to a widespread loss of employment plus increasing anxiety regarding economic well-being, could be an additional cause for the decrease in the demand for college. Additionally, perhaps sentiment about the value of a college education, a key driver of demand, been dented by the sheer magnitude of disruptions to the higher education industrial complex beginning in March 2020 that have yet to be mitigated to this very day.
Though as noted by Bloomberg:
Over the last 20 years, the price index for tuition and fees has increased 164%, compared with 50% for the broader CPI.
No one would disagree that the post K-12 educational industry, both private and public has been booming, yet might this latest August 2020 CPI data represent a top and mark what might be a period of declining consumer expenditures for college which could have devastating consequences on the industry. A drop in College Tuition CPI is significant as tuition accounts for nearly 94% of all private university revenues, according to the National Center for Education Statistics. So, for institutions already experiencing fiscal deficits from Spring 2020, any drop in tuition revenue may be even more crippling to the long term sustainability of some higher education institutions.
Lastly, in such fiscal straits, if college administrators are unable to afford continued fiscally meaningful discounts in the form of scholarships and grants, which may be now needed to spur demand or if the disruptions to the higher education industry continue unabated further damaging sentiment, many families already stretched financially, may be unwilling to assume greater amounts of college-related debt, to purchase an educational product that is currently a mere shell of its former, pre-COVID self. Thus, if CPI continues to decrease further depressing demand, we may witness for the first time in decades a buyers market for a university education.
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