High school seniors are in the thick of college application and visitation season. It’s not quite what it used to be; there are fewer and fewer college-bound Americans every year. But there’s one nice surprise that next year’s college students might enjoy: lower tuition.
Americans had gotten used to near-double-digit increases in tuition at four-year colleges and universities. But in the 2020-21 academic year, for the first time since 1980, tuition and mandatory fees at four-year colleges and universities in the US shrank in inflation-adjusted terms.
You might discount the pandemic tuition drop as a one-off effect. Maybe the burst of inflation in 2021 was unexpected, or maybe colleges had to beg students to come back for a remote year. But in fact, tuition drops have continued. Real tuition has fallen at four-year institutions every year since then.
Why the sudden change?
The answer is demand. Fewer Americans are going to college each year, as Figure 1 shows (data here). The solid line here is the number of full-time equivalent undergraduate students enrolled in four-year institutions in fall of the previous year. The dashed line is inflation-adjusted tuition and mandatory fees at private, nonprofit, four-year colleges and universities for the academic year ending in that year. I chose private nonprofits because they are more sensitive to market pressures than public universities, which may be able to rely on state appropriations, and for-profits are a fundamentally different animal.

They say to never reason from a price change. But what they mean by that is to never reason from a price change alone. If we have a price change and a quantity change, we can infer what’s going on.
Tuition could fall because universities are becoming more efficient and productive and are able to offer more education at lower cost. That’s clearly not what’s happening. If it were, more students would be going to college.
The other reason tuition could fall is that demand is dropping: fewer students want to go to college at the current price. That’s the only explanation consistent with the data. After years of steady gains, undergraduate enrollment has suddenly virtually leveled off since the 2011-12 academic year.
What accounts for this leveling off and then decline? Partly demographics and partly something else.
I’ve decomposed total enrollment into two factors: the number of American students completing high school and the percentage of high school completers enrolling in college (I included both two-year and four-year since two-year enrollees may go on to enroll in a four-year program). Figure 2 shows the results, with high school completers as a three-year moving average to make the figure easier to read. I’ve also broken out enrollment rates separately by male and female.

The population eligible to move on to college simply stopped growing after 2011. Since then, the trend has been downward. But on top of that, the percentage of the eligible population that chooses to enroll has declined since fall 2018, predating the pandemic. Women have been more likely than men to enroll in college every single year since 1996, but the gap has grown since 2018.
College is becoming comparatively less attractive to young people, especially young men. So colleges are being hit by a double whammy: stagnating demographics and fading interest in their pool of potential customers.
Not only that, but some departments are facing a triple whammy: enrolled students are becoming less likely to take their courses. The percentage of degrees conferred in humanities, history, and social sciences has declined from 28.5 percent in the 2005-6 academic year to 20 percent in the 2021-22 academic year. Natural sciences and mathematics and computer science have grown, and health professions have more than doubled.
Putting all this together, it becomes clear that the demand for college education has declined, in part because there are fewer high school completers, and in part because those who do complete high school, especially men, don’t see college as useful. In turn, this drop in demand has driven tuition lower.
Yet for all that, four-year enrollment has fallen only slightly, while tuition has adjusted more rapidly. These facts suggest that four-year colleges face an inelastic supply curve. In other words, changes in demand are reflected more in prices than in quantities.
There are several reasons why supply of four-year, nonprofit college education is inelastic downward. Most institutions have a lot of fixed capital: buildings, dormitories, laboratories. Much of this capital has few alternative uses. Furthermore, tenured faculty are difficult to lay off. Rather than allow enrollment to fall and maintain tuition, colleges are going to start dropping tuition to make use of their vacant space and their tenured faculty. You might also see some institutions relax admissions standards. You should certainly see them lay off nontenured faculty and staff. Some will go further and get rid of tenured faculty by dropping entire departments and programs.
The federal government can help colleges meet their mission at lower cost by reducing regulatory burdens. Since the 1970s, the Department of Education has been adding regulations and compliance costs to universities and is partly responsible for the explosion of “deans and deanlets” that has in turn driven tuition growth. Universities didn’t push back, because they were politically sympathetic, and because growing demand for college education meant they didn’t have to. That calculus might change now that their target market is shrinking.
The tide just might be turning for future students who want a college degree in a rigorous field that means something, don’t want to pay a lot for it, and don’t need the costly, paternalistic hand-holding that colleges have been ratcheting up for years.
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