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College enrollment: parental wealth could become crucial

By on 29 November 2016

As an increasing amount of European countries increase tuition fees for students, it has become a more relevant issue: funding of education. Therefore two recent studies on the affordability of the relatively expensive American higher education are interesting: it appears that parental wealth does matter a lot in the USA.

Those who want to study in the USA rely on parental wealth most of the time. As the parents’ income rises, evidently so does the likelihood that their child will get a higher education. However, that is unlikely when winning a lottery.

To determine which factors influence the enrollment of young adults in American higher education, this year a research team from the American Duke University in Durham, North Carolina and the University of Massachusetts in Amherst, Massachusetts studied their and their parent’s financial position. The team focused on two measuring points: when children are eighteen and later when they are twenty-five. The study included data from nearly 8,000 US children.

Main findings

The main findings from the report published in late October 2016:

  • The major positive effect on enrollments in higher education is noticeable among children with parents experiencing an income rise and negative home equity. A $10,000 increase in parental income then increases the probability of children attending college with transfers by 15.7%.
  • A $10,000 increase in parental income increases the probability of children attending college with transfers by 5.27% for parents with an increasing salary and a positive home equity.
  • There is also an increased likelihood if only the parents’ home equity increases. A $10,000 increase in home equity increases the probability of children’s college enrollment by 0.22%.

Lottery

Winning a lottery has – maybe surprisingly – had little impact on the enrollment of American children in higher education. According to a study by the National Bureau of Economic Research in Cambridge, published in September 2016, the difference is negligible if the lottery leaves you with less than $100,000.

Only with jackpots of over one million dollars, the probability of college enrollment increase significantly: for every additional million dollars, there is a probable increase of 10% that a child also has educational benefits from the increased prosperity of his parents. A positive effect which is less pronounced for parents who have a lower socioeconomic status.

Also in Europe?

Studying in the US is relatively expensive: for a student, studying at an average American college amounts to around $ 40,000 annually. Moreover, this figure is increasing: average tuition at public universities rapidly increased by nearly thirty percent in the past five years. As a result, more and more Americans have no choice but to decide not to follow higher education.

According to statistics of the European Commission, college costs vary considerably for students in Europe. But the overall trend is that European study costs slowly increase. For example in England, tuition fees increased to a new base of £ 6000 and a maximum tuition fee of £ 9000 (€ 10.560). It made the country the most expensive EU member state to go to college. British students still can make use of a loan system though, enabling them to get funding for the tuition fee and pay it back after study.  

In the Netherlands a basic government grant made it quite easy for students to pay their costs. But since a loan system was introduced in September 2015, college became also more expensive. The consequences were already visible the same year: data of the national Ministry of Education show the number of students enrolled in higher education in 2015 has decreased by 6.8% compared to 2014. The highest decline in registrations of children was amongst students with poorly educated parents. In fact, a drop of fifteen percent.

Until recent years, the Nordic countries didn’t demand tuition costs from students at all. But now, Finland, Denmark and Sweden all have introduced tuition fees for foreign students. For native students enrollment is still for free.

No reason for concern (yet)

Below you see an infographic showing study costs per EU country. The infographic is fine, except for the fact that the creator forgot the English currency is the pound. So the < € 9000 mentioned should in fact be < € 10.600.

It shows that for now we don’t have to fear the average costs American students are struggling with. Besides the Nordics, also most of Central and Eastern Europe do not demand tuition fees. But if costs keep continue to rise like they did in other European countries, parental wealth could well become an important factor.

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Bas van Essen
Frankfurt

Savingsmonitor is a news blog reporting about savings behavior and statistics across whole the European Union. Bas van Essen is responsible for the content. Bas is a former business reporter, who covered the Dutch startup scene, the job market and personal finance. Bas served the Dutch Financial Times ('Financieele Dagblad'), the Dutch 'Financiële Telegraaf', Sprout.nl, Intermediair.nl and IDG. He followed a Master Communication Science and MBA Big Data & Business Analytics at the University of Amsterdam.