Tuition Inflation
Tuition inflation is the yearly rate at which college costs rise, historically faster than general inflation. College savings plans that ignore it fall behind. The bill quietly grows faster than the savings meant to cover it.
General inflation measures a basket of everything; tuition inflation tracks just the college bill, and for decades it ran meaningfully hotter. That gap is why a college plan needs two growth rates: one for your savings and a separate, usually higher one for the target. College Board’s annual Trends in College Pricing report publishes the current averages by school type and is the primary source to calibrate against.
The compounding works against savers on both ends. A $25,000 annual cost growing at 5 percent becomes about $47,000 in 13 years, and each additional college year costs more than the last. Planning tools handle this by inflating each year of the bill separately, which is exactly what the 529 college savings calculator does with an editable inflation assumption.
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Related terms: 529 Plan , Inflation , Compound Interest
Last updated . Part of the FinExplained finance glossary .