Education inflation grows.
The price of education is rising at a far higher rate than the overall Consumer Price Index. Education services, which include tuition and fees at undergraduate, graduate, professional, and trade schools as well as private elementary and high schools, have more than doubled in price since the year 2000. At the same time, the CPI has risen 43 percent for all goods and services.
Over the past 20 years on an annualized basis, college tuition and fees have risen 5.4 percent, slightly higher than the 5.3 percent annualized increase for elementary and high schools. The CPI’s annualized increase over that time was 2.1 percent. With education prices rising, young families are saving more for education spending.
Contributions to 529 plans, the college savings plans named for Section 529 of the Internal Revenue Service code, have been growing in recent years. Earnings on 529 plans are not taxable if used for expenses such as tuition, room and board, books, and computers. Balances in 529s rose to $266 billion in the second quarter of 2016, up from $10 billion in the early 2000s, just a few years after the plans were created in 1996.
Student loans fill the gap between savings and rising college tuition, and they are a growing share of household debt, at 10.4 percent in 2016, more than triple their 3 percent share in the early 2000s. Interest rates on student loans vary from 3.6 percent on a federal loan to upwards of 6 percent on private loans. Larger student loan balances have led to higher delinquency rates in recent years. Some troubled borrowers have refinanced to make monthly payments more affordable. Refinancing has helped push debt payments as a share of income to historic lows.