Inflation spurs tuition hikes, as student loan interest rates set to increase

After holding tuition largely steady during the pandemic, colleges and universities around the nation are announcing increases, pointing to the strain of inflation, Inside Higher Ed reports. According to the U.S. Bureau of Labor Statistics, the inflation rate was 8.3 percent over the last 12 months. Experts caution that, without a change in trajectory, more institutions are likely to announce steep tuition hikes in the coming years.

Colleges are finding themselves in a precarious position, says Robert A. Brown, president of Boston University, which increased undergraduate tuition by 4.25% for 2022-23. On the one hand, institutions face the same rising prices for goods, services, and wages as other consumers. However, they also recognize that tuition increases to cover those rising costs will further stress the finances of their students and families.

“By far, my greatest immediate concern is the impact of inflation on faculty and staff, our students, and the University,” Brown wrote recently. Noting that even 4.25% is not enough to offset rising operating and salary costs, Brown said that the university is “caught in an inflationary vise between the institutional pressures and the impact on our students and their families.”

Related: Inflation, staffing pressures expected to drive up college tuition >

And while many college students do not pay their institution’s sticker price, high tuition numbers can scare off potential students, The Hechinger Report notes. “If people think college costs a lot more than it actually does, that is bad for access,” says Phillip Levine, an economist who studies college costs. “If you can’t afford it, you can’t go. But if you think you can’t afford it, you don’t go.”

Moreover, any tuition increase is unlikely to fully address inflation’s recent toll, adds Jim Hundrieser, vice president of consulting services for the National Association of College and University Business Officers. That “will mean reductions in other areas to do what institutions feel are the basic essentials that they need to get done.”

Borrowing becoming more expensive, too

Further complicating students’ financial outlook, interest rates on new federal student loans will increase as of July 1, The Washington Post reports. For loans taken out to cover the 2022-23 academic year, undergraduate students will pay 4.99% interest, up from 3.73%, while graduate students and parents taking out loans to fund their children’s college education will see the interest rate on new PLUS loans rise from 6.28% to 7.54%. Those are the largest percentage increases in almost a decade, although the interest rates themselves are similar to rates seen in 2018.

Experts told the Post that they don’t expect the rate changes to deter students and families from taking on loans. However, the increases come as families are already concerned about inflation and will lead to some larger debt burdens down the road, especially for graduate students who can borrow up to the full cost of attendance.

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