Are Pittman and Haughwout (1987) suggested that the relationship

Are
Public subsidies to individual consumers an effective policy in increasing
access for middle income groups to Higher Education in the US?

A recent shift in the allocation of
public expenditure towards higher education prompts several questions: who
benefits from the these expenditures? What is the best means of financing
higher education? This paper attempts to provide answers to these questions and
to evaluate the relationship between subsidies and access for higher education
in the middle-income groups, specifically in the US.

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For
the past 30 years, the average tuition fees for higher education in the United
States of America has been rising by an approximate 6% more than the inflation
rate each year, outdoing the yearly increase in median wage rates making
college education unaffordable for many families without external funding through
private scholarships, public scholarships and loans (Schoen, 2015). The reasons for
public offices to reduce this gap of affordability includes the role of
education as an instrument of “equality” and also the fact that education is a
mixed good involving substantial external benefits (Musgrave,
1976).
This responsibility of the public offices raises the question of the method to
be used in reducing the gap of affordability: Private financing or public
financing? More specifically, are government subsidies to individual consumers
in the Higher Education market an effective instrument in reducing the
deadweight loss to society found in the form of fewer middle income families
having access to higher education?

Size
and poverty level are two school background variables that have been
investigated. Cibulka (1986) found that size and poverty level of Wisconsin
school districts correlated with dropout rates. Toles, Schulz, and Rice (1986)
ranked dropout rates for Chicago high schools after accounting for gender,
race, age, and achievement. Pittman and Haughwout (1987) suggested that the
relationship between dropout rates and school size is attributable to school climate
including student participation and crime. (Fetlar) On the other hand,
schools are complex institutions, and greater size may incur administrative
difficulties. Larger size would not necessarily facilitate the handling of problems
associated with discipline and safety. (Fetlar)

From
the data gathered from Berea College in Central Kentucky by Ralph Stinebrickner
and Todd Stinebrickner, it was revealed that due to the presence of a full
tuition subsidy (and large room and board subsidies) for all matriculating
students. that approximately 50 percent of matriculating students fail to
graduate (and few transfer) strongly suggests that factors other than direct
costs are crucial in determining the drop-out decision. (Stinebrickner)

The Massachusetts’ Adams Scholarship was introduced as an In-Kind
Subsidy. Two important things were noticed. First, although the scholarship
increased the number of students enrolling in the States, it did not have an
ultimate impact on the probability of students earning a degree in the State.
Second, none of the increased enrollment in community colleges translate into increased
completion of a two-year college degree. (Goodman)

It
must be noticed that merit aid attracts academically superior students who
enhance other institutional quality measures such as graduation rates and job
placement rates. As the attendance cost increases, it becomes difficult to
provide access to a diverse population of incoming students. (Stater) Therefore, one
solution could be that a greater emphasis is put on need based merit awards,
providing access to low income and underrepresented students.

Private
financial institutions are the primary providers of college savings funds and
this is a good thing for two reasons. First, the private sector has the most
expertise in developing and marketing mutual funds, tax-exempt financing, other
financial instruments that can be used to save money for college. It is
probably better to draw upon this private sector experience than to have
governments experiment in this regard. Second, for the middle- and upper-income
families who are most likely to participate and benefit from savings programs,
subsidies remain the best option. (Hauptman) This implies that
the federal govt. should act as a promoter and sponsor rather than a
subsidizer. The government should encourage families to begin saving earlier
for college, and should provide necessary information about the right saving
and investment opportunities. At the same time, the government’s role could be
used to target the neediest students with the federal funds.

It
is also important to notice that the environment at home for a student coming
from a low-income background will vary from that of a student belonging from a high-income
background. It is certainly true that ACT scores to some extent also capture
the amount of learning that takes place during a student’s youth. The test
scores of students from low-income families will tend to understate these
students’ inherent ability if students from low-income families suffer on
average from inferior learning environments when young. (Stinebrickner R. S.) For example, the
math portion of the ACT exam certainly measures a person’s quantitative
background and ability, but is likely to only indirectly indicate whether an
individual had the opportunity to take a calculus class while in high school. This
suggests that family environment factors may be the driving force in
determining the strong relationship that has consistently been found between
family income and college outcomes. (Stater)

            What
we may derive from these studies is that although the “sticker” price of
colleges may be the overarching barrier for middle income families, it is not
the “true cost” facing these families. Colleges more frequently practice price
discrimination in favour of of students with higher aptitudes as measured by
standardized tests, which often under appreciates students of merit from low
income families through the typical means of assessing aptitude. An approach
which attempts to join students of merit with the available private
scholarships and bursaries, is more effective than one where the policy is
centralised in reducing the “sticker” costs down to an affordable price. Public
subsidies in this market although is a straightforward method of increasing
access to middle income families, such a policy has proven to be ineffective as
the chance of these students graduating is low and hence there is only a
marginal increase in the number of graduates after a very expensive subsidy
scheme. This report boils down to the fact that the sheer amount of funds
available do not efficiently fill the dead weight loss to society, but rather
the public office should work as an agent which conveys the necessary
information between funding providers and students of merit.

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