18 Aug 2008

Student Price Index – Higher education students in England face an inflation rate nearing 7%

The tight economy has most people feeling the effects, but for university students in England, the inflation rate is 50% higher than average.

In the first Student Price Index survey from The Open University, economist Alan Shipman finds that for those in higher education, true inflation for full-time students is nearly 7%, compared to the government’s Consumer Price Index of 4.4%. This is because students spend a far higher share of their income on the budget items that have risen in price fastest over the past year – food, housing, travel, and the additional cost of tuition fees.

“Inflation hits different socio-economic groups in varying ways. In my research, students certainly are experiencing a higher inflationary rate because the cost of what they need to buy is among the highest categories of price rises.” Mr Shipman says. “To say that this will be the most expensive academic year for higher education students to date would not be stretching it. For many students, it is their first experience of independence, and stepping out into the current economic climate will be a hard lesson in itself.”

Part-time students have, since 2006, experienced an inflation rate slightly lower than those studying full-time, but still more than 40% faster than the general inflation rate. As well as paying less in fees, part-timers spend a lower proportion of their budget on housing costs, one of the fastest-rising elements of the cost of living in the past year.

What the index says
This first run of the index suggests that, in July 2008, the annual inflation rate was 6.3% for part-time students and 6.6% for full-time students. That compares with the annual (year-on-year) inflation rate of 4.4% for all UK households, given by the CPI.

Faster inflation for students than for the general population – with the student shopping ‘basket’ (including housing costs and tuition fees) rising in price around 1.5 times as fast as that of households in general in 2008 – has been a pattern for several years.
The inflation rates (SPI) experienced by students since 2005, compared with the general population (CPI) are below:

Students (Part-time) Students (Full-time) All households
2007 4.4 4.9 2.3
2006 4.2 4.6 2.3
2005 3.8 3.6 2.1

In 2006 and 2007, full-time students’ cost of living actually rose twice as fast as that of the average UK household, and the rise for part-time students was almost as steep. In 2008, although students’ inflation rate is still much higher, the average rate has moved up slightly closer to it – mainly because everyone has been hit by the rise in food, transport and housing costs that students have been suffering for several years, while the rise in tuition costs has slowed (especially for part-time students) after several years of above-inflation growth.

Since 2006, the cost of living for full-time students has started to rise faster than that of part-time students, a trend that seems to be continuing in 2008.

The main reason for students experiencing a much higher inflation rate (their living costs rising at 1.5 times the rate of living costs generally) is that, compared with other households, they spend a far higher share of their total budgets on the items that have risen in price fastest over the past year – food and drink, personal goods (including clothing, tobacco and personal care products but excluding books/stationery, computers and entertainments, which are separately classified), housing (rents plus utilities), travel/transport services and tuition fees.

Deriving expenditure weights from the 2004/5 Student Income and Expenditure Survey (the most recent for which full results are available), these items comprise over 75% of students’ expenditure, compared to little over 50% for the average UK household:

% of expenditure Part-time student Full-time student Average UK household
Food, drink 16.0 14.5 12.4
Personal goods 15.4 16.6 11.0
Housing 21.1 22.2 11.5
Travel/transport 16.6 12.4 15.2
Tuition 5.0 11.1 1.9
Total of these 5 74.1 76.8 52.0

Part-time students’ costs have risen slightly less fast than those of full-time students over the past year, mainly because tuition fees are a much lower proportion of their total expenditure (5% compared with 11.1%). Aside from this, the situation has been slightly worse for part-time students over the past year, since a higher proportion of their expenditure (than full-time students) goes on food and travel, and almost the same proportion on housing costs. However, the faster rise in living costs for full-time students (than for part-time) has been a trend since 2006, mainly because full-time students’ rents and other accommodation costs have risen faster than average (even when living in halls of residence), and their tuition costs have also risen faster since the introduction of top-up fees.
Editor’s Notes
For explanation of how the index was calculated, please see explanatory notes available separately.

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