Increasing College Costs Result on Increase of Student Loans - Research Paper Example

 Subject: Increasing College costs result in increase of student loans Abstract The increase of college fees result in increase of dependency of students on federal and bank loans. As the rise in cost of education is more than the rise of inflation, this may result in extra burden for the parents and a situation may arise which compromises on the quality education the student seeks. To cope up with the situation, parents and the student feel the need of external help. The thinking and planning, generally shifts towards the educational loans. This situation was being inevitable in middle class as the quality of education was directly proportional to the cost of education. This makes every student and his families more or less depend on the external financial help. It will be helpful if that loan is repayable after education with a grace period after completing the course. If it is not the case, then it increases stress on the student. But the loans are, which are payable after the completion of the course and even with a grace period are available. This makes students aspiring for a seat in costly professional courses to seek a loan as he was capable enough to pay it after getting job and even the job is also expected soon, depending upon the course. The stress on the students will be more if the student has to work while studying to re-pay the loan. But this stress factor regarding work while study can be eliminated, if the student finds a loan, that is repayable after the grace period, soon after the completion of course. Executive Summary The hypothesis that “The cost of college education is increasing resulting in greater dependency on student loans” was discussed and proved against the null hypothesis that “the cost of college education is resulting in no greater dependency on student loans”. This is proved by various points like the increasing dependency on loans, despite funding of Federal Government to the students who cannot afford the fees, the diversion of majority funding towards the merit category, which comprises even the rich class, the increase of college fees and tuition many times more than the inflation, income increase rate, per capita disposal. All these factors were discussed and established that the increase in cost of college education is making the students to depend on the loans. This was making the students of lower income and minority class frustrated as they are not able to avail the loans at lower interest. Another main aspect that is driving the students to avail loans is that the failure of work while scheme to meet the needs of the students. The income earned by that scheme was not sufficient in meeting the expenses and the students are forced to work outside which is making them not eligible for the scheme. Thus the scheme’s motto was not fulfilled and the students who are in pursuance of quality education, to meet their educational expenses are resorting to the loans. This trend is helping the moderate income families who can show security for the loans. But the low income families and the minority student families who cannot avail the benevolent loan schemes are availing the loans on higher rate of interest which was a burden for their future. But the guarantee of good income and the nice job after completing of higher education is driving the parents and students to opt for the loan to study. Increasing College Costs Results in Student Dependency on Loans Introduction: The increasing cost of education is resulting in student dependency on educational loans is the current topic to discuss and to prove. The purpose is to discuss whether the above hypothesis is true or the opposite sense is prevailing? The continuous increase of the higher education costs since last 20 years and particularly from last 10 years makes it evident that the middle class parents were suffering as the rate of increase is more than the rate of inflation and the rate of increase in income. If the loan opportunity is not available it seems a crisis might be taken place which results in denying higher education for many middle class aspirants. The cost of college education was being increased due to the hike in tuition fees by higher educational institutions irrespective of the state of economy of the country or the well being of people. This is making middle class to search for alternative resources to bear the brunt of the ever increasing college cost. In case of tuition fee in Government institutions the hike is due to the educational grants to the students. The substantial amount from the funding for the education by Government is going towards the educational aid provided to some students, which is non payable. This non returnable spending was also a part of the cause for the hike of tuition in Government institutions. Though the increase in cost is not avoidable, it must be limited to the norms. The problem arises when the increase in cost dominates the norms that are followed by economy and the status of the people. Even the cost of the help extended by the government to some of the students was being part of the cause to increase the costs of higher education, though up to a lesser extent in community and Government colleges. It is clear from this fact that aid from the Government will not help to solve the problem. Discussion Generally who oppose the hypothesis, “As the cost of a college education increase the student's dependency on Federal student loans increases” argue that the Federal Government grant to aid the students who are unable to pay the cost of higher education, has increased by 161% in the period between 1992-2002. But they can be proven wrong as even in this time the dependency of students on educational loans increased. The key is that the Government is trying to aid the students to bear the high fees, but not trying to control the skyrocketing costs of higher education. As it is a common sense that as long as Federal Government supports the higher costs there will be no control on the costs as there was a name sake reason for them that the Government is supporting students for the hike in costs. But the real question is that was the aid released by Government is sufficient to provide support to every student who seeks higher education? The answer is clear that it is not possible. Another argument is that the incomes increased 3 times while college fees were doubled. But considering incomes of the people the facts that are to be considered are, ‘median house hold income,’ and ‘per capita disposable income.’ These two did not increase with the pace of the increase in costs of education. So when per capita disposable income was not increased with the pace of the fees, it is natural that the families had very little to afford for their higher education of children. This increases the dependency of the students on educational loans. Another important argument that was against the hypothesis of this paper is that out of the $90 billion dollar funding of the government to the higher education the lion share $65 billion goes towards aiding the students who cannot afford higher fees for continuing higher education. But as this was an aid and not a loan this will be included in the cost of establishment for the educational institutions of the Government which plays a key role in increasing of the tuition fees in Government institutions. According to college crisis report published in 2003 the average increase in tuition and fees between the period 1992-2002 are 8.4 and 4.7 percent more than the consumer price Index. This tells us that there will not be enough cash left with the parents to afford for the costs of higher education and they were forced to depend on the loans. The students who cannot afford the college fees had to work part time from 20 to 36 hours a week which makes them to spend less time in studying than his peers who can afford it. So generally students as well as parents try to avoid this situation. The best way is to find an educational loan which caters the student’s needs and takes repayment after completing his study. It is a natural phenomenon to be attracted to these types of educational loans as they make the middle class families afford the higher education fees and make students to spend more time on studies instead of working part time. The opponents of the hypothesis of this paper may also argue that as the higher education assures a good job, numbers of students are depending on loans that can be paid after landing in a good job, but not due to the rising costs. But who will go for a loan when they are having enough money to pay for the fees? When they go for a bank loan they have to pay interest. That means they are paying more than what they have to pay. This happens to any family or student when they were not able to afford the costs they have to bear. When the incomes of middle class families were taken into consideration one can assume that they can afford costs of higher education. But the aspirant students from middle class students feel that if they join the college in which the fees is affordable by their parents, they may not get quality education. So to get the quality education, they prefer the institutions which charge more and those higher charges can be met only by an educational loan. This proves that though the middle class is having substantial income to meet the expenses of higher education, it was not possible to afford the costs of the education when the quality is asserted. Another statistical support for the hypothesis is that the pell grants available to students in 2003 are $11,466,000,000. But the Federal family educational loans were up to a staggering $31,536,000,000. This proves that the grants available were coming to the aid of only 33 percent students who seek or cannot afford the costs of higher education. The remaining two-thirds of the students and their families were resorting to the educational loans. If ford direct student loans were also taken into consideration the total education loan that was availed by students in 2003 amounts to $44,299,000,000. This tells that how many students and how much more amount was flowing through the loans rather than the federal government’s aid. Another report from Brian K. Fitzgerald, staff director of the Advisory Committee on Student Financial Assistance, tells us that the financial aid given to the merit students increased by 336 percent, but the aid given to the needy students increased only 88 percent between 1983-92. This made rich students who can afford fees for quality education to avail that aid as they pass out of the schools which offer quality education. In that way the low income and needy students who were not able to afford high fees at school level were not able to avail the aid based on merit. Thus they are forced to take loans at high interest or work while study. Majority of them prefer to take a loan which is payable after education, as they can concentrate on studies and they were paying the fees to get quality education. If they pay fees by working the quality may be compromised. Though they are students who are working while studying, now a day’s majority prefer to take loans to meet the costs of quality education. As excessive work makes them unable to complete the degree in time, most aspiring students prefer to take a loan. Though 65 percent of students from families of low income prefer to work, 35 percent of them still prefer loans. Then one can think about how medium and above average income students can go for a loan to afford the cost of college education. The work for study program also makes the opponents of the hypothesis of this paper to argue against it. But the work for study programme provides only 20 hours of work a week and it is not sufficient to meet the student’s expenses. So they have to work outside the campus. The income from that is not considered as student aid and was taxed. Apart from that when the student is paying the fees using those earnings he was disqualified for the aid from the Federal Government. This type of disqualification discourages students form the policy of work while study and automatically they prefer to get a loan as the working while studying is affecting the quality of education and making them disqualify for the aid provided by the Government. If it was argued that the loan taken by the students is for enhancing the quality, it can also be proven wrong as the report named as ‘The Burden of Borrowing’, published by the State Public Interest Research Group's Higher Education Project, tells that 71 percent of lower income family completes their graduation with debt behind them. This statistical data can tell that the dependence on educational loans was not only for the enhancing the quality of education they get but also due to the inability to afford the fees at the time of education and at once. The financial burdens faced my students those come from moderate income families also face shortage of $2,700, $3000, and $4,900 a year in community, public and private sector colleges respectively. In addition to this they face a shortage of nearly 5,000 dollars a year for other expenses. This increases pressure on them while working for study. Parents of these students prefer to take a loan for enhancing the quality of education and to reduce the burden along with pressure on their children. Records suggest that students from minority and low income families take loans at higher interest. This cannot be portrayed as the thing that happens in the quest for quality. As they find the rules and systems not making possible to avail grant and being in a position of not meeting the costs of higher education they are resorting to educational loans of higher interest. This trend also proves that the increasing costs of education more than inflation, median average income, per capita disposable income making the students to resort to educational loans. Methodology This section includes the description and evaluation of the data collected. Following are the figures of the cost of the college education funding and grants in US in the last decade expressed in excel sheet. Figures are in million dollars. (The below excel sheet will appear in full format if selected and double clicked. ) Below are the figures represented in the above excel sheet. Year Program funding Maximum grant 1993 $6,462,000,000 $2,300 1994 $6,637,000,000 $2,300 1995 $6,147,000,000 $2,340 1996 $4,914,000,000 $2,470 1997 $5,919,000,000 $2,700 1998 $7,345,000,000 $3,000 1999 $7,704,000,000 $3,125 2000 $7,640,000,000 $3,300 2001 $8,756,000,000 $3,750 2002 $11,314,000,000 $4,000 2003 $11,365,000,000 $4,050 Not only has the pell grants system expressed above the Federal Government assisted the students in many ways. But the assistance is not sufficient as the majority number of students were resorting to loans and even high interest loans (in case of low income and minority students.) This is evident from the following figures which show the increase of college fees and the increase compared to the increase of inflation. Chart showing the increase of fees over 1997-2002. Source of diagram : college crisis report Chart showing the increase of fees that was dominating the increase of Consumer price Index. Source of diagram: College crisis report. The data represented in the above tables and diagrams indicate that though the Federal Government is spending substantial amount on funding the students to meet their college cost there is increase of college fees more than CPI and inflation. This indicates that the government aid or grant is not sufficient to fund all the needy and aspirant students. Though the granting scheme of the Government has wide publicity and acceptance, it was not successful in catering to needs of all the students who cannot afford for higher education, which is compelling them to resort to educational loans or work while study. The figure below indicates the forecast of the impact that may be cumulated in the coming years in the case of low and middle income school graduates. The blue lines indicate the students attending the four year college in two years. The maroon line indicates the students attending 2 years in any college. Source: November-December, About Campus, Volume 8, Number 5. The smaller part indicates the 32%of total grant aid And the bigger part indicates 68% of family work and loan burden. Source: About Campus, November-December, volume 8, Number 5. Findings: The above sections conclude that the rate of increase of tuition and fees in colleges of higher education were increasing. Though the incomes also increase but they increase proportional to the inflation. But the cost of college education is increasing number of times more than the inflation and consumer price index. This is making the middle and low income families difficult to meet the higher education expenses of their children. This increases stress and even dropping out of the students in the middle of the education. To avoid this dropping out the Government is funding the students who can’t afford higher education by Pell Grants. Though the grants and aid scheme of the Government is widely accepted, it was being not sufficient to needs of all aspiring low and middle income students. This is indicated by the 68% percent of loan making students against the aid getting students of 32%. This proves the hypothesis that students and their parents were resorting to educational loans to meet the expenses of high quality education and to decrease the stress due to work while study. The work while study programme funds were not sufficient to students. So they are working outside the campus to pay the college bills, which make them not eligible to the sops of work while study scheme. This is also increasing the trend of resorting to the loans rather than work while study. The impact of not taking loan is affecting the students in such a manner that they were being dropped out due to the inability to pay fees. The above data analysis forecasts the more dependence on the educational loans by the students in the coming future as there is no policy from the government to control the fee hike and the Colleges and Universities were not accountable to the common man. As the incomes may grow in the coming years due to the growing economy the rise may not be sufficient enough to meet the expenses. So the dependence on the educational loans in the future seems inevitable as the chart indicates that, if they avoid dependence on the loans there is a chance of dropping out from the college. Conclusion It is observed that from last 20 years more precisely from last 10 years there is remarkable hike in college fees. As the rate of increase dominated the inflation rate, income increase rate and per capita disposable rate, the Government’s actions of funding the needy students increased the cost of Government education and consequently the fees in all the institutions also increased. This made the students who did not get the aid to work or to take the loan. The trend from last ten years was that the students were slowly shifting towards trend of depending on loans rather than depending on work while study. This is due to the inadequate income by the scheme of work while study, which forces them to work more than stipulated 20 hours per week. That was making them ineligible for the scheme and aid the students prefer the loan schemes than the work schemes as the quality of education also was compromised due to the work schemes. The loan schemes are offering even the payment of the loan after the completion of education with a grace period, which can be used to get a job. This makes students to study by loan and repay by the salary. So the dependence on the loans which was caused due to the tremendous increase of the costs of higher education resulted in the quest for quality education and repayment by the salary, which they earn during the job after completing higher education. The financial institutions and the banks which provide loans to higher education were doing that keeping in view that the higher education in US is a guaranteed source of income as the college graduates are earning 73% more than the school graduates. So As per the trend, though the increase of costs of college education was irritating the American parents, the availability of loan and guarantee of high income after completion of education was making them to depend on the loans. This is the case of moderate income families. But the low income families and the minority students were taking the loans with high interest which turn into a burden in the future. Though the Grant and aid funding done by the Federal Government is sufficient in meeting the needs of the low income students, it was not happening so. The reason is the majority of the fund was allotted to the merit category and the needy students who aspire for higher education were not funded adequately. The merit category comprises the rich class also who can afford the costs of higher education. They were grabbing the larger pie of the fund as they were able to afford for quality education in school level. This concludes that the dependence on the loans was due to the increase of costs of higher education and inadequate funding of the Government to the needy students. This trend may be slowly accepted by moderate income families, but low income families find it difficult to get loan and were being victims of high interest loans. So the present dependence is a burden to low income families and minority students. The moderate income families were able to get access to affordable loans and were paying reasonable for quality education they desire and deserve. Recommendation It is recommended that instead of funding only merit candidates with the majority of funding, the Government can fund the more number of needy students by decreasing considerably the allocation in merit section. This makes more funds available the lower income and minority students who are till now, bearing the burden of high interest loans and even working while studying, which is costing the quality of their education. As the working while study compromises with the quality of education, the funds for that scheme may be diverted to the needy students in the form of grant. The students working and earning out of the campus also can be made eligible to the tax exemption, which makes the process of paying fee easier and makes them work for lesser hours and to concentrate more on their studies. These types of reforms can make the quality education affordable to more number of students. But along with this the Government must make a policy regarding the fees hike in higher education, which controls the hike and keeps it within the growth rate of inflation and per capita disposal amount. The number of students who cannot get the aid and even the loans also were being dropped out from the colleges. Some are even not enrolling their names in the colleges. This is not good for civilized society like America. This process of raising the fees and funding the needy was depriving some of the students (though low in number) from getting the quality education. References: The references are given in the following order: Name of the author, date or year, title of publication, publisher, edition (if information is available), type of medium, date retrieved, website. 1. Transcript, 1997, Money U, Online Focus, 1997, electronic, 26-7-06, http://www.pbs.org/newshour/bb/education/may97/tuition_5-1.html 2. Jeanne Sahadi,19-10-2004, College costs spike again, CNNmoney.com, 2004, electronic, http://money.cnn.com/2004/10/18/pf/college/college_costs/index.htm 3. Rob Kelley,18-10,2005, College costs going nowhere but up, CNNMoney.com,2005, electronic, 26-07-06, http://money.cnn.com/2005/10/17/pf/college/college_costs/index.htm 4. Press release, 10-18-05, Tuition increases slow at public colleges, College Board, electronic, http://www.collegeboard.com/press/releases/48884.html 5. Proposal summary, july19,2006, Saving the American Dream, DLC, electronic, 26-07-06, http://www.dlc.org/ndol_ci.cfm?kaid=86&subid=194&contentid=253965 6. Rep. John A. Boehner (R-OH), Chairman, U.S. House Committee on Education and the Workforce, Sep4, 2003, the college cost crisis, U.S. House Subcommittee, ,electronic, 26-07-06, http://www.house.gov/ed_workforce/issues/108th/education/highereducation/CollegeCostCrisisReport.pdf 7. Article, 2005-06, College costs, Collegeboard.com, electronic, 26-07-06, http://www.collegeboard.com/student/pay/add-it-up/4494.html 8. Brian K. Fitzgerald, 2003, About Campus, Alexander Astin, volume8, electronic, 26-07-06, Read More