Degrees of Debt: The Connection Between the Economy and Your Education

If you are a student, you’ve probably noticed the varying amounts of college tuition that exist in the United States. You can go to community college and pay about $3,000 a year for your education, or you can go to a private university and pay $100,000 a year for tuition. No matter how different these numbers are, they share one thing in common: they can change. College tuition is not a static figure, and unfortunately, the amount usually gets bigger and bigger every year. Like any other business, institutions of education react to changing economic environments and college tuition is not immune to these changes. 

Increases in College Tuition 

One of the most common times in which colleges increase their tuition are in recessions. Recessions are periods of economic downturn; there is less output, there is negative GDP growth, unemployment rates get higher, and consumer spending declines as most do not have financial stability. To fix this problem, governments enact an expansionary fiscal policy to expand the economy. An expansionary fiscal policy usually consists of increasing government spending and decreasing taxes. This approach stimulates the economy as people are able to spend more money and interact with the economy. This causes the GDP to grow, and GDP growth is essential to getting out of a recessionary gap. 

An example of increased government spending could be spending more on defense and infrastructure, which can easily take up billions of dollars. Tax cuts that are given to people, whether that be federal, state, or local, can also lead to billions of dollars more in consumer spending. However, there are negative effects to cutting taxes. Taxes fund many programs and initiatives that people need to thrive, including Medicaid, SNAP, and education. Public and private universities receive state and federal funding from the government, and this funding is typically generated through taxes. When taxes are cut, funding for education is also cut as a result. 

Although education is greatly important, state funding for higher education is usually the first to go during periods of economic decline. Public universities are especially hurt by this because they are educational institutions that are funded and operated by states or the federal government. In the U.S., public universities are almost always funded by states and examples of these are UCLA, UC Berkeley, University of Michigan, etc. When these institutions do not receive enough funding from state entities, they turn to tuition. A form of income that has nothing to do with the government, tuition is completely controlled by universities. Hence, to compensate for the loss in state funding during recessions, universities raise tuition fees to cover their expenses. 

This problem does not get fixed after the country gets out of a recessionary gap. Almost after every single recession, states are not able to bring up funding for higher education to pre-recession levels. For example, state funding for higher education fell by 12% after the 1990 economic crisis, 15% after the 2001 recession, and 25% after the Great Recession. Financial difficulties surfaced with the start of the COVID-19 pandemic because funding per student was already roughly 8% less than in 2008. This continuous decline in state funding for education is creating a continuous growth in college tuition for public institutions, and it just gets worse with every single recession that the country experiences. 

Fig. 1. The increase in tuition for public universities in every state since 2008; Mitchell, Michael, et al. “Funding Down, Tuition up | Center on Budget and Policy Priorities.” Center on Budget and Policy Priorities, 19 May 2016, www.cbpp.org/research/funding-down-tuition-up.

It’s not just public universities that are affected by tax breaks, but private ones as well. Private universities, while not funded by state or government entities, do receive some forms of federal funding. This is usually through grants, whether that be research, technological, or aid related. While these grants may seem like a tiny form of revenue to many, this is not the case. Most private institutions receive about 20% to 30% of their total income from federal grants and funding. Dependent on federal grants, which are funded through taxpayer dollars, private institutions similarly use tuition to generate more income when their federal funding is cut because of periods of economic downturn. Moreover, tax cuts do not solely occur because of recessions. Tax cuts can be enacted by presidents because of their own economic and political goals. Since tax cuts and recessionary gaps are a normal part of the U.S. economy, private institutions are consistently met with tax cuts and thus raise their tuition consistently as well. 

Fig. 2. The average college tuition in private institutions since 1980; Jackson, Abby. “This Chart Shows How Quickly College Tuition Has Skyrocketed since 1980.” Business Insider, 14 Aug. 2016, www.businessinsider.com/this-chart-shows-college-tuition-growth-since-1980-2016-8.

Decreases in College Tuition

Decreases in college tuition generally do not occur. One of the main reasons for this is inflation. Like any other good or service, the price of tuition generally increases over time because of inflation and the growth of prices. For example, while cheeseburgers were about 20 cents in 1950, they are now about $3 to $4 dollars depending on what state you live in. This price increase cannot change and will only get higher because of the natural law of inflation. College tuition is the same thing and will continue to increase. 

However, it is possible for tuition fees to stabilize. When the government is in an inflationary gap, the economy is experiencing a higher than equilibrium amount of output, higher prices, lower unemployment, and high consumer spending. The economy is growing, and while this is good, too much growth can lead to an inefficient allocation of resources and a large hike in inflation. To fix this, a contractionary fiscal policy is put into place by governments. A contractionary fiscal policy consists of less government spending and higher taxes. This allows for less money to circulate in the economy, and discourages spending. 

While this is typically something viewed as negative for individuals, it is a great help to educational institutions because the government receives more revenue through increased taxes. Hence, during these periods of economic growth and consequent contraction, state and federal entities have the ability to recover from recessions and supply more funding to education. Although funding rates usually decrease with every single recession, as stated before, periods of economic prosperity can give universities the amount of funding it needs to not have to constantly raise tuition prices. Hence, tuition fees can stabilize and will not outpace inflation. As this is beneficial to both universities and students, periods of economic growth are positive for education. 

Economics and Schooling

Universities have a wide array of expenses that accumulate into millions and even billions of dollars. Things such as research, technological development, building infrastructure, and staff salaries are some of the things higher educational institutions need to pay for. Usually dependent on state and federal funding, universities can become vulnerable to changes in the economic state of a country. Recessions can cause a spike in tuition fees, and times of economic growth can cause a period of stabilization. However, at the end of the day, changes in tuition affects one person: you. If you are a student who is hoping to one day head off to college, it is important to remember that the state of the economy affects your education and influences how much you will be paying for it. 

Bibliography

Chappelow, Jim. “Expansionary Policy.” Investopedia, 30 June 2024, www.investopedia.com/terms/e/expansionary_policy.asp.

Chen, James. “Contractionary Policy Combats Economic Distortion during Inflationary Times.” Investopedia, 2025, www.investopedia.com/terms/c/contractionary-policy.asp.

Cohn, Jason. “How Much Federal Funding Do Colleges and Universities Receive?” Urban Institute, 8 May 2025, www.urban.org/urban-wire/how-much-federal-funding-do-colleges-and-universities-receive.

Fast, Carolyn, et al. “College Tuition Is out of Control. Voters Want Government to Do Something.” The Century Foundation, The Century Foundation, 26 July 2023, tcf.org/content/commentary/college-tuition-is-out-of-control-voters-want-government-to-do-something/.

“How the Recession Will Affect Higher Education Institutions - QuadC.” Www.quadc.io, 22 Aug. 2023, www.quadc.io/blog/how-the-recession-will-affect-higher-education-institutions.

Jackson, Abby. “This Chart Shows How Quickly College Tuition Has Skyrocketed since 1980.” Business Insider, 14 Aug. 2016, www.businessinsider.com/this-chart-shows-college-tuition-growth-since-1980-2016-8.

Mitchell, Michael, et al. “Funding Down, Tuition up | Center on Budget and Policy Priorities.” Center on Budget and Policy Priorities, 19 May 2016, www.cbpp.org/research/funding-down-tuition-up.

Rahimi, Joey. “Do Private Universities Get Federal Funding? | Grantford Financial Aid Blog.” Grantford, 29 May 2024, www.grantford.org/post/do-private-universities-get-federal-funding.

Main Image for Article: 

Fast, Carolyn, et al. “College Tuition Is out of Control. Voters Want Government to Do Something.” The Century Foundation, The Century Foundation, 26 July 2023, tcf.org/content/commentary/college-tuition-is-out-of-control-voters-want-government-to-do-something/.