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Childcare costs keep surging with pandemic funding set to expire in September

Costs for preschool and day care are still climbing in the US, bucking the national trend of cooling prices, and squeezing parents already in the grips of inflation.

And this with another economic shock just around the corner when a federal grant program for childcare sunsets at the end of September.

The average price for daycare and preschool across the country increased 6% in July compared to a year ago, according to the latest data from the Bureau of Labor Statistics. On top of this, headline inflation showed prices rose 3.2% over the prior year in July and 3% in June, the least in two years.

But a double crunch of staff shortages and an end to pandemic funding is set to ratchet up the affordability challenges facing parents.

"Huge costs are being shouldered by families," said Brad Wilson, CEO of, a marketplace for families to find help caring for children, seniors, pets, and more.

A survey of child care providers by the National Association for the Education of Young Children found that 43% of childcare center directors and 37% of family childcare providers said they will be forced to raise tuition once the federal grants end.

Childcare provider Bright Horizons (BFAM) reported earlier this month that the sunsetting of government funds would hurt its upcoming quarter. The company previously received about $9 million in government funding, but as the program expires that figure would shrink to as low as $5 million, the company said.

More than 3 million children are projected to lose access to childcare nationwide, according to a recent report by the Century Foundation, which estimates that 70,000 childcare programs are likely to close once federal funding dries up.

Providers that manage to stay open will likely raise prices to offset the loss of funding, adding to the burden already facing many families.

Childcare currently costs about 14% of median household income, according to researchers at the Federal Reserve Bank of St. Louis. But the costs of childcare vary widely based on geography, family size, and the age of a family's children, government data shows.

A recent Department of Labor report found that on the lower end, the average cost of childcare adds up to $5,357 per year — or about 8% of median family income — for school-aged kids in residential care in small counties.

But for infants in commercial daycare in big cities, the costs balloon to an average of $17,171, or nearly 20% of median family income. Expenses were especially acute for parents of infants, who require more staff supervision and smaller group sizes. And parents with multiple children face compounding costs.

And while rates are elevated across the country, counties in California, Massachusetts, and New York were among the most financially burdensome. Center-based infant care in the Bronx registered the most expensive in the nation — taking up nearly half an average family's income.

Pre-K students use electronic tablets at the South Education Center, Wednesday, April 2, 2014, in San Antonio. (AP Photo/Eric Gay)
Pre-K students use electronic tablets at the South Education Center, Wednesday, April 2, 2014, in San Antonio. (Eric Gay/AP Photo) (ASSOCIATED PRESS)

A 'persistent gap'

Even as more signs emerge that the Federal Reserve's fight against inflation is headed in the right direction, prices are still increasing for consumers and markedly so for parents of young children.

Bright Horizons, for instance, told investors earlier this month, "Labor costs and margins are pressured by higher wage rates, greater reliance on more costly agency staff, and inherent inefficiency at current occupancy levels."

And yet childcare still remains a low-paying industry.

Childcare workers who take care of infants, toddlers, and preschoolers and provide after-school care are among the lowest paid in the country, according to Labor Department data, making it hard for employers to attract workers.

Labor Department data showed average hourly earnings for childcare workers was $19.95 for the month of June, about 40% less than the average hourly pay for all private-sector service workers, which stood at $33.50 an hour.

And this challenge in the childcare market had been playing out even before the shock of the pandemic, Chloe Gibbs, an economics professor at the University of Notre Dame, told Yahoo Finance Live.

There has been a "persistent gap between the cost of providing high-quality care and the prices that families can afford," Gibbs added.

Researchers point to more parents returning to in-office work, the diminished pool of childcare workers, and higher wages as factors that could continue to increase costs.

"Thousands of daycare centers permanently closed during the pandemic, expanding the childcare desert crisis across the country. Fewer slots drive up the costs," Wilson said.

"Additionally, the caregiving workforce continues to contract due to low wages and lack of benefits."

In 2021, Congress passed the American Rescue Plan Act, which included $24 billion in grants to help stabilize the childcare industry and about $15 billion to help families afford care. But those funds are set to expire at the end of September, and a bitterly divided Washington is unlikely to grant additional financial relief.

Democrats have called on President Joe Biden to address the end of childcare subsidies by including funds in an emergency spending package that Congress is expected to consider next month.'s Wilson said the country needs more supportive policies at the state and federal levels to provide relief for families. He added that more employers should make childcare benefits table stakes, akin to health benefits.

"The headline here is that childcare is a systemic issue — one that isn't new but is getting worse," he said. "Without it, parents can't work."

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on Twitter @hshaban.

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