The Rising Cost of College in America - Assignment Example

The Rising Cost of College in America The growing fee of college in America is a matter of great concern that resonates with all families with different income levels. Regardless of the high value accrued to education as an engine of innovation, economic growth and social advancements, college tuition tends to rise faster than the inflation rate (Anatomy of College Tuition 1). Currently, most students with a desire to succeed in College have to look for several jobs in order to cater for the rising expenses and their daily needs. Some researchers argue that the problem lies with the institution as well as the system, whereas, others attribute the rising cost of college to the growing economic costs. The growing economic costs is deemed to be the causal factor that limits and diminishes the public value of college education in the U.S. College costs have been on the rise for at least a century. Ethernberg observes that for at least a century, tuition at selective private institutions has been rising by 2-3% annually (Anatomy of College Tuition 1). In 1980s, the tuition growth began to surpass growth in median income families. In the 1990s, benefactions grew exponentially due to the booming stock market (Anatomy of College Tuition 1). Some researchers accrue the significant rise in the nature of the education process (Anatomy of College Tuition 2). The nature of the education process limits colleges from sharing the productivity gains that caused earnings to grow in the rest of the society (Anatomy of College Tuition 2). Archibald and Feldman argue that in order to fully comprehend the rise in college costs, there is need to place higher education firmly within the industrial structure of the American economy. Moreover, there is need to identify the economic history of the higher education past century (Anatomy of College Tuition 1). External Economic Forces There is a growing consensus that the growing economic costs limit and diminish the public value of education. In order to understand this concept, author Li, defines the term cost and price in the education institution (7). According to Li, the term cost refers to the value of all the resources used to create a product or service, including higher education that is categorized as a service (7). The term cost in colleges refers to how much an institution is willing to spend per student. The term price denotes the different amounts of money people spend depending on their financial circumstance, that is, the amount of tuition a student pays. According to Li, the cost and price of education are interrelated (9). Therefore, the market pressures in the education field consequentially influence the cost of higher education. Economic growth leads to rising tuition prices. Archibald and Fieldman claim that higher education is an industry that is similar to several others. Therefore, it shares the characteristics of other industries in terms of demand and supply. The two authors compare higher education to industries such as legal services, physicians and dentistry (Why Does College Cost So Much 70). Economic growth has had a plethora of effects on the economy (Why Does College Cost So Much 70). Consequentially, these economic changes have contributed to the rising cost of education. Over the years, technological advancements in the manufacturing industry have resulted in the reduction of costs of manufactured goods, compared to the service industry (Why Does College Cost So Much 71). Archibald and Fieldman note that the higher education institutions are service industries. Therefore, while other manufacturing industries enjoyed the productivity gain accrued to technological advances, service industries lagged behind in productivity growth (Why Does College Cost So Much 71). Inevitably, the cost disease process resulted in the rising cost of education in the U.S. Bowen also attributes the rising costs to external economic forces. According to Bowen, there has been a considerable rise in the cost of college education. The author states that “Except in war periods and the great depression, which require a separate analysis, the cost per student rose appreciably faster than the economic-wide index costs in general (3). ” The author observes rising costs in both the public and the private sector (Bowen 3). According to Bowen, the cost disease is an accurate explanation of the high cost in education. In labor-intensive industries, such as the education institution, there is less opportunity to increase productivity than in other sectors. Over time, markets dictate that wages for comparatively qualified individuals have to increase at roughly the same rate as all industries. Consequentially, labor costs must be expected to increase at a relatively faster pace in the education institutions than in the economy over all (Bowen 4). Li explains the effects of cost disease to the overall cost of universities, the author states, “As other industries experience decreasing costs and are able to pay higher wages, universities must pay professors a rising wage to remain competitive. Consequentially, this results in increased costs” (20). Public and private universities obtain their revenues differently. In private universities, revenue is obtained through tuition and private resources. In public universities, revenue is obtained from the state, local and federal governments and tuition (Li 7). According to Li, public universities also receive half as much revenue from tuition fees as compared to private universities (Li 7). Most higher education institutions are non-profit organizations where the tuition fee accounts only for a percentage of the full cost of running a higher education institution. Thereby, the increasing demand for skilled labor due to economic growth and technological advancements are the key drivers to increased costs in American colleges (Li 21). Inflation Rate A majority of economic crises impacts negatively on the supply and demand system in the market. One particular example is the inflation rate. Inflation rate is a weighted average of the price changes of products that make up the price index (Anatomy of College Institution 3). In any given year, many prices of items go up more rapidly than average. At the same time, other industries experience a slow price growth due to inflation (Anatomy of College Institution 3). Archibald and Fieldman observe that a lot of industries whose prices increase have consistently exceeded the overall inflation rate. Overall, the effects of inflation affect the financial income available for endowments. The education institution is a heavily subsidised facility. Therefore, changes in endowment consequentially increase pressure on tuition fees. The rate of inflation resultantly contributes to the increase in education costs. Bitterman observes that the higher education price index (HEPI) reported that over the last 30 years, since 1963, higher education has increased by 188%. This increase in the cost of education means that the cost of consumer goods inflated at the same rate as the cost of going to college. The author notes that the rise in tuition costs inevitably results in an increase in student debt (71). In 2000, the student loan debt was $15,651. In 2012, the amount significantly increased to $24,301 (Bitterman 72). Moreover, the total amount of student loans had reached an outstanding figure of $ 1 trillion. In 2012, 35% of students received a scholarship compared to the previous 45% in 2001. However, Bitterman also observes that the college degree costs have considerably outpaced the overall inflation rate (72). Higher Education Responses to Economic Growth The continual decrease in economic growth results in considerable financial pressure in colleges and universities. According to an analysis conducted by Bogati, a negative sector in the market reflects mounting pressure on all key universities (1). The author reports “As the economic growth languishes below previous benchmarks, the federal government seeks to reduce spending in key areas including in market leading universities” (Bogati 1). Consequentially, colleges and universities with diversified revenues are facing reduced prospects for revenue growth. Bogati observes that universities have been restraining costs in response to the weak economic conditions since the 2008-09 financial crises (1). The changes in the economic environment coupled with the reasonable reactions of universities and colleges contribute to the high costs of college education. A majority of private colleges and universities adopt several actions in order to moderate their tuition increases (Ehrenberg 31). Currently, a majority of public universities have resolved to budget cuts in order to handle the financial pressures attributed to economic growth. Budget cuts enable institutions to allocate resources to important areas such technology and innovation. However, budget cuts also inhibit and limit the value of education (Coleman, Walker & Lawrence 1). In public schools, budget cuts are usually incorporated by the government. Private schools opt to raise the tuition fee rather than risk the credibility of their institutions (Ehrenberg 29). Coleman, Walker & Lawrence discern that “With each new government, new policies are enacted for accountability (1). ” Inevitably, the new legislation passed prescribes budget cuts in education (Coleman, Walker & Lawrence 2). The authors conclude that the use of budget cuts is evident in past and current poor financial and operational planning within our government (2). Low-quality education is as a result of budget cuts. Higher institutions have to formulate plans and action to accommodate the needs of the budget. Some of the institutions have altered the number of day school sessions per week. Whereas, other educational institutions have incorporated budget cuts geared towards special needs students. Resultantly, the incorporation of budget cuts enhances costs on parents and contributes to the widening gap between high income and low-income families (2). Due to the existing market pressures, most universities opt to adopt price discrimination in order to make revenues. Vedder explains that the use of scholarships is a means of practicing price discrimination (Vedder 67). According to Vedder, the price discrimination is an effective tool that is used by schools due to the different responses to price. Inevitably, high income earning families are expected to pay high costs in order to afford the quality education. Vedder observes that in most regions, State universities charge out-states students higher than state universities (Vedder 67). Price discrimination of increasing endowments, however, it is not sufficient enough to cater for the growing demand for quality education. Bogati, observes that price sensitivity continues to suppress net tuition revenue growth (2). Moreover, Bogati indicates that “Years of depressed family incomes and net worth, coupled with uncertain job prospects for many fresh graduates and a slight decline in the number of high school graduates, are creating admission pressure and weakened pricing power for colleges and universities” (Bogati 3). Alternative Views Arguably, some researchers attribute the rising cost of education to other factors. Ehrenberg states that institutions opt to incur more costs in improving facilities, faculties, research and instructional technology (Ehrenberg 29). This drive towards being the best in the society is due to the high competition in the education sector. Therefore, in an attempt to look better than their counterparts, institutions may focus on expansion and development instead on focussing on affordability. Furthermore, students and their families increasingly want to buy the best. Ehrenberg points out that “The fraction of the nation’s top students, as measured by test scores, chooses to enrol in selective private institutions in public schools (29). ” There are alternative views explaining the rising cost of education. One example is the use of prestige games. Prestige games are a form of positional arms race and are potentially expensive and difficult to terminate (Anatomy of College Institution 7). Prestige games such as the competition for faculty stars. There are limited number faculty members who can make a difference in a graduate programme (7). The competition for faculty stars drives up the salary and inevitably contributes to rising costs (7). The management and nature of the education process contributes to increasing costs in education. Ehrenberg indicates that top institutions have preferred to maintain and increase quality largely by spending more, instead of increasing competence, decreasing costs, or reallocating funds (Ehrenberg 29). According to Bowen, institutions aggressively look for financial resources in an attempt to fund programmes that that they perceive will benefit the institution. Once these institutions are set up, management may find it difficult to dismantle them thereby incurring more costs (Bowen 7). Moreover, Bowen observes that universities are collections of highly specialized talents that cannot be shifted from, say, teaching Russian to teaching Spanish (7). Bowen states that the current financial pressures have led to renewed calls for more “business-like” approaches (7). The author observes that universities such as Berkeley, Chapel Hill, and Cornell consists of multifaceted, decentralized organizations that could save money by simplifying oversight structures and centralizing functions such as Human Resource (7). Universities and Colleges Reaction The decisions made by faculty or the administration further add to the costs of high college. In this case, high salaries and the issue of tenure are viewed as the causal factor contributing to high costs (Anatomy of College Institution 7). Some researchers state that faculty members equipped with tenure redefine their role in the institution to incorporate more research and less teaching while conveying other student centred duties to professional administrators (Anatomy of College Institution 7). Consequentially administrators demand all kinds of new or expanded activities at colleges and universities, such as academic advising and career services (Archibald & Fieldman 7). Arguably, Archibald and Fieldman state that this theory is plausible superficial as it does not explain the actual collected data (Anatomy of College Institution 8). Privatization of public universities creates incentives for cost minimization. Kerekes argues that turning to the private sector is a means to diversify revenue resources (234). The decrease in state and federal funding creates the need to look for other means to funding. Public universities are structured as non-profit institutions that cater to teaching, research and service (Kerekes 235). The type of incentives allocated to institutions determines the quality of education, types of degree programmes and the amenities offered by the institution (Kerekes 235). According to Kerekes, the privatization of public institutions gives them an opportunity to obtain the necessary incentives that will enable them to offer a quality education to those who can afford quality education. Bogati agrees that families are willing to pay for higher education. However, their capacity to pay higher prices has been largely tapped (Bogati 2). CONCLUSION In conclusion, a majority of researchers observe a link between economic growth and costs of higher education. Archibald and Fieldman state that the broad economic forces that are buffeting every industry are the causal drivers of rapidly rising higher education costs (3). Other researchers attribute the rising costs to the nature of the education process and the inefficiency of administrators to appropriately relocate resources. Consequentially, a majority of institutions prefer the use of price discrimination in an attempt to provide tuition fees as per the income ability of the family (Vedder 66). However, researchers observe that due to the price sensitivity of the industry, the revenue accrued to tuition is not significant enough to cater for the rising costs. Inevitably, parents and students find themselves at a loss in being able to afford quality education. Therefore, there is a need to adopt strategies that will ensure the benefits of education are enjoyed by all. Works Cited Archibald. B. Robert & Feldman H. D. Why Does College Cost So Much? Oxford University Press 2011. Print Archibald, Robert B. , and David H. Feldman. "The anatomy of college tuition. " The American Council on Education 1 2012. print Bitterman,Alex “The College Question: Why College (As We Know It) Isn't Working for the Millennial Generation” Balanne & Co. Press 2013. Print Bogati Eva “US Higher Education Outlook Negative in 2013” Global Credit Research Report MOODY Insurance group 16th Jan 2013. Web. 2015 Bowen, William G. "The “cost disease” in higher education: Is technology the answer. " The Tanner Lectures Stanford University: 2012 Stanford University Web. 2012 Coleman D. P. , Walker R. , Lincoln L. , “The pros and cons of education budget cuts: An investigative study. ” Research In Higher Education Journal vol. 27. 2013 AABRI. com. Web. Jan 2015 Ehrenberg Ronald ‘Tuition Rising Why Education College Costs So Much. ” Cornell University 2009. Print Kerekes B. Carrie “Privatize It: Outsourcing and Privatization in Higher Education’’ New York:Springer 2010. print LI,Helen “The Rising Cost of Higher Education: A Supply & Demand Analysis” New York University 2013. Print Vedder Richard K. “Going Broke By Degree: Why College Costs Too Much. ” Washington DC: AEI Press 2004. Print Read More