Research Paper

Introduction and Literature Review

Many former college students struggle financially for years after their graduation because they carry the significant burden of student-loan debt. Nationwide, student loan debt exceeds credit card debt. About 35,000,000 students make up this group of debtors, and each debtor owes roughly $23,000 (Brewer, 2014). Unfortunately, this kind of debt can take years to pay off. If students were able to enter the workforce debt free, they might find themselves more financially independent and successful, but as college tuition rises over the years, this becomes less and less likely. According to two studies, the increase in college tuition is not justified, and colleges purposefully take advantage of students by raising prices. Students need a college education to get a job, so colleges exploit this need and squeeze as much money out of them as they can. However, other studies argue that the necessity of a college education justifies its increase in price. There is a causal relationship between the increase in costs and increase in price; economically, this makes sense (Rahman, 2018). Still others argue that the price of tuition only increases as much as the price of maintenance of universities and colleges increases (Biffle, 2002; Thelin 2015 ; Williamson, 2018 ). Materials such as school supplies, desks, technology, and even the salaries of the professors are expensive, and the money to pay for these things must come from somewhere. Yet perhaps if the money to pay for such expenses was more carefully audited, the tuition price would not rise so dramatically over time. Few studies have addressed better money management as a possible solution to this problem; in fact, few solutions have been proposed at all. In my study, I plan to suggest some myself. In this study, I aim to collect data regarding the way debt affects students in college and will continue to affect students in their future. Then I will work to suggest some new policies that might serve as solutions to the problem of crippling student debt. This study is politically non-partisan; I will not advocate for any policy based on its political affiliation, but rather because of its merit as a viable financial solution. This kind of research is valuable because it will encourage policymakers to reduce the cost of college and keep the public informed on all available financial options.

Methodology

Participants and Context of the Study

This study takes a qualitative approach, capitalizing on the opinions of different experts in Tegucigalpa, Honduras, and Charlottesville, Virginia. A total of eight people, both male and female, ranging in age from 21 to 65 years, participated by providing their respective expert opinions in their fields of either economics, management, or public policy. In the study, each participant provided insight about what might be the most significant factor influencing the inflation of college tuition in the U.S. If they had any ideas about solutions, they were welcome to speak on this as well. This study focused only on the opinions of experts in their field; the study did not address students or people without sufficient experience with economics or public policy. Subjects included faculty members of the University of Virginia and highly capable workers in Tegucigalpa.

Materials

Every participant received the same questionnaire consisting of eight questions. The first three questions concerned the participant and their area of expertise, but the remaining five questioned their opinions about the student debt problem. The questions included: What is the cause of the rise of the price of college tuition? Are there viable alternative options to a college education? What are some ways to reduce student debt? Is there any real solution to this problem? Because each participant received the same questions, the answers from those well-versed in economics may be distinguished from the answers of those well-versed in public policy and management.

Procedure

I called each participant, gave them the questions to answer, and offered to clear up any doubt they might have about the study. Then the participants gave their verbal consent and agreed to allow me to publish their answers.

Data Analysis

            Because this study focused on qualitative data, analyzing the results of the interviews meant comparing and contrasting them. To understand this data, I entered the participants’ answers into Excel and calculated percentages illustrating the statistics of the answers given. By interacting at length with the results from each participant, the study resulted in a more complete illustration of the inner workings of the student debt problem. The responses from each participant were so different despite their similar educational backgrounds. Some leaned towards a supply-and-demand perspective, and some towards a revenue-and-expense perspective. Regardless of their perspective, however, each agreed that college tuition is bloated and that student debt has become a serious problem.

Results

The clearest result of the study seemed to be that college debt has become a problem, and the constant increase of college tuition only exacerbates this problem. According to Elio Alvarenga, who has a masters in economics from the Pontifical Catholic University of Honduras, the increase in tuition stems from the surge of demand for college education. Alvarenga says the public fears that if they do not attend a traditional college they will not get a well-paying job, and colleges capitalize on this fear. According to Luis Sucre, college tuition tends to be very high because universities have increased their own maintenance expenses. About 62% of participants, however, said that the student debt problem was an economic one and not an accounting one. While understanding this as an accounting problem would mean only considering the numbers regarding expense and revenue, understanding it as an economic problem allows for consideration of the societal atmosphere. This kind of economic understanding allows current culture to influence the solutions given just as the actual numbers of expenses and revenue might. It creates an awareness that current culture can influence the societal importance placed on a specific good or service– in this case, a college education.

Most participants see student debt as an economic problem; this illustrates the importance they place on cultural climate as an element that affects the situation. As Elio Alvarenga said in one of his responses, “the student debt problem is due to a surge in demand, and if there is taking place a sudden increase in demand this means that more people are believing that without a college degree it would be impossible for them to have success in the labor market”. In other words, without the cultural understanding that people need a college education to get jobs, the demand would not be as high, and consequently neither would the price.

While the first questions in the questionnaire discussed the price level of tuition, the later questions discussed the viability of other options. Many students feel they have to go to college and incur debt in order to get a job, but this may not be true. According to Daniel Nakasone, TA of macroeconomics, going to a traditional college is practically paramount to have a good future in the labor market, therefore he advocates for students going for two years to a community college and then transferring to a traditional college (public or private) to take the highest amount of value from both worlds. Nakasone points out that the degree at the end of the day is going to be the same value, and the amount of debt incurred by the student would be lower than that incurred from a traditional four-year college. On the other hand, Carlos Fortín, masters in Economics from Navarra University, points out that although he went to college he does not consider it absolutely paramount to have success in the labor market; he highlights the importance of considering the option of attending a technical institution. A substantial number of college graduates are unemployed after graduation; people who attend technical institutions ten to avoid unemployment because of the large market for technical workers. Abraham Arita, an economist from the Foundation for Progress, also recognizes the usefulness of technical degrees. He views the trend of mandatory college and consequent unemployment as an unfortunate but repetitive trend; it repeats in both industrialized economies like Switzerland, Australia or the U.S but also in underdeveloped economies like Honduras, Bolivia or Perú. In spite of the viability of technical institutions, 75% of participants answered that going to college (even if the first two years are spent at a less expensive community college) is of paramount importance in order to be successful in the labor market.

Discussion

After analyzing the obtained data, it is possible to better understand the student debt problem and suggest solutions from a public policy perspective. No matter their background, all experts interviewed agreed that the student debt in the United States is a problem. Even if tuition increases because of the demand for a college education with the expectation that college graduates will find jobs to help them pay off their debt, college graduates cannot always find a well-paying job in reality. According to the U.S Bureau of Labor Statistics, over 50% of recent college graduates are unemployed. Therefore, I think it would be a good idea to advertise technical institutions as a viable step in a career plan. Attending a technical institution may provide a bigger return when applying to enter the labor market. Community college may also be a more valuable investment. Assuming that jobs are not readily available for recent graduates, student debt from a less expensive community college will be more easily paid off than a university debt, just as Nakasone said. Moreover, the degree at a community college only takes two years to complete. This means that if after graduating from college the person does not find a job immediately he could decide to enter a traditional college or begin a business. It is important to mention that even in the worst-case scenario- assuming the person does not get a job, he is in a much better place because he has only spent around $3,500 per semester (assuming the person does not pay a single dollar of the community college) instead of $31,000 which is around the national average . The average debt at a traditional college is more than 10 times greater than if someone decides to attend a community college. Assuming neither graduate finds a job, the person that attended a four-year university will have much more student debt than a person that attended a community college. The community college graduate finds themselves in a much better position because their amount of debt will be substantially less.

In the study, all the participants agreed that college tuition is overpriced. The average cost of college for the 2017–2018 school year was $20,770 for public schools (in-state) and $46,950 for nonprofit private schools, only including tuition, fees, and room and board. Each year, school costs have continued to increase, even after accounting for inflation. The following facts provide an illustration of the bigger picture of the student debt problem:

• Average Total Cost of Public Colleges: $25,290 (in-state) $40,940 (out-of-state)
• Average Total Cost of Private Colleges: $50,900
• More than 19.9 million students are projected to attend American colleges and universities in fall 2018, with around 6.7 million going to two-year institutions and 13.3 million going to four-year institutions.
• The majority of students pay between $6,000 and $15,000 in tuition for both public and private schools in the United States.

The average student debt is around $31,000 at face value. The average of $31,000 in student debt can then increase to $42,000 because the average interest on student loans is 4.53%  if the student takes more than seven years to pay the entirety of its debt.  As previously noted, participants attributed the high cost of tuition to two main accounting issues: increased demand from students and increased maintenance costs. However, the cultural climate also affects the cost of college. Understanding the problem as an economic one means taking into account the cultural habit of feeling a college education to be imperative to job success. This study suggests and advocates for not only a decrease in the price of college tuition, but also the destigmatization of technical schools and vocations. However, there have also been costs to college which have not been that justified such as heavy marketing campaign to attract more students and gain a bigger profit or charging students excessive amounts to live on campus; according to College Board room and board fees can go from $3,540 to $11,580, and moving off-campus and having roommates can cut those costs in half. As seen with the previous information we can see that there are accounting problems that lead colleges to bloat.

It is important to note that this study has only analyzed the perspective of eight different people. Though it is true that these eight are experts in their respective fields, at the end of the day, they make up only a small sample. This might have led to some overlooked possible solutions to address how the cost of college could be reduced. I personally think that it is important to analyze the previous information given by this study and to do further studies that look at the future from the perspective of people that earned a degree at a technical institution; in this way the myth of college as indispensable could be debunked. Finally the second solution proposed is to encourage the universities to make audits as often as possible to ensure that their expenses are justified. This would finally lead colleges to decrease expenses because they would have more competition from cheaper alternatives and would try to be more frugal with their expenses.

References

Biffl, G., & Issac, J. (2002). Should Higher Education Students Pay Tuition Fees? European Journal of Education, 37(4), 433–455. doi:10.1111/1467-3435.00120

Dominic J. Brewer, (2014) Tuition and Fees, Higher Education. (2014). Encyclopedia of Education Economics & Finance. doi:10.4135/9781483346595

Rahman, M. (2018). Approaches to Managing Costs in American Higher Education. Journal of Knowledge Globalization. doi: 10.1093/oso/9780190863494.003.0003

Thelin, J. R. (2015). Why Did College Cost So Little? Affordability and Higher Education a Century Ago. Society, 52(6), 585–589. doi:10.1007/s12115-015-9953-8

Williamson, T. (2018). An Exploration of Administrative Bloat in American Higher        Education. Planning for Higher Education Journal. doi: 10.1093/oso/878012453494.003.0004