Higher Education Strategy Associates

April 28

Trust, Transparency, and Need-Based Aid

If you look around the world at the kinds of subsidies made available to students, you’ll be struck by the fact that there are two very large chunks of the world where need-based aid isn’t the dominant form: post-Socialist Europe and Africa.  The reasons for this boil down to a simple issue: trust.

In the post-socialist countries, the preference for merit-based aid over need-based aid is a relatively recent affair.  Prior to 1990, access to university was restricted both in absolute numbers and on ideological grounds: in order to attend university one had to have correct “origins”.  This was another way of saying that if your family was considered too bourgeois, you weren’t allowed to attend (Vaclav Havel, for instance, was denied entrance to university on these grounds).  Though regimes eased up on this somewhat as the 70s and 80s progressed, class origins continued to play a role in admissions up to the end of the regime.

So when it came time for new, post-socialist regimes to come up with student aid policies, there was considerable suspicion about anything that looked like it discriminated based on something like class.  Preferences based on parental characteristics, quite simply, were too tainted by communism to be a viable political project: nobody trusted government to discriminate between students based on something like income.  Merit-based aid, on the other hand, was not so burdened by history, and gave the appearance of being “objective” in the sense that exam results were measured in a consistent way across the country, and could easily be used to differentiate between students.  The results, in a word, were trustworthy.

In Africa, the trust problem is slightly more complex, and less tractable.  There, the state lacks the ability to monitor individuals’ income and consumption through the tax system.  Trying to run a need-based system of aid without means of income verification is difficult, to say the least (in bits of Eastern Europe – especially Russia – income verification poses the opposite problem in that people are reticent about providing documentation that would help the government verify income).  Without income verification, need-based systems tend to rely on proxies like ownership of land or livestock, which is either very complicated or impossible to verify.  These systems quickly fall into disrepute: because it is possible to cheat them, everyone comes to assume that those who receive need-based aid have cheated.  And so again, something simple and transparent – like merit as measured through examination results – becomes the de facto standard.  Everybody knows it’s ludicrously regressive, because the awards inevitably go to students from families rich enough to pay many multiples of university tuition to attend the best secondary schools, but at least it’s transparent and not corrupt.

Japan has a similar issue: it has no need-based grants, because no one trusts that the tax system accurately captures parental income.  It does, however, have a need-based loan system.  When I asked someone senior there about why they trusted need-testing for one and not the other, he simply said “because people pay back the loans”.

All of which is to say that need-based aid requires that students and families trust that state institutions will deal with them fairly, and state institutions need to trust that families won’t try to lie to them (or, at least, have reasonably robust measures of discovering lies).  In Canada, we take this for granted, but we shouldn’t.   Without trust, and the transparency that tax-based verification tools provide, need-based aid simply wouldn’t exist.

April 27

McGill vs. UBC

In eastern parts of the country, if you use the words “the three best universities in Canada”, they look at you slightly oddly.  They know you mean U of T and McGill, but they’re not 100% sure who the third one is.  “UBC?” they ask, uncertainly. This is pure eastern myopia.  Today, I will advance the proposition that by most measures, UBC is substantially ahead of McGill, and is in fact the country’s #2 university.

Let’s start with some statistics on size, just to orient ourselves. UBC is the slightly bigger institution, and at both institutions graduate students account for about 26% of all FTEs.

Enrolment and Academic Staff Complement, UBC vs. McGill

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Now let’s look at money.  The two institutions have similar-sized endowments, a shade over $1.3 Billion, which is a point in McGill’s favour when adjusted for student body size.  When it comes to operating budget, however, there is simply no comparison: UBC’s has a total budget of $2.2 billion, and an operating budget of $1.1 billion; the equivalent for McGill is  $1.4 billion and $620 million.  On an unadjusted basis, UBC takes in $58,500 per FTE student, to McGill’s $40,493 – a 44% gap in UBC’s favour.  If we adjust for student body composition – that is, convert all FTE’s into Weighted FTEs based on field of study, and use the weights used by the Quebec government (see here for more details) – then the gap actually increases somewhat to 48%.  Point UBC.

Figure 1: Total Income per Student and per Weighted Student Unit, 2011-12, UBC vs. McGill














Now let’s look at some measures of research output, like bibliometrics.  This data is taken from the 2013-14 Leiden rankings, which is the most comprehensive publicly available list of bibliometric indicators.  On sheer volume of publications UBC wins, which probably isn’t surprising given its size.  But on measures of publication impact – normalized citation scores, and the percentage of papers among the 10% most-cited in its field in the past five years – UBC is ahead in both, as it is in the percentage of papers that involved collaboration with an industry.  Only in the category of papers with international collaborators does McGill come out on top.  Point UBC.

World Position in Leiden Rankings on Selected Bibliometric Indicators, UBC vs. McGill (Leiden Rankings, 2014-15)

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While we’re at the research output game, we might as well see what the “Big Three” (Shanghai ARWU, Times Higher, and QS) international rankings say, all of which are mostly based either on research or prestige (as measured by surveys of academics).  Two of the three say: point UBC

Positions in Major International Rankings, 2014/15, UBC vs. McGill

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Does faculty pay matter?  Here’s the most recent average pay data from the three institutions.  UBC wins again, by about 20% at the level of assistant profs, and 15% above that.  Still: point UBC.

Figure 2: Average academic staff pay by rank, UBC vs. McGill














Now this is from the Statistics Canada, Full-time University and College Academic Staff Survey, 2009-10.  And yes, that’s old, but it’s the last year for which we have data from both institutions because Statscan discontinued the survey, and as far as I know, the COU-led replacement survey hasn’t reported anything publicly yet.  And given both institutions’ limits on salary increases the last few years, I doubt the gap has changed much.

And of course, there’s student experience.  Here are the two universities compared on the main aspects of student satisfaction, using data from the final Canadian University Report.  These are scored on a 9-point scale.  Point: McGill.

Select Measures of Student Satisfaction, Canada

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In other words, UBC comes ahead on most measures.  And when you think about it, this isn’t all that surprising.  It has far more money than McGill, it has huge endowment lands, which represent a huge future income, and it is far better positioned to take advantage of the rise of Asia.  Arguably, given the imbalance in resources, the question is: why isn’t UBC even further ahead of McGill than it actually is? (Or, to reverse that: well done to McGill for being so efficient!)

To conclude: UBC is fairly clearly ahead of McGill – the question now is when will it overtake U of T?

April 24

A Fascinating Student Aid Experiment

One incredibly cool thing about this week’s budget is that it creates a policy experiment that may settle some age-old questions about financial barriers to education.  I speak of course of the abolition of the in-study income clawback.

When people talk about “financial barriers” to education, they are usually conflating two separate phenomena.  The first has to do with return on investment: if prices rise too high, students will say they are not interested because it’s more money than it’s worth.  Usually this is phrased as a matter of “I’ll to take on too much debt”, though the problem actually isn’t debt-related (borrowers and non-borrowers alike pay the same amount – a bad deal is no less crummy if you’re paying it out of pocket rather than resorting to loans).  The second has to do with liquidity: students might like to take a course, even if its expensive, but they simply can’t scrape together enough cash to pay the fees and keep body and soul together.  The solution to the first problem is to lower tuition and/or provide more grants.  The solution to the second problem could also be to provide more grants, but loans could probably achieve the same thing a whole lot more cheaply.

The thing is, when we talk about students having “financial barriers”, we never really specify which of these two phenomena is the main issue for students.  And this is a problem because it means we may not be getting the policy response right.  If a student has $20,000 in debt, and you have $1,000 to give them, does it make more sense to hand them the $1,000 and let them spend it how they like, or should you use it to reduce their debt?

The abolition of the in-study income clawback actually gives us a heaven-sent chance to understand how all of this works in practice.  The way the threshold currently works is that students get to pocket $100 a week with no clawback.  Everything above that amount is clawed-back at a rate of 100%.  In this way, up until now, work and loans have been perfect substitutes – working more doesn’t increase the amount of money you have to spend, it just means you have less debt.

But now, suddenly, work and loans are no longer substitutes.  Students who work just got handed a whole bunch more money in the form of larger eligibility for aid, which will usually be met through loans (though some will find their extra need met by remissible loans, which are essentially grants).  How they use it will tell us a lot about what students actually care about. If they keep all that new money – that is, if they maintain their work hours, take all the new loan money, and spend it – we can infer that the main issue for students is not debt, not return on investment, but liquidity.  On the other hand, if they choose not to borrow the extra money, it tells you that, in fact, debt and rate of return are the bigger issues.  Similarly, we can test sensitivity to borrowing by comparing the behaviour of students whose extra aid is made up of repayable loans vs. those whose loans will be forgiven: if there is no difference between the two, it’ll be a pretty good indication that students prioritize liquidity over lower debt.

For what it’s worth, my money’s on students caring more about the short-term than the long term: I predict they’ll take the extra money and spend it.  That will make life tougher for advocates of tuition reduction over greater loan remission: if the evidence suggests that students prefer to consume more in the short-term rather than save for the long-term, why should governments do anything other than provide greater liquidity through loans?

Though it probably isn’t what students had in mind when they lobbied for this measure, the learning opportunity afforded by this policy experiment is a golden one.  Let’s hope a research plan exists that will help us monitor the results so as to better understand students’ preferences.

April 23

The State is not Entrepreneurial

If you’re interested in innovation policy, and haven’t spent time under a rock for the last couple of years, you’ve probably heard of Mariana Mazzucato.  She’s the professor economics at the University of Sussex who wrote The Entrepreneurial State, which is rapidly becoming the source of an enormous number of errors as far as science and economic policy are concerned.

Mazzucato’s work got a fair bit of publicity when it was released for pointing out that a lot of private sector tech is an outgrowth of public sector-sponsored research.  She has a nice chapter, for instance, outlining how various components of the iPhone – the touchscreen, the GPS, the clickwheels, the batteries… hell, the internet itself – are based on research done by the US government.  This is absolutely bleeding obvious if you’re in science policy, but apparently people out there need to be reminded once in awhile, so Mazzucato found an audience.

Where Mazzucato goes wrong, however, is when she begins to draw inferences; for instance, she suggests that because the state funds “risky” research (i.e. research that no one else wold fund), it’s role in R&D is that of a “risk-taking” entity.  She also argues that since the state takes a leading position in the scientific development of some industries (e.g. biotech), it is therefore an “entrepreneurial” entity.  From this, Mazzucato concludes that the state deserves a share of whatever profits private companies make when they use technology developed with public science.

There are two problems here.  The first is that Mazzucato is rather foolishly conflating risk and uncertainty (risk is tangible and calculable, uncertainty is not).  Governments are not a risk-takers in any meaningful sense: they are not in any danger of folding if investments come to naught, because they can use taxing power (or in extremis, the ability to print money) to stay afloat.  What they do via funding of basic research is to reduce uncertainty: to shed light on areas that were previously unknowable.  Individual companies do very little of this, not just because it’s difficult and expensive (if a company is big enough, that’s not a problem – see Bell Labs or indeed some of the quite amazing stuff Google is doing these days), but because the spillover from such research might allow competitors to reap much of its value (a point Kenneth Arrow made over fifty years ago).

The second issue is that nearly all of the examples Mazzucato offers of public research leading to technological innovation and profit are American, and a fairly high percentage of these examples were funded by the Defense Advanced Research Projects Agency (DARPA).  To put it mildly, these examples are sui generis.  It’s not at all clear that what works in terms of government investment in the US, with its massive defense infrastructure, huge pools of venture capital, and deep wells of entrepreneurial talent, hold very many lessons for countries like Canada, which are not similarly endowed.  Yet Mazzucato more or less acts as if her recommendations are universal.

The book’s recommendations amount to: government should own a share of young innovative companies by gaining shares in return for use of publicly-funded knowledge.  But this is pretty tricky: first, there are very few cases where you can draw a straight line from a specific piece of publicly-funded IP to a specific product, and even where you can, there’s no guarantee that the piece of IP was publicly-funded by your local government (Canadian start-ups benefit from knowledge that has been created through public subsidies in many different countries, not just Canada).  And while there’s a case for greater government investment in emerging companies (economist Dani Rodrik makes it here for instance), the case is not in any way predicated on government investments in R&D.  In Canada, the CPP could adopt such a policy right now if it wanted – there’s no reason why it needs to be linked to anything Industry Canada is doing in science funding.  To the contrary, as Stian Westlake points out, countries that have been most successful in converting public science investments into private hi-tech businesses eschew the idea of equity in return for scientific subsidies.

Worst of all – though this is not entirely Mazzucato’s fault – her argument is being picked up and distorted by the usual suspects on the left.  These distortions are usually variations on: “Someone said the state is entrepreneurial?  That means the state must know how to run businesses!  Let’s get the state more involved in the direction of the economy/shaping how technology is used!”  This way disaster lies.

So, Mazzucato did everyone a service by forcefully reminding people about the importance of publicly-funded R&D to any innovation system.  But her policy prescriptions are much less impressive.  Treat with care.

April 22

HESA’s 2015 Budget Analysis

The team at HESA towers was up late last night putting together – as we do every year – a review of the Government of Canada’s Budget 2015, specifically as it relates to higher education and training.  You can read our full analysis, HERE.  Below are some of our key takeaways and conclusions from Budget 2015.

This year’s budget is a mix of the somewhat good and the moderately disappointing.

On student assistance, Budget 2015 takes some important strides towards improving PSE access, and is undoubtedly the most SFA-focused budget since Budget 2008, which introduced the Canada Student Grant Program. The seeds are planted here for a much simpler need assessment process, and one which is much friendlier to dependent students from middle-class families. On the other hand, if you believe student aid needs to become more targeted on poorer students rather than less so, then this budget may be less welcome.

The Budget’s stance on skills can best be described as useful, without being either bold or visionary. The focus on responsiveness to the needs of industry, as well as labour market training for Aboriginal peoples, should both be welcomed. They are sensible investments, which for once do not involve windfall transfers to apprentices. Efforts to harmonize apprenticeship training and certification across Canada’s provinces and territories, and to improve the availability of labour market information, should also be welcomed, even if the sums of money involved – particularly for labour market information – are a little on the derisory side.

Where the budget seriously fails is on research: though the Tories have made sure they cannot be accused of abandoning research, they are certainly not making it a priority, either. The zero increase for granting councils in 2015-16 will be seen as a slap in the face by the research community. The government’s insistence on dictating the minutiae of how to spend funds provided to granting councils (starting in 2016-17) lays bare the its attitude that it knows a lot more about research priorities than do researchers themselves. This does not do the government any credit. It will no doubt point to its six-year $1.33 billion investment in the Canada Foundation for Innovation as ‘the largest ever investment in research’, but this is sheer puffery: at an average of $222 million in new funding per year, this is substantially below the 1997-2012 average of $370 million per year in funding. This will make it difficult for Canada to maintain its position as a research leader in areas such as science, engineering, and medicine.

In short, it would be churlish in the extreme to accuse the government (as some have done) of having done nothing for the post-secondary sector. There are a lot of other sectors that would love to get as much attention as post-secondary received in this budget. But at the same time, it’s difficult not to look at this package – particularly around CFI and the granting councils – and think that as a country, we could have done a whole lot better.


April 21

Lessons From Western: One of Us

One of the most extraordinary moments last week in the run-up to the Senate non-confidence vote on Western President Amit Chakma’s tenure was the publication of an opinion piece in the Western News – the official organ of the university, no less – entitled, “Nothing personal, but it’s time to go”.  Written by two professors in the English Department, it is a rhetorically excellent savaging of President Chakma.  Read it, it’s worth it.

Although well-written, I was particularly struck by the thinness of the litany of complaints.  There was a certain, and surprising, inchoateness to the anger. Yes, it was bone-headed of Chakma to take the second year’s worth of pay, but that’s not what’s driving criticism here.  The authors clearly believe that, at Western, things are going to hell in a handbasket in a way they aren’t elsewhere.  And they have no doubt that Chakma and his executive team are the reason it is worse at Western. Given the article’s claims, it would seem that Chakma’s most unforgivable sin is that he does not – indeed, cannot – understand Western because he is from somewhere else.  To the authors, he is simply not “one of us”  (personally, I found it difficult to read the article without thinking of that famous scene from the 1932 film, Freaks).

Now, sometimes the “not one of us” argument has some force.  When, after running into financial trouble, Cooper Union President Jamshed Barucha – formerly of Dartmouth and Tufts  decided to introduce tuition at the erstwhile free-tuition school, the issue of his sense of attachment to the institution could genuinely be called into question.  Free tuition was part of the school’s identity, and you don’t screw around with that lightly (ht to Keegan Goodman for the analogy).

But, to put it mildly, I don’t see anything of that magnitude happening at Western.  Universities are pretty isomorphic; the amount of local knowledge needed to run one is really small, unless it is really an outstanding and highly particular university (MIT, say).  I grant that under Chakma, the strategic direction of the institution has changed for the blander (see here for my take on the banality of its recent strategic planning exercise); but let’s face it, it’s strategic directions were pretty bland to begin with.  Apart from a stronger-than-average commitment to the undergraduate student experience, Western isn’t a particularly distinctive institution.  The one time it had a chance to be really distinctive – when its Waterloo engineering extension campus came up with a program for co-op education – it cut the campus loose because that co-op stuff was self-evidently second-rate, and had no future at a serious university.

My guess is that the “not one of us” line-of-attack is actually another way of saying: “if you’d been here longer, you’d at least act as if you understood the concerns of those in the institution who are doing less well under this administration than under the previous one”.  In other words, there seem to have been significant weaknesses in communication and consensus-building on campus.  On its own, these were probably not serious enough to come to the fore and become a political issue that anyone outside the campus would care about.  But Chakma and the Board, through the incomprehensible decision to allow Chakma to cash his leave-year pay while sitting as President, effectively handed a large, spiked club to anyone within the institution who had a grievance.  The result is articles like this one, which have substantial (though obviously not universal) resonance on campus.  Chakma survived the vote last Friday, but the damage done to his Presidency may be permanent.

April 20

Lessons from Western: Presidential Administrative Leave

Last Friday, Western’s President Amit Chakma barely scraped through a non-confidence vote following his decision to take pay in lieu of administrative leave when he started his second term, a move which pushed his pay to $967,000 last year.  The story has resonated widely across academia, so it seems worth a couple days of blogs to unpack some of the issues

With specific respect to pay, the real issue seems to be what to do with this “leave year” that all Presidents have apparently negotiated.  It would appear to be common practice for presidents to have five-year terms, supplemented by a sixth year of “leave” during which time the President stays on the payroll at his or her former salary.  What seems to get people tied in knots is not so much the base salary (that causes grumbling, but not non-confidence votes), but rather the way the “leave year” gets used.

It’s worth looking at a couple of other Presidential pay packages that didn’t raise eyebrows in order to understand why Chakma’s actions were perceived as so horrible.  Absolutely nobody seems to have ever made a fuss about Presidents who take their leave year and return to the professoriate.  Academics apparently feel that as long as a President appears to be doing duty as an academic, the fact that he or she is making between two and three times normal professorial pay is an acceptable perk of being a President.  Also, people don’t seem to mind if a President defers the leave year if a second term is earned. Arvind Gupta’s contract at UBC is quite clear on this: if re-appointed, he gets to take the leave year at the end of his second term (also clear: he won’t get to earn a second year of leave if he is re-appointed. One and done).

Chakma’s former boss at Waterloo, David Johnston, cashed-out at least one year of leave, in full, when he became Governor General in September 2010 – the Sunshine List records him as having received slightly more than $1 million that year.  Nobody raised an eyebrow then, so it’s probably fair to say that either Johnston gets a pass because he looks like everyone’s cuddliest granddad, or nobody think it’s a problem to cash out that leave year if you suddenly leave the university (or both).

Another way leave years have been used is to be folded into later pay packages.  At least one President (Sara Diamond at OCAD University) had her leave year salary divided into five, and spread over her second term.  Again, this has not been subject to any criticism, so far as I know – in which case, we can deduce that people don’t actually have a problem with converting leave years to salary, as long as they don’t do it all at once.

The issue, then, is a pretty specific one: total compensation is not a problem, leave years are not a problem, and converting leave years into cash is not a problem, provided you don’t cash the leave all at once as a sitting President.  And honestly, that’s not a test most should find too difficult to meet.

Basically, it comes down to the nature of the leave year.  If both sides view it as equivalent to a sabbatical, or as severance, it’s OK.  If it is viewed just as a way to increase compensation over the course of a contract (i.e. spreading $2.2 million over six years instead of five) then you’re probably heading out onto thin ice.

April 17

Spring 2015 Reading List

Some notes on books recently read:

University Leadership and Public Policy in the Twenty-First Century, by Peter MacKinnon.  I really wanted to like this book before I started it.  Since I started working in this field, few university Presidents have had such a profound positive effect on their institution as Peter McKinnon did at the University of Saskatchewan.  And how can you not love someone who says stuff like: “weak academic departments tend to perpetuate themselves because of their reluctance to apply standards higher than they see reflected in themselves”?

That said, the book is a bit uneven.  Where he has real passion and a good story to tell from his time at the University of Saskatchewan (e.g. chapters on collective bargaining and tenure), he’s flat-out great.  Where he has less passion, and the narrative is mostly stitched together from things like AUCC reports, it’s much less compelling.  And I’m not 100% sure he needed to take such a shot as his successor, Ilene Busch-Vishniac, over the Buckingham affair.  Still, worth a read.  Buy it.

Designing the New American University, by Michael Crow and William Dabars.  As with MacKinnon’s work, I really wanted to like this book before I started it.  The re-think of the relationships between department and faculties at Arizona State under Crow’s watch is quite intriguing (see this Change article from 2009), and is that rare thing in higher education: a genuinely innovative model.  And how can you not love an American university President who thinks the main problem of elite American universities is that they aren’t enough like elite Canadian universities (i.e. large)?

The problem is, this book – co-authored with University of Arizona historian William Dabars – is a tedious slog.  Very little of it is actually about ASU; far, far too many pages are devoted to a history of higher education, which breaks little new ground and is written in a plodding, name-dropping style that repeatedly had me wishing to hurl the book across the room.  There are a few interesting bits in chapters 5 and 7 on ASU, but even then Crow talks a lot about the fabulous results ASU has achieved, while saying very little about the practical tactics of how ASU achieved a re-conceptualization  (which is what any sane editor would have told them was the interesting bit).  Anyways, save your money, skip this book, and read this free download of articles about ASU instead.

Locus of Authority, by William Bowen and E.M Tobin.  I had no particular reason to think I would like this book, because I find former Princeton President William Bowen’s writing style to be that of a tedious blowhard.  That said, it actually ended up being a light and interesting history of governance in American universities, combined with an argument that governance today is in not bad shape, except that professors should on no account have any control over whether the courses they offer are in-person or online.  If this seems like an oddly specific preoccupation, you need to know Bowen’s consultancy outfit is really big on online delivery.  Buy it if you’re a governance freak, don’t if you’re not.

Crisis in Higher Education: A Plan to Save Small Liberal Arts Colleges in Americaby Jeffrey Docking with Carman Curton.  I had no idea what to think of this book, because I’d never heard of Jeffrey Docking of Adrian College, the small liberal arts school in Michigan where he is President.  Since I work with some small institutions, the book’s subtitle is what attracted me.  According to Docking, the answer to saving small liberal arts colleges is “more Div III football”.

I was a bit befuddled by this, but this article actually makes the case pretty simply: kids in the US will pay a lot of money to be part of a sports team, and since Div III sports are cheap (no scholarships), this actually works out pretty well for institutions  What Docking is really saying, of course, is that the answer to shortages of funds is: more students.  At almost any cost, you need more students.  In other words, the way to save small liberal arts colleges is to make them somewhat larger liberal arts colleges.  This would not come as a surprise to any of our U4 universities (Bishop’s, Mount Allison, Acadia, St. FX); they’ve been doing this for years, only without the benefit of the $25,000 tuitions US Liberal Arts colleges can demand.  Buy this book if you for some reason are proposing an Athletics-led strategic enrolment plan; otherwise, just know that there is a literature on Athletics-led strategic enrolment plans.

Have a good weekend.

April 16

De-Regulating Tuition in Nova Scotia

There seems to be a lot of interest in this Nova Scotia budget announcement on tuition-fee de-regulation, mostly from the everything-is-going-to-hell-in-a-handbasket crowd.  In the interests of trying to keep people’s eyes on the ball, I thought I would try to put this move into some kind of context and examine what the likely outcomes will be.

(Necessary conflict of interest statement: In fall 2014, I did some writing work for the Nova Scotia Council of University Presidents, relating to priorities for the 2015 budget.  Make of that what you will.)

To start, let’s be clear about what the province has done.  It has allowed universities to do two things:

1)      For out-of-province, international and graduate students, the government has permanently de-regulated tuition fees

2)      For in-province undergraduates, tuition fees are being de-regulated for one year only, in order to allow institutions to make a one-time “adjustment” to program fees, after which tuition will return to having a 3% annual cap.

Now, some people assume that the term “de-regulation” means everyone is going to go hog-wild on fees.  But this isn’t necessarily true: remember that students will react to any price increase and this is a competitive market.  So the trick for universities is to work out the elasticity of the market – basically, how high can you jack up the price before people start looking for substitutes?

Universities essentially have two markets: “home” and “away”.   You can charge home students a heck of a lot before they will look for substitutes; they have to move away from home to find a substitute and that’s expensive – so the price differential can be quite high before a home market moves very much.   (note also that perceived quality matters – as many students leave Quebec for Ontario as the other way around, despite the substantial tuition gap).  But you can’t get away with that for “away” students in the same manner.  They are already paying substantially more than sticker price, because they are living away from home.  They already have cheaper alternatives.  How much more expensive can you make your product before turning them off?

Obviously, institutions are only going to raise fees in areas where they think demand is inelastic: that is, where a price hike isn’t going to substantially affect enrollment.  That means generally speaking you can expect fee rises to be concentrated in program where demand substantially exceeds supply.  Which means – among other things – that Arts programs aren’t likely to see big jumps.  But to add a bit of a wrinkle: the province has given universities the most flexibility over fees for group of students who are the most price-sensitive and the least flexibility over fees for those who are least price-sensitive.  Which makes for a very weird set of incentives: the pressure to go big will be highest for in-province students, because if they over-shoot on price to the high side they can always lower the price in subsequent years whereas if they price low, they won’t later be able to raise them significantly if they under-shoot.

It’s impossible in advance to say how institutions are going to take advantage of this flexibility.  Presumably strategies will vary depending on the amount of market power (i.e. excess of demand over supply) that each institution thinks it has in each of its programs:   But one lesson they should heed from the recent experience of almost-deregulation in Australia is this: make decisions quickly.  The longer uncertainty persists about what the prices will be, the longer opponents will have to raise support by suggesting the prices will be ridiculously high (King’s University Student Union was first off the mark on this one – see here – and they added some utterly ludicrous “statistics” on debt to bolster their case).  So while it goes against the grain to announce 2016 prices before Christmas, smart institutions will at the very least set out some principles that will counter the more hysterical propaganda as soon as possible.  Preferably before summer.

April 15

Enforced Savings for Education?

It’s generally acknowledged that students from low-income backgrounds have trouble paying for education; that’s why across North America, they tend to get packages of loans and grants which are far in excess of the value of tuition.  And that’s a good thing.  But when it comes to people who are truly middle-class – that is, students near or just over the median family income, there’s a fair bit of debate – sometimes acrimonious – about how to assist them.  

One view – one which I tend to subscribe to – is that most middle class parents are quite capable of providing some assistance to their kids.  It’s not an emergency, out-of-the-blue expenditure; they’ve had 18 years to save for it.  If there’s a liquidity problem, student loans are available which allow students to defer the costs until they have graduated and have a job.

The alternative view – proposed by the usual suspects here in Canada and in the United States by researchers like Sara Goldrick-Rab – is essentially that university costs have outstripped the ability of even middle-class to pay (a claim easier to make in the US than in Canada) and that therefore in the interests of a strong middle-class they need greater subsidy.

From a lifetime income perspective, if higher education are too expensive for families individually, they’re also too expensive for families collectively – unless the plan is to grab tax income from those families who don’t have kids or whose kids don’t go to higher education.  That would probably be quite regressive.  But I don’t think that’s primarily what proponents of aid to middle-class parents are saying.  I think they’re actually making a liquidity argument: middle-class annual incomes can’t cope with a sudden rise in annual household spending that supporting a student in college or university for 3-5 years entails.  That’s primarily an intertemporal liquidity argument – they have the money, they just don’t have it now

Now, the most obvious way to deal with that is loans, but the objection is some variation of “debt is bad, debt = inequality”.  I don’t buy that particularly (see here and here), but let’s assume there is merit in the argument.  Is government subsidy the only way to deal with this?  Answer: of course not.  We have exactly the same issue with retirement income support, and the way we deal with it is through enforced savings through programs like the Canada Pension Plan.

As higher education edges towards becoming universal, the pension model of funding becomes at least worth examining.  Why not create individual accounts for every child born and require parents to contribute a couple of hundred dollar a year through payroll deductions?  If income is below a certain threshold, government could make the contribution on parents’ behalf (as indeed it does for low-income parents through the currently non-mandatory Canada Learning Bond program).  That way, every family would know they had a lump-sum amount available once a child reaches age 18, without having to tap government coffers to support the middle-class who, on the whole, are able to pay for university/college if the payment process is extended sufficiently.

I’m not sure if I personally buy this argument: people tend to like the idea of saving but are less keen on making it mandatory.  But I do think it’s a better idea than using tax-income to support the middle-class.  That money should be reserved for helping the less-advantaged.

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