Research Of The Determinants Of Inflation In Education Costs

Research Background

The purpose of this research is to fill in and examine the behavior of prices with reference to the macroeconomic indicator that is inflation and to assist the common folk with regards to personal finance as far as education is concerned. Education is deemed to be the most sought after pursuit in today’s society. The demand for education grows more and more imperative with the rise in supply and artificially inflated want for the same. Higher education tuition costs have substantially grown to an extent where it is now a matter of considerable public apprehension. How did something that was soaring at a snail’s pace, shoot up faster than all the other consumer products and/or services? Gone are the days when attaining a four-year graduate degree was deemed to be a luxury to a major chunk of a relatively robust economy. A high school diploma today barely even qualifies for any menial work in the job market.

Since getting out of recession in the previous decade was in itself a hard battle to fight, it came as no surprise that an economy which was close to being sunk would opt for fiscal austerity. According to an article in the New York Times, the changes in tuition costs at public institutions hold profound impact on the degree of financing that the very same institutions receive from state and local governments. That is, as and when state and/or local aid for public colleges diminish, it causes a hike in its tuition and fees. A CNBC study tells us that the average tuition fare has risen by 213 percent from thirty years ago for the 2017-2018 school year. The very same rise in fees hold no exception to private schools. Moreover, it has skyrocketed to an extent where; to put the figures into perspective, the current fees cost more than double and a half times as much as it used to cost roughly three decades ago, giving a mark up of 163 percent.

With degrees becoming an essential prerequisite to power a better world, how are children who do not fall in the upper strata of talent and money going to afford for it? Universities do hold a place for such students, but for different reasons. It is no wonder that student loans come off as the largest portion of the country’s non-housing debt. Repaying the debt has been primarily challenging as a result of a colossal shrink in the job market. The dissociation between the relative eight-fold increase in tuition fare and wages have only made matters worse, propelling the young adult generation to the verge of being cash negative barely enabling them to meet their ends. The focus of the paper therefore accentuates on recognizing the determinants of inflation in education costs and form an analysis for the same.

Problem Statement

The aim of our research is to ascertain why education inflation holds such a manifold effect. So much so that it doubles much more than that of General Inflation. Through this research we intend to seek a better understanding of the relationship that exists between the Higher Education Price Index(HEPI) and its key drivers. This shall provide an accurate indication of the changes in Higher Education costs and the reason behind the upsurge.

Review of Literature:

(https://thescholarshipsystem. com/blog-for-students-families/the-real-reasons-why-college-tuition-is-so-high-and-what-you-can-do-about-it/)

From a recent radio series that took place at the National Public Radio, US, it was inferred that universities are required to get the finances from someplace, in order for them to compensate for their lost funding from state appropriations. Whereas a paper from the Federal Reserve Bank of New York had implied that colleges were raising their costs because the government was extending loans to students. But essentially, according to the New York Times Magazine, the single biggest cost driver behind the upsurge has been that the very same tuition allows them to “up” their student bodies. In order for them to recruit exactly the type of students they wish to accept by offering them tuition discounts. Moreover, it further enunciates that the entire process is loosely based on math and the law of probability. It states that when a School charges a tuition of as high as $50,000 only a handful are able to afford the same, which is when the competitive tests and accomplishments are brought in. To add on, it further states that colleges increase tuition even more because they know financial aid given by the government can cover the difference. When a frame up like this is put in place, the aid shall cover a lot more than just the tuition. But if the aid did not prevail in the first place, the tuition wouldn't have soared up alarmingly.

(https://gentwenty. com/education-inflation-are-we-an-over-educated-generation/)

With reference to another article about “Education Inflation”, it is deduced that the rise in the number of college graduates holds an inverse relationship with the value embedded in the degree they hold.

(https://www. mhec. org/sites/default/files/resources/mhec_affordability_series7_20180730_2. pdf)

Robert B. Archibald and David H. Feldman in their journal describe forces like general subsidies, change in national distribution of income and state appropriations and how they impact the rising college costs. The major three drivers include references to Baumol’s Cost disease; universities’ prerequisite to be in tandem with the rising standards of learning and the costs associated with the demand for hiring highly learned workforce.

(http://citeseerx. ist. psu. edu/viewdoc/download?doi=10. 1. 1. 656. 7716&rep=rep1&type=pdf)

Robert J Barro’s journal which is titled as “Education and Economic Growth”, emphasizes on “human capital” as a strong determinant of economic growth as far as education is concerned. According to the book 'The Credential Society: A Historical Sociology of Education and Stratification” by Randall Collins, it was gathered that Credential Inflation was the sole economic cause for college costs to increase.

(https://heinonline. org/HOL/LandingPage?handle=hein. journals/cjlpp20&div=5&id=&page=&t=1561211014)

An article on “Options for Student Borrowers” suggested that improving market transparency and various potential bubbles has been an imperative nucleus of concern. Universities and Student loan markets have come under high levels of inspection as they portray many of the traits of a potential bubble like the housing. The federal government has been successful in distorting higher education market while improving substantially lower and middle-class loans through freely extended funding from the federal government. Surging education costs has only encumbered an entire generation of juvenile Americans with cumbersome student loan debt.

(https://www. nber. org/chapters/c6088. pdf)

In connection with “Cost Inflation” by Malcolm Getz, John J. Siegfried it is inferred that there was a drastic shift in student preferences as far as college degree was concerned. The market witnessed a rapid increase in the number of students who wished to pursue engineering and business degrees. Science and commerce related degrees are relatively high-priced in comparison with other art degrees.

(https://inflationdata. com/Inflation/Inflation_Articles/Education_Inflation. asp)

An article on “Sky Rocketing Education Costs” further insinuates that the reason behind increased tuition costs is a further rise in overhead costs. The demand for better on-campus amenities has a direct impact on the overall college costs under the tag of “Capital Renewal Fees”. The rise in student debts will lead to a cascading effect on the financial fragility in retirement. The study intends to emphasize the aspects of seasonality in Consumer Price Index for education in India. Due to general constraints of feasibility

Research Gap:

Until now, the relationship that exists between the Consumer Price Index (CPI) for Education across India and its cost drivers has been specified in vague terms. The question of whether the benefits of a college degree in the era of spiky student debt and high unemployment outweigh the financial burden imposed by four or more years of college is yet to be addressed. In this work, the determinants of rising tuition inflation shall be examined and analyzed based on information and parameters that are easily accessible and measurable at a regional scale. The study shall therefore be confined to price inflation of tuition costs in Christ University, Main campus in the past 10 years.

Scope and Limitations:

The proposed research project is extremely complex and supposedly one of its kind, as the study of tuition inflation seems to attract immense researcher interest. The outcomes of the study is however limited to data on courses offered by Christ University, Main campus only due to feasibility constraints. The conduct of the study shall therefore involve the examination of Consumer Price Index (CPI) for Education as the Index pertains to colleges in India and not Higher Education Price Index (HEPI) as HEPI is confined to colleges and universities in America only.

Research Questions:

What are the key cost drivers responsible for driving Consumer Price Index (CPI) of Education across India?

How and why is annual tuition inflation outpacing consumer price inflation of other service sector industries?

Whether a cost disease is prevalent and instrumental in College Tuition price rise?

Research Objectives:

This research will aim to study, examine and analyze the aspects of seasonality in Consumer Price Index (CPI) for Education in order to gain a comprehensive understanding of the discipline. The objectives of the same are mentioned as follows:

• To examine and study the major cost drivers of Consumer Price Index (CPI) for Education and the impact of its components.
• To identify the existence and exaggerated role of a cost disease in surging college Tuition prices.
• To ascertain the extent to which higher education costs and price increases are similar to other service sector industries.

Research Methodology:

Research Design: The research conducted would be based on a Comprehensive Case Study Method as the study shall be confined to data from one single college (Christ University, Main campus). Sample: Sample Design - The sample design for the research conducted would be a Systematic Probability Sampling Design as it is most suited for the prevailing study involving a large population. Sampling Frame - The sampling frame comprises of all the courses offered by Christ University, Main campus. Sample size - With 103 courses (population size) being offered in the main campus alone, the appropriate sample size shall be 30. Data Collection: The research shall involve both primary (interviews, questionnaires) and secondary (university websites) data collection. Variables: In this study Consumer Price Index for Education is taken as the dependent variable while the determinants of tuition inflation will be the independent variables.

Expected Outcome:

The present research study seeks to offer valid explanations and solutions as to why and how tuition inflation outpaces general consumer inflation to students and future university-goers. Through a mixed approach (i. e both quantitative and qualitative approach) it seeks to check and confirm the relationship between the determinants of Tuition Inflation and Consumer Price Index (CPI) for Education and also determine the existence of a cost disease and its impact on the rapid increase in the price of tuition. The proposed study shall enlighten students, parents and the education-seeking community in the aspects of the seasonal factors impacting tuition price rise and enable them in making informed decisions as far as education is concerned.