Why Might Students Be Affected Adversely by Inflation?

Inflation, a broad increase in prices, means each unit of currency buys fewer goods and services. This reduction in purchasing power affects everyone. Students often face unique challenges due to their specific financial situations. This article explores how rising prices adversely affect students, from educational costs to daily living expenses.

Rising Costs of Education

Inflation directly contributes to the increasing cost of academic pursuits, making higher education a growing financial burden for students. Universities frequently raise tuition and fees to offset their increased operational expenses. The average annual tuition inflation rate at public four-year colleges was 2.64% from 2010-2011 to 2022-2023, with tuition increasing 36.7% over that period. This means students face continuously higher charges for enrollment.

Beyond tuition, essential academic materials also climb. Textbooks and course supplies have seen significant price hikes, with textbook prices increasing by an average of 6% each year, tripling the general inflation rate. The average college student might spend between $1,212 and $1,370 annually on books and supplies, adding substantially to their educational expenditures. These increases force students to allocate a larger portion of their limited funds towards necessities for their studies.

The cumulative effect of these rising academic costs creates a challenging financial environment. Universities themselves face rising costs for utilities, salaries, and maintenance, which can translate into higher fees passed on to students. The continuous escalation of these direct educational expenses adds considerable financial pressure on students pursuing their degrees.

Increased Daily Living Expenses

Inflation significantly impacts the cost of everyday necessities for students. Housing expenses, a major component of consumer budgets, see considerable increases. For students living off-campus, rent can rise, while those on campus face increased costs for dorms and meal plans.

Groceries and food costs have also surged, with food-at-home prices increasing by 23.4% since the pandemic. This means students with limited budgets find it harder to afford nutritious meals, often resorting to cheaper alternatives or struggling with food insecurity.

Transportation expenses, including gas and public transport fares, also contribute to the financial strain. Utility bills, such as electricity and natural gas, have seen substantial increases, outpacing general inflation. Between January 2021 and January 2025, nominal residential electricity prices increased by 26.3% and natural gas prices by 28.3%. These rising daily costs squeeze student budgets, leaving less money for discretionary spending or unexpected emergencies.

Impact on Student Loans

Inflation can significantly affect students regarding their loans, particularly those with variable interest rates. While federal student loans typically have fixed interest rates, private loans can have variable rates that rise with inflation. When the Federal Reserve increases interest rates to combat inflation, the cost of borrowing money, including for new student loans, generally increases. For example, the fixed interest rate on newly disbursed federal student loans for undergraduates increased from 2.75% in July 2020 to 6.93% for the 2025-26 academic year.

Inflation erodes the purchasing power of money, meaning that the fixed amount of student loan debt accrued will require a larger portion of future earnings to repay in real terms. This can make the repayment of a fixed debt amount feel more burdensome over time.

The psychological burden of accumulating debt during a period of rising costs can also be substantial. Students may experience increased stress, anxiety, and worry about their financial future due to the combination of high debt and diminishing purchasing power. Research indicates a correlation between student loan debt and lower levels of psychological well-being, highlighting the emotional toll this financial pressure can take.

Erosion of Income and Savings

Inflation directly diminishes the real value of financial resources available to students, impacting both their income and savings. The purchasing power of income from part-time jobs, internships, or family contributions decreases as prices rise. For example, while a student’s nominal income might remain the same, their real income, adjusted for inflation, effectively falls.

Any personal savings or funds set aside for education or living expenses also lose value over time due to inflation. If the interest earned on savings accounts does not outpace the rate of inflation, the money’s purchasing power declines. This forces students to spend more or draw down their savings faster than initially anticipated to cover their expenses.

Parents saving for college also face this challenge, with many concerned about inflation’s impact on their ability to save adequately. Despite intentions to increase savings, parents may find themselves falling short of their college funding goals due to the rising costs of education outpacing their savings growth.