How Inflation Impacts College Students

A rising tide might lift all boats, but rising inflation can have serious consequences for consumers, especially those on the lower end of the economic spectrum. That includes many college students.

How, specifically, does inflation affect students and their families? And just how bad has the situation become?

Broadly defined, inflation involves the rising prices of goods and services and the corresponding decrease in the value of currency. As everyone knows from Econ 101, when demand exceeds supply, prices usually rise.

That’s largely what has happened lately. During the height of the pandemic, the economy shrank. Businesses closed. People lost their jobs, and they weren’t spending.

When the nation emerged from the worst of the pandemic, people were suddenly flush with cash, thanks to a $2.2 trillion investment from the federal government known as the CARES Act. At the same time, many businesses reopened, and people began returning to work. They were ready to spend.

But supply has trailed demand. Global supply-chain disruptions have continued across several industries, exacerbated by the war in Ukraine, and labor shortages have persisted, fueled in part by the “Great Resignation.”

All this has resulted in the largest inflation rates in 40 years. A normal inflation rate is around 2%. In March, that rate — measured as a year-over-year increase in the Consumer Price Index (CPI) — was 8.5%. In April, it was 8.3%.

Just about everything — cars, food, housing, gas — is more expensive these days. Yes, wages are increasing as well, but they’re not keeping pace with inflation. Your money just isn’t as valuable as it was two years ago.

Not surprisingly, the ones hit hardest are those with the fewest dollars to spend. People on tight budgets simply can’t afford the same level of goods and services they once could.

Millions of college students find themselves in this predicament, which is taking a toll on their mental health. In a recent Studocu survey, 55% of students said inflation was negatively affecting their mental health, while 60% worry about their financial situation. Almost three-quarters (74%) fear inflation will have serious implications for their financial future.

Let’s take a closer look at how rising costs are affecting students and their families.

Colleges aren’t immune to inflation. They’re paying more for labor, food, energy, and other utilities.

“Inflation is real,” Beth Akers, a senior fellow at the center-right think tank the American Enterprise Institute, told Inside Higher Ed. “And it may be a talking point for institutions as they defend price increases in the coming years, but they’re absolutely facing higher costs that all of us are facing throughout the economy today.”

At the same time, enrollments are declining. Amid the pandemic, undergraduate enrollment declined 6.6% from fall 2019 to fall 2021, resulting in a net loss of a million students. In response, colleges have slashed payrolls, laying off hundreds of thousands of faculty and staff.

And they’re raising tuition as well. Boston University (BU), for example, is increasing tuition 4.25% for next fall, its largest bump in 14 years.

“We are caught in an inflationary vise between the institutional pressures and the impact on our students and their families,” wrote President Robert Brown in a letter to the BU community.

They’re not alone. The University of Virginia announced a 4.7% increase in tuition and fees for 2022-2023 and a 3.7% jump for the following academic year. Syracuse University is raising its costs by 4.5%. Lafayette College’s increase will be 4%.

Although these figures fall below the inflation rate, they still represent thousands of additional dollars in some cases. And that’s only one piece of the inflationary puzzle with which students must contend.

In an attempt to tamp down inflation, the federal government often raises interest rates. Unfortunately for students, that includes federal student loans.

The Treasury Department recently announced student loan interest rates will increase for the 2022-2023 school year, as of July 1. Undergraduate loan rates will jump from 3.73% to 4.99%, and graduate loans will go from 5.28% to 6.54%.

These new rates will apply to new loans, not current ones. Federal loan rates are fixed. Only private student loans offer a variable rate option.

Along with tuition, costs for meal plans are rising as well. As food shortages continue to drive up prices, students are being forced to pay more to dine on campus.

Last year, Virginia Tech announced it would boost its meal plan fees — with the most widely used plan increasing by $187. Students at Virginia Commonwealth University absorbed a one-year jump of as much as $119.

“Dining plans will have to go up,” David Jewell, senior vice president for business affairs and finance at Cleveland State University, told the Hechinger Report. “We can be creative about things like trying to minimize food waste and about the menu choices to be more economical when prices are up on certain items. But we’re going to have to pass on at least a portion of that extra cost to students and their families.”

Thinking about eating off campus instead? Students without a meal plan don’t have it much easier. The CPI for restaurant purchases rose 6.9% between March 2021 and March 2022, while grocery costs rose 10%. Beef prices alone are up 16%.

But people are buying more food, and as consumer demand continues to outpace supply, prices will correspondingly rise.

Even delivery services such as GrubHub and DoorDash have become more expensive.

“I was really struggling just in general with getting food last semester,” Nick Mattera, an Ithaca College student, told The Ithacan. “I couldn’t really justify spending like $40 to get one entree delivered to my house through GrubHub. It was killing my wallet.”

Living off campus has become a pricier proposition as well. A surge in demand for housing and a limited supply of units drove rental costs up 15.2% in 2021.

Before the pandemic, nearly half of all renter households spent more than 30% of their incomes on rent and utilities every month. With rental prices rising faster than wages, affordable housing has become “out of reach for millions of low-wage workers and other low-income families,” notes the National Low Income Housing Coalition.

And for many college students, too.

As for utilities, the average residential electricity rate was up a shocking 8% in January compared to the previous January. That’s the largest annual increase in over a decade.

And as of April, natural gas prices were the highest in 40 years. One analyst called them “off-the-charts high,” and prices aren’t expected to subside anytime soon.

Students whose utility fees are included in the rent may not see these increases directly, but their rents might go up as a result.

Getting around isn’t as cheap as it used to be.

Flying home has become a pricey option. Ticket prices are soaring, nearing all-time highs. Over the past year, airline tickets have gone up by 25%. Rising labor costs and labor shortages are partly to blame, as is the price of jet fuel, which has increased almost 150% in the last year.

Take a car instead? Costs for auto rentals rose 43% last year, partly because of a shortage in supply. You might consider taking the train, assuming that’s a viable option. Amtrak costs were actually down 12% in March.

If you’re in the market for a used car, the news isn’t great. As of last January, used car prices were up 45% compared to a year earlier. Supply shortages of component parts and a lack of inventory are largely the cause.

Then there’s gas. In May, the national average for a gallon of gas was $4.48. That’s 40 cents more than April’s average and $1.43 more than the previous May’s. If you’re driving a large SUV, it might cost you $75 or more to fill up your tank.

So perhaps taking the bus or the subway is your best bet. Or not. The CPI for transportation services was up 8.5% in April.

How about a night out to take your mind off inflationary woes? That’ll cost you, too. Following the pandemic-induced hiatus, people are once again going to movies, concerts, museums, theme parks, and sporting events. Ticket prices, accordingly, have risen.

Between 2019 and 2021, prices increased 14%. A CNBC article notes admission costs are rising “nearly across the board” this year, some as much as 100%.

Perhaps an evening of Uno is a safer bet.

According to a recent BestColleges survey, ​​64% of parents say inadequate child care access negatively impacts their lives. Unfortunately, child care costs aren’t immune to inflation. Students with children might need a babysitter for that night on the town and may require a more regular arrangement for when they’re away at school.

The cost of child care was rising even before the pandemic and this latest inflationary spike. A report called “Demanding Change” found that child care costs were outpacing inflation in 2019 and 2020. Nationwide, the average cost for center-based child care is increasing 41% annually, and parents are now spending $14,117 per year on average compared to $9,977 before the pandemic.

Don’t expect prices to level off anytime soon, according to a Kiplinger forecast. It predicts the inflation rate will drop to about 6.3% by the end of the year, which is good, if not great, news.

Even better news, though: Kiplinger projects a declining rate in 2023, ending the year with inflation around 3%. College students should, therefore, begin to feel the salutary effects of a leveling economy by the fall of 2023.