Changing Horizons as a Function of Limits on Certain Growth in American Higher Education

Paul Andreas Fischer

4/30/2016

Professor Anastasia Wilson

Changing Horizons as a Function of Limits on Certain Growth in American Higher Education

Student loans initiated at the height of the Cold War as a way of continuing private expansion of the academic system as government resources were gobbled up in the form of a developing arms race. These were successful, and allowed in a stagnant industrial economy, transfer of funds and resources to be reinvested into the expanding economy.  Government organizations were able to recruit and utilize graduates. The factors of production which were present in the previous generation fulfilled in spirit and reality the goals of the students in their educational system. While environmental toxins such as lead exposure decreased the available optimal brainpower of the nation relative to healthcare and other considerations, technological advances meant that the raw resources or intellect necessitated by such a massive expansion of the academic system were available.

The purpose of government involvement in the entrepreneurial industry is one which is meant to be symbiotic. As a solution to student debt, service learning programs unsuccessfully implemented in South Africa but more successfully implemented in the GI bill and Peace Corps in the United States will be analyzed. The aversion of state competition with the private sector will be seen to be critical to deconstruction of these divergent results. In the case of BEC, a state-run electronics firm in the 1970s, the company became a “training ground for engineers” and represents a trend which is emphasized in the role of higher education (Evans 1995, 130).

The presence of mass demonstrations on the topic of student debt today is ironical. The generation preceding the student loans had protested the failure to commoditize schooling, and these rights were closely tied in grade and high school to the feminist movement. Teachers had been only paid a token wage, prior to the expansion described during the next generation. This paper will identify the contemporary limits on growth in the academic sector after offering a selective review of how these limits were approached during the age of expanding student debt and under what levels of growth student debt can increase expansion, be forced to contract, or maintain a constant rate of development.

What Constitutes Interest on a Student Loan

Real interest rate is naturally inversely related to inflation during times of technological shock. Without a change in the factors of production necessitated by technological shock, inflation can occur without impacting output (Rudebusche 2010, 13). The nature of conglomerated series of loans, including student loans, have two primary determining factors in the amount individual holders of these endeavors can expect to receive in return for their lending capacity. Both of these play a role in the evaluation of the historical development of student loans as well as their current and future optimal interest rates.

Firstly, the amount of money supplied is positively correlated with the rate of return under normal economic conditions. More money, relative to the general economy, means a greater bargaining position and greater returns. With a smaller amount of initial capital relative to the emerging economy, expiring corporations or individuals can expect a lower return and bargaining power in negotiating interest rates. Secondly, the return which borrowers expect to receive from the funds that are made available is positively correlated with the interest rate. Exceptions to this rule can be made for the sake of security in investment, but in a combined loan setting, that factor loses importance.

Historical Application of Student Interest Rates

At the onset of student loans, the factors of production which were used to create the economy remained the same. This meant the resale value of these factors of production, at the time steel and oil, retained their relative economic importance. When expiring corporations or individuals paid taxes or went to banks with money to distribute in the form of loans, their bargaining position was relatively high. Students could be asked to share a greater part of the economic burden of training because forecasts to the nature of technological progress indicated that the factors of production they would need in the workplace were already extant, or at least cheap to build using resources utilized by the previous generation. This all resulted in mobility, though not a complete shift, of educational funding from government grants to loans (Subotsky 1999, 414).

What has occurred in the last generation is unprecedented in the history of industrialized economies, except perhaps by the progress from wooden looms and sailing ships to dreadnoughts and automatically powered factories. Students are being trained today so that they will build their own factors of production, which are more efficient and create greater wealth with a focus on innovation (Coad 2008, 646). More importantly, a different array of inputs are necessary to build the contemporary economy. As computers have shrunk in size and cost, while increasing in productivity, the value of the components which are necessary to maintain a certain level of output and growth has dropped. Where low-skilled labor was once a necessity, today the high-tech industries have made a higher education critical to the survival of an economy, or an individual (Berman 1997, 1246). Morphological change in the cross-index of resource utilization and resource arrays is a phenomenon which has had a significant impact on utilization of resources across many industries, indicated in the expansion of boundary roles in the modern economy (Aldrich 1977, 222).

The way this translates into actual student loan interest rates and returns as well as overall funding for educational endeavors can be seen with actual student debt data. From an initial system of higher education which did not include student loans but did not service all capable students, “within a decade average undergraduate student loan debt in 2002 was $18,900. It more than doubled from 1992, when it was $9,200” (Williams 2006, 157). This does not match with the models described above about interest rates and changing factors of production; the expansion of the academic sector to meet the new demands of innovation previously described does provide some offset to the evaluation. The discrepancy between relative initial capital provided and desired premium is the market inefficiency which is described in a contemporary setting by this work.

Use of Advertising, Taxation, or Economic and Social Policies to Confound or Exacerbate Results

The expansion of higher education in the United States has included significant advertising campaigns by corporations and universities to new consumers, who now, through student loans, have the capability of making such an investment. Universities prepare and evaluate a given product in the intellectual capacity of graduates. One of the best examples of the market inefficiencies in student loans is the changing rate of growth in student defaults, which matches the historical timeline for the economic switch to high-tech methods of production precisely (Hillman 2014, 173). Flatlining until the mid-2000s, the loans became impossible to pay back for an extra 5-10% of borrowing students. This is because the factors of production for the previous generations have changed dramatically, and the bargaining positions of the lenders have not changed in actuality with the relative importance of the goods, whether factories and methods of production or raw materials, which are being exchanged for a return on students’ productive capacity, now expected to be much higher and require different sets of inputs to previous generations.

Many universities receive a significant proportion of funding through government grants or programs, making issues of taxation appear to be irrelevant to this discussion. In such a subsidized system, however, in which the government enjoys a commensal relationship, dropping government funding actually amounts to an economic shock in the same manner that a sudden tax on any other industry could exercise. This is perhaps the most terrifying aspect of this research: a market inefficiency can be fixed with shifting economic horizons, through degrading or exporting factors of production and by limiting forecasts on growth by institution of economic policies to emphasize security. A strangling tax however, goes beyond this quid pro quo negotiation of relative bargaining power and could threaten to end academic institutions, as well as the government and industries reliant on the material talent produced in turn. In recent history programs including the Peace Corps and grant funding, lauded for their unconventional societal benefits (Williams 2006, 167), have regressed. 

Even though research suggests, as pointed out earlier in this section, that the student default rates have increased despite demographic or socioeconomic factors, there are also economic and social policies which have been shown to play a distinct role in the nature of higher education. At first, this seems to subvert the nature of higher education in measuring productive and intellectual capacity of students as they are being trained. Dealing with the extremes of intellectual capacity, as higher education does, IQ plays some role in the eventual income and ability of students to pay back loans (Bowles 2014, 9). Education and parenting play a far greater role, however, and as a measure of success in accessibility, research shows that segregation is not appropriately decreasing (Ong 2013, 270), which as the academic system expands into new demographic markets at greater rates may explain how default rates may increase even as more funds have become concretely available.

Distinctions Within Advantages of Entrepreneurial and For-Profit Universities and Colleges

One method of maintaining the spirit and perhaps even the growth of the entrepreneurial university which is offered and proposed by Subotsky is the initiation of community-service learning programs. There are both positive and negative externalities which are explored in that research, and become apparent after review of research. The goal of “the academic, the practical, and the civic… few reach it” (Subotsky 1999, 428), which adds to certain liability in these programs when compared to inefficient methods of educational standards which have the security of proven benefits. Generations of students lacking boundary roles may face similar aggregate problems in accessibility and matching roles in the actual work setting (Aldrich 1977, 228).

The directional impact of an implied tax on higher education did not strangle the economy. Despite increasing student default rates, the total amounts paid back by all students are greater. This supports earlier analysis of an increasing economic potential in the new economy. There is simply a disequilibrium which has been created by the changing bargaining position of lenders and lack of government support to make up for this gap. In the work of Subotsky, South African schools are shown to represent an example of a situation where the “redistribution and reconstruction” aspects of higher education can be at odds with the nature of entrepreneurial universities necessary to ensure growth, creating a unique paradox which must be delineated within a larger American analysis, that can be found here, through the advent high tech industries and changing factors of production (Subotsky 1999, 412).

Lessons in a Developing Economy Contribute to the Solution in a Developed Economy

The nature of the solution to a coming, and many would argue already present, student loan crisis can be a combination of cutting interest rates and expanding community service programs. While many economic programs or policies may not work in conjunction together, the actuality of the relationship between these two would be certainly synergistic in nature. A negative example of competition can be found in COBRA, a state institution which began, “selling commodity hardware in competition with Brazilian firms” and crippling the motivation of growth in both fields after decades of high-tech growth in 1989 (Evans 1995, 129). It would take the Brazilian high-tech industry throughout the 90s to recover from incipient, albeit natural, corruption. Factors of production are critical in evaluation of such shifting models. 

In South Africa, the economic inputs have remained constant, so redistributing wealth while investing in entrepreneurial universities plays at odds with each other. The role of the government in that case was inefficient and as can be seen in C-DOT, a company “able to play technological midwife to potential private-sector producers of electronic equipment rather than confronting them as competitors,” missed the direct role of such programs in the industry (Evans 1995, 135). In the United States, a moment of economic transformation has taken and is taking place. Consequently community service programs can actually accelerate this process with ample room to spare without impairing the ability of entrepreneurial universities to train and graduate high quality workers into a dynamically growing economy. 

The phenomenon described here is rather simplistic in nature but is critical to understanding and developing a feasible solution for the prevention of a legitimate student loan crisis which America may face in coming years given current policy decisions. As the former inputs and factors of production retain their value, a greater bargaining position is exercised by lenders, and students can expect employment through simple reprocessing of these factories or materials. This means greater interest rates such as those set in recent years on American student loans can be demanded at market equilibrium. Failure to do so and enforcement of service learning programs, which actually occurred in South Africa, compounds the demands of entrepreneurial market economies and creates inefficiencies as the programs eat up employment, factors of production, and material inputs which can still retain economic value. Student production cannot be as valuable as that provided by professional workers, and the opportunity cost of these endeavors skyrockets in relative terms.

Conversely, as a technological shock is experienced, such as that proven earlier in the United States, declining interest rates can be moderated at mutual benefit by implementation and expansion of service learning programs which eliminate liabilities and enhance assets of lenders, ie. taxpayers. An example of this in play is the Computer Maintenance corporation in India, which recycled hundreds of engineers from the departing IBM, showing how, “in a high-tech version of the state’s traditional role as a provider of infrastructure, state firms may have advantages over both local private firms and TNCs” (Evans 1995, 132). The factors of production which could form a substantial portion of lenders’ funds to students have now been made useless by the described economic conditions. Service learning provides students with the opportunity to train and reduces liability or helps to transform toxic assets into those useable by the new economy while placing the state in a role where it has a comparative advantage, rather than in an arena in which extraneous use of resources may be guaranteed. The limits to such an expansion are only moderated by the extent of implementation of new economic models and systems of production.

Integral Components in Forecasts for Coming Economic Evaluations of Higher Education and Summation

This research has successfully explored several options for higher education in the future and has made the evaluation with a proof of the necessity for dropping interest rates in the United States effective immediately. The symptoms for this include the increasing student debt combined with increased total defaults as well as total repayment figures. The consequences of these factors in play holding current advances in technology constant, assuming no regressions, are increasing total economic productivity regardless of policy change and dramatically shifting efficiency of that productivity based on changing levels of boundary roles. Categorical reminiscence of the original goals and objectives of student loans in the United States is useless when the factors of production are changing dramatically.

Rules of thumb or prospective nuclear evaluations of the excellent relationship between allegorical social pressures on the economic system cannot be integrated as an analogy to contemporary economic rules. New make-ups of IQ, social demographics of graduating students, and most importantly a shifting array of economic inputs for the economic system are dramatically changing the fashion in which the entrepreneurial university has a relationship with the state in the educational sector. Further research could investigate the nature in which, amongst institutions of higher education, the state can expand its role in a convergent manner, playing an infrastructural role, rather than operating as a competitive entity.

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