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Table of Contents
Abstract ......................................................................................................................................................... 3 Section I: Introduction .................................................................................................................................. 4 Section II: Background ................................................................................................................................. 5 2.1 Surging Tuition Costs ......................................................................................................................... 5 2.2 Financial Aid....................................................................................................................................... 6 Section III: Analyzing Growth ...................................................................................................................... 8 3.1 Rate of Growth.................................................................................................................................... 9 3.2 Absolute Size ...................................................................................................................................... 9 3.3 Proportion of Relevant Age Grade.................................................................................................... 11 3.4 Transition from Privilege to Right .................................................................................................... 12 Section IV: Too Big to Fail, or Not? ........................................................................................................... 12 4.1 Higher Education Bubble .................................................................................................................. 13 4.2 Student Loans.................................................................................................................................... 14 Section V: Data ........................................................................................................................................... 16 Section VI: Results and Data Analysis ....................................................................................................... 18 Section VII: Conclusion .............................................................................................................................. 20
Abstract
Over the past half-century, higher education has undergone a steady transition from privilege to right; today, earning a post-secondary degree is seen as more of an obligation. Receiving at least an undergraduate degree from a post-secondary institution is now considered essential in achieving future success. Unfortunately, the increased demand for higher education has created a spike in the cost of tuition and fees for post-secondary institutions; this increase in cost leads to an increased need for financial assistance. Financial assistance in higher education is split into two categories: need-based and merit based. Unfortunately, with the increase in student enrollment, surging tuition costs, and decreased support from state funds, many students enrolled in post-secondary institutions find themselves without either type of financial aid and instead with growing debt from student loans. The purpose of this study is provide an understanding of how higher education has changed over the past half-century, what issues have arisen from these changes, and what problems exist on the horizon. Furthermore, an interpretation of data gathered from surveying Winthrop University students will provide a basis for understanding the motivations and opinions of the average student currently working toward earning a four-year degree.
Section I: Introduction
It is universally known and accepted that the attainment of higher education is positively correlated with monetary success. Over the past few decades, the structure of wages has reflected a substantially higher wage differential for those holding degrees from post-secondary institutions. In light of this truth, an immeasurable amount has been spent on the construction of universities, colleges, and institutes of technology in an attempt to achieve the most efficient, effective, and desirable systems worldwide. Higher education institutions continually focus on making enhancements to maintain a competitive status on the post-secondary level. With the association of success serving as the primary motivation, the demand for a degree from a postsecondary institution has been ever-increasing. Unfortunately, as the demand for a degree from a post-secondary institution increases, so do the costs associated with attaining such a degree. The surging costs associated with attaining a degree from a post-secondary intuition have become an increasing cause for concern. Universities and colleges alike are faced with the challenge of determining the most effective way to spend tax revenues as a way to attract students that will produce promising levels of productivity. In reference to merit and need-based aid, pinpointing the appropriate response as a way to induce educational improvement has been a controversial topic of discussion in U.S. higher education for many years. Different types of student aid yield diverse responses. In recent years, as economic conditions have worsened and college tuition has increased, financial aid has become as important as being accepted into a college. Tuition has become so expensive that most cannot afford to attend a secondary institution without some tuition assistance; not to mention the other added costs of books, living, and course fees. Increased awareness of the rise in costs associated with pursuing higher education has produced a dire need for higher education reform.
As the demand for financial assistance rises, and the cost of tuition surges, consumers are starting to wonder whether the ridiculously priced commodity is worth the investment. Over the past 25 years, the average cost of tuition has risen aunbelievable 440 percent. Not only is college becoming nearly impossible to pursue without financial assistance, but many consumers are starting to wonder if higher education could be the next market on the verge of collapse.
students whom discontinued schooling after high school. In addition, college graduates are estimated to accumulate $1 million more throughout the duration of their lifetime; however, the idea that too much of good thing can actually be bad is starting to catch on. According to CNN Money journalist Annalyn Censky, two-thirds of students graduating with four-year degrees recently did so with loans hanging over their heads, and their average bill comes in at a whopping $23, 186. This accumulation of debt has prompted middle class families to search for alternate means. One such alternative has been to opt for only a two-year degree. Unfortunately, many of these students are capable, and perhaps more worthy than others in four-year institutions, of pursuing a four-year degree. Although the number of middle-income students enrolled in four-year colleges has declined; this can be attributed majorly to the fact that these families lack the funds to pursue more education; the number of middle-income students enrolled in two-year colleges has actually risen over the last decade and still continues to rise (Censky).
ability. Need-based aid focuses on those who may otherwise be unable to attend a secondary institution without outside financial assistance. Merit-based aid is awarded to students based on academic, artistic, athletic, or any other type of talent or merit a student may possess. Meritbased aid generally does not incorporate a students income or financial ability into the awarding process; it is solely based on talent and achievement. Different theories provide arguments for different types of aid. The assumption that merit-based aid is more effective and more ethical dates back to the times of Aristotle and Kant. This research suggests that awarding merit-based scholarships will increase the velocity of intellectual progression and yield more promising results. Moreover, awarding students with promising talent and enabling them to attend secondary institutions with further ease, will yield higher outcomes and contribute more to the overall benefit of society. The opposing view would argue in favor of the benefits that follow awarding aid based on need. Need-based aid allows students coming from lower income families the opportunity to advance their social and economic status by attending a secondary institution and bettering their academic standing. As mentioned before, need-based aid does not recognize academic or athletic excellence, but instead recognizes a lack in substantial funds to send one to college. Supporters in favor of need-based aid argue that it is necessary because it provides opportunity to those unable to provide opportunity for themselves. Recent findings suggest that need-based aid is losing its appeal among competitive universities. The most recognized difficulty with offering need-based aid is that it deters exceptional students from attending prestigious universities. Potential students find the costs associated with attending such universities to be too high, and the amount of financial aid offered
based on merit leaving much to be desired. Even students coming from relatively high income families are left unable to afford the tuition and associated costs so they instead choose to attend universities offering more aid or lower tuition. As a result, highly competitive universities may be losing some of the best and brightest students. Currently merit-based aid is frequently used as a lure tactic. As a result, smaller universities and institutions able to offer merit-based aid are recruiting students with higher aptitudes that would have otherwise gone to more prominent universities. The efficiencies of university and federally-finance student aid are becoming more hotly debated as the funds provided for higher education have dwindled in the past few years. As states, and the federal government, move out of the great recession of 2007-2010, they are beginning to question more readily how they spend their precious tax revenues and which programs are worthy of increased funding.
created a pattern of development that has led to rapid growth and expansion. This growth has created a surfeit of difficulties for everyone involved. The characteristics of growth can essentially be broken down into three separate categories: (1) rate of growth, (2) absolute size, and (3) proportion of relevant age grade. Each of these underlying concerns has contributed to a new set of issues requiring attention by policy makers focused on higher education reform.
Without the formation of relationships with faculty, students lose the advantage of learning directly from a mentor or creating a close academic relationship with a member of the faculty. Instead, students are exposed and thereby forced to socialize primarily with other students in their academic environment. This type of socialization has a dramatically negative effect on the intellectual and academic development of students in higher education institutions. Perhaps it is true that increasing the number of students increases the chance for brilliant minds to discover groundbreaking innovations; however, the loss of standards, norms, and processes by which teachers and students are taught to function within an academic environment are arguably not worth the sacrifice. Absolute size develops on the aforementioned problems created by the patterns formed from an ever-increasing growth rate. In the past two decades every advanced nation in the world has experienced substantial growth in the number of students participating in nearly all disciplines. In addition, these institutions have doubled, tripled, or even quadrupled in size. This increase in size poses a great threat for teachers and faculty working within those disciplines. Despite the rapid growth in numbers, professors are expected to manage the change and maintain responsibility for students within their discipline. Unfortunately, the increased demand for their time hinders their focus on academic research, study, and creative innovation. An increase in student population induces a need for faculty increases. Though the student-faculty ratio has been maintained thus far, this still leads to other problems. An increase in any population means an increase in the level of activity and pace of the community. Professors are spending more time consulting on other professors works, attending conferences, referring papers to multiple journals, and baring the burden of administrative hardships associated with a large institution; this leaves them with very little uninterrupted time to focus on scholarly work and research. The
end result is a weakened academic community that educates students below traditional academic norms and standards.
enrolled or reduction in social class education disparity, the increase in the number of students pursuing a degree from an institution of higher learning means a lower percentage of the population is learning the trade skills needed to fill jobs that are open (Censky).
accumulating at an astonishing rate, and graduates left unable to find job to pay off their debts, one could easily argue the higher education system is facing the same difficulties that caused the housing bubble to burst (Infographic). Uncertainty may result from the argument supporting the higher education bubble, but at least one thing we know is true: prospective students are facing a catch -22. With the decrease in availability of financial, students are forced to choose between temporarily opting out of a four-year degree or taking out student loans; but with the relatively recent collapse of the housing market and uncertainty of the stock market, it is no wonder students wish to avoid the current job climate by pursing a college degree. Perhaps a suggested middle-ground, enrollment in community colleges and some public institutions has increased by as much as 40 percent in recent years, and community college enrollment is expected to continue to grow significantly as a result of cheap tuitions costs and the ability of students to live at home while attending (Cronin). The cost of tuition for a four-year degree has a lot of consumers rethinking their motives. This poses a new question: is higher education really not worth the risk, or is the cost of a four-year degree not worth the risk?
during the Clinton administration, said during an interview with The Daily Ticker: With more than $1 trillion worth of student debt outstanding, a huge credit pile of debt, I can only hope this isnt another bubble, but it certainly could be. A lot of students and their families understand a four-year degree is necessary in order to have a chance in this new economy. It used to be that with a four-degree a person would earn 70 to 100 percent more than someone with just a high school diploma--so it paid those debts off. But now, graduates especially, are facing dim unemployment prospects and it is going to become harder and harder for students to repay their debts (Korn). During his State of the Union address this past January, President Obama stated: It (higher education) is an economic imperative that every family in America should be able to afford. As states continue to cut funding and shift the burden of education costs to students and their families, the responsibility of funding college inevitably creates a greater strain on student and family budgets (Gentile). Students have then shifted the responsibility of holding this burden to the federal government by seeking out additional scholarship aid to help pay for surging tuition costs. According to Robert Reich, these trends are likely to continue into the foreseeable future. Recent data suggests it is still almost a prerequisite to earn a four-year degree if you want to do well in this economy. In addition, college graduates still statistically earn at least 70 percent more over their lifetime than people with only a high school diploma. Reich emphasizes, however, his belief that it is absurd to think all young people need a four-year degree in order to get a decent job. As mentioned earlier, the increase in the number of students pursuing a degree from an institution of higher learning means a lower percentage of the population is learning the trade skills needed to fill jobs that are open (Trow). Furthermore, all factors mentioned up to this
point surrounding higher education have contributed to the severe lack of people willing to pursue the technical training needed to fill blue collar jobs and skilled trade positions in the United States. Other countries like Germany, for example, have a sophisticated set of programs in place that provide citizens with the technical training necessary to fill skilled trade positions. These workers make, on average, as much money as German citizens with a four-year degree, and there is no stigma attached to choosing to pursue technical training over a four-year degree (Korn). Unfortunately, in the United States, the belief that a four-year degree is necessary to achieve success is a heavy burden that has majorly contributed to the student loan crisis. When asked what the education industry could do to alleviate some of the burden, Reich responded: I believe there is going to be a greater emphasis on online learning. Private and public institutions alike have started offering a number of classes online. These classes are far less expensive and give students the ability to take tests and receive certification to prove they have learned the material (Korn). Despite their positive effect on student budgets, online classes will not fully eliminate the problems presented by student loans.
Section V: Data
Using various statistical methods accompanied by an econometric model specified to accommodate cross-sectional data, I have obtained data with the ability to explicate the impact of financial aid availability on student enrollment decisions. Statistical data for this analysis was collected from a 13 question survey conducted using 150 Winthrop University students. Winthrop University students act as the sample population for data observation in this examination. Data results from this survey were coded and used in the choice regression model.
The 13 question survey focused on why students chose Winthrop University, what their financial situations were prior to enrollment, what they are now, what financial aid needs they have, the impact of the availability of scholarships on their post-secondary education enrollment decision, and whether or not they currently receive financial aid. Several demographic questions including: number of American Indian, Alaskan Native, Asian Pacific Islander, African American, Hispanic and Caucasian students, gender, employment status, estimated household income, and class year, were also asked in this survey. Proper analysis of this survey data can provide insight into college students opinions concerning aid systems across U.S. colleges and universities. The following independent variables have been incorporated into the data analysis: effects of aid packages on students decisions, the availability of scholarships, the absence of scholarships, student employment status, total household income, current financial aid status, student race, and student gender. Certain independent variables may be omitted to measure the extent of the impacts on the dependent variable of others. Independent variables are subject to change throughout manipulation of the regression model. The dependent variable used in this experiment is labeled BigFactorFa and symbolizes financial aid as the single biggest factor in students decision to attend Winthrop University over other colleges. When asked on the original survey, options for biggest factor included: geographic location, availability of financial aid, availability of desired major, attractiveness of campus, pressure from family/friends, and number of students enrolled. However, I have coded the data and created the new variable BigFactorFa to yield significance only in the case of availability of financial aid.
Because of the use of cross-sectional data in this analysis, we need a regression that will be able to evaluate many subjects (students) over the same period of time. I used the results of this 13 question survey to test the impact of financial aid on current students decision to earn their undergraduate degrees at Winthrop University as opposed to an alternative post-secondary institution. Note that we cannot declare with certainty the impact of financial aid on students decision to enroll at Winthrop University; we can only describe the current proportion based on our findings.
Table I shows the results after the following probit regression was run through STATA: probit bigfactorfa income black other schol currrecaid employ gender Leaving the data in this form makes it rather difficult to comprehend. Therefore, to make the data easier to interpret, I ran the marginal effects command on the original probit regression used to create Table I. Commanding STATA to yield the marginal effects of the probit regression enables the regression coefficients to take derivative form. In other words, a marginal
effects interpretation shows how a percent change in one of the coefficients leads to a related change in probability of the binary dependent variables; in this case the binary dependent variable becomes one, confirming that financial aid was the biggest factor in choosing Winthrop University. Table II shows the results after testing for marginal effects: Table II: Marginal Effects bigfactorfa income black other schol currrecaid employ gender _cons Coefficient Standard Error -0.126922 0.1586428 -0.623438 0.4267403 -0.0141014 0.5962848 1.699065 0.4621888 0.2925364 0.6842734 -0.2107705 0.3956606 -0.3074577 0.5114856 -1.821761 0.9076091 z -0.8 -1.46 -0.02 3.68 0.43 -0.53 -0.6 -2.01 P>z 95% Confidence Interval 0.424 -0.4378562 0.1840123 0.144 -1.459834 0.2129577 0.981 -1.182798 1.154595 0 0.7931913 2.604938 0.669 -1.048615 1.633688 0.594 -0.986251 0.56471 0.548 -1.309951 0.6950356 0.045 -3.600642 -0.0428801
We interpret the variables using coefficients and standard errors as shown in Table III: Table III: Probit Results Dependent Variable: bigfactorfa Independent Variables INCOME-total household income BLACK OTHER SCHOL-availability of scholarships CURRECAID-current aid status EMPLOY-current employment status GENDER
According to the data listed in Table III, students who based their college enrollment decision on the availability of scholarships are 26% more likely to say that financial aid was the biggest factor in choosing to attend Winthrop University over other universities. Though none of the other independent variables yielded significance at the 1, 5, or 10 percent level, this does not mean that these results are unimportant. The income variable yielding insignificant results, for example, indicates students were no more or less likely to have made their decision to attend Winthrop University based on the availability of financial aid.
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Heller, Donald E. "The Effects of Tuition Prices and Financial Aid on Enrollment in Higher Education." EdFund. University of Michigan, 2001. Web. 12 Apr. 2012. <http://www.eastwestcenter.org/fileadmin/resources/education/ed2020_docs/Hellereffects_of_tuition_and_financial_aid_-_pdf.pdf>. Hoxby, Caroline M. "Do and Should Financial Aid Packages Affect Students' College Choices?" National Bureau of Economic Research (2004). Print. "Infographic: Is College And Higher Education The Next Bubble Waiting To Pop?" Wired Academic. 2 Feb. 2012. Web. 29 Apr. 2012. <http://www.wiredacademic.com/2012/02/infographic-is-college-and-higher-educationthe-next-bubble-waiting-to-pop/>. Korn, Morgan. "Student Loans Could Be the Next Housing Bubble: Robert Reich." The Daily Ticker. Yahoo Finance, 30 Mar. 2012. Web. 9 Apr. 2012. <http://finance.yahoo.com/blogs/daily-ticker/student-loans-could-next-housing-bubblerobert-reich-144742652.html>. Trow, Martin. "Problems In the Transition From Elite to Mass Higher Education." Carnegie Commission on Higher Education (1973): 1-57. Web. 23 Jan. 2012. <http://eric.ed.gov/PDFS/ED091983.pdf>.