Higher Wealth Inequity Possible as Education Costs Rise: Economists
The rising cost of education and limited access to financial aid could create a less productive workforce and more inequity, according to a study by economists.
Students with low-income parents are discovering that it is more difficult to find funds to pay for a college education now compared to students of similar economic backgrounds in the 1980s, said Alexander Monge-Naranjo, assistant professor of economics at Penn State.
"The consensus was that in the 1980s, credit constraints didn't seem to matter for those who went to college," said Monge-Naranjo.
"But according to the latest data, we see family income and parental wealth are making a big difference in who is attending college."
Monge-Naranjo outlined several reasons as to why the costs of education rose.
- Over the last two decades, more higher-paying jobs required a college degree.
- The higher demand for a college education led universities to increased tuition.
- Money available through government loan programs remained flat or, when adjusting for in inflation, declined.
The findings reveal that the percentage of undergraduates who borrowed from government lending programs increased significantly. Students that maxed out their loans tripled to 52 percent during the 1990s compared to the previous decade, while many other students went through private lenders.
Credit constraints, and factors that limit financial access to college funding such as caps on financial assistance and family income in the 1980s did not significantly stop students from attending college once the researchers controlled for other factors, such as SAT score, age and race, said Monge-Naranjo.
Even poor students who had little financial resources to pay for college, but who were smart, could access credit to pursue an education, he said.
The researchers explained that in the 1990s as more low-income students started struggling to access credit to pay for a college; youths from high-income families were 16 percent more likely to attend college than youths from low-income families.
Both Monge-Naranjo and Lance Lochner , associate professor, Western economics and director, CIBC Centre for Human Capital and Productivity, University of Western Ontario, used the most recent data from the National Longitudinal Surveys of Youth and the Armed Forces Qualifying Test to examine the relationships between intelligence, family income and college attendance.
Monge-Naranjo explained that when poor but intelligent workers are unable to earn a college degree, their career choices are restricted.
"It's a matter of economic efficiency," said Monge-Naranjo.
"Are we choosing the best individuals for the job, or just the individual whose parents are wealthy? In the long-term that may have an effect on the economy, although it may take a couple of generations to find out and, even then, perhaps be hard to quantify."