HESA

Higher Education Strategy Associates

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.

April 14

Students Won’t Save Us This Time

 I do a fair bit of barnstorming around Canada giving talks on higher education finance.  My audiences, by and large, split into two groups: those that remember the cuts of the late 90s and those that don’t.  The ones who don’t remember them are mostly OHMYGODOHMYGODOHMYGOD about future funding challenges (especially when I show them that – contrary to their belief – that operating income has actually been going up sharply recently).  The ones who do remember are more perplexed: we (eventually) got through the budget cuts of the 90s, and those were much bigger than the kinds of cuts we can expect in the next couple of years – what’s the fuss?

What people seem to have forgotten about the cuts of the mid-90s is that in most parts of the country (Quebec was an exception), total revenue only fell in two years – mostly in 1995 and 1996 – and was quickly restored in 1997 and thereafter.  In fact, by 2000, universities’ income was nearly a third higher than it had been in 1996.  Yes, governments cut – sometimes savagely – but universities and colleges were bailed out by students.

The bail-out occurred in three ways.  The first was simply showing up in greater numbers.  This was a bit of a surprise at the time, especially to universities.  Total enrolment had been flat at around 600,000 since the mid-80s.  But then just as the cuts started to hit in 95 and 96, the leading edge “baby boom echo” generation turned 19 (Remember David Foot?  Remember how we all had to nod to the demography-is-destiny stuff for a few years?  Good times).  A couple of years later, the participation rate started to grow, too.  Brilliant for post-secondary institutions: their core demographic was growing, and the portion of that demographic that wanted post-secondary education was growing, too.  In a word: more customers.

But it wasn’t just that universities and colleges got more customers – they got more money per customer as well.  Tuition increases?  Governments were handing those out like candy.  For those who find Ontario’s current regime of 3% annual increases unbearable consider the price hikes which occurred under Mike Harris.  1996: 20%.  1997: 20%.  1998: 20%.   Plus de-regulation of fees in graduate and professional programs.  And yeah 30% of that money was set aside for student aid, but those are still some big honking increases.

The third way students bailed out universities was more indirect.  That baby boom echo had some serious political clout behind it.  When the boomers’ kids were in school, boomers made sure universities were at the top of the agenda.  It happened quite suddenly, too.  From nowhere, higher education came to top voter’s lists of concerns in 1996, right about the time the leading edge of the echo turned 18.  It was that polling that made the federal Liberals suddenly enthusiastic about things like Millennium Scholarships, Canada Education Savings Grants and education tax credits.

Problem is that this time around, none of this is happening.  The demographic reality is that in most of the country youth numbers are shrinking, meaning likely fewer domestic students.  The political reality is that politicians are no longer so keen on higher tuition (in part, ironically, because past access gains mean that many more people now pay them, thus making them a bigger political liability).  And the social reality is that the boomers – whose children have now pretty much passed through university – are now more worried about their parents than their kids.

In short, none of the pillars of eventual recovery which existed in the late 1990s now exist.  Increasing domestic student numbers saved universities and colleges in the 1990s by producing much higher institutional revenues (overall, university income rose by nearly a third between 1996 and 2000).  They flat out won’t this time.  That’s why spending cuts loom quite large right now – and will do so until student numbers pick up again early next decade.

April 13

Five Questions for Ken Coates

So, Ken Coates of the University of Saskatchewan published a paper the week before last arguing that there were too many university students and not enough trades students, so we should reduce university enrolments by a third and what the hell is wrong with kids today anyway?  Despite being not much more than a warmed-over version of the paper he co-authored with Rick Miner in IRPP a couple of years ago, it got some attention because it played directly into both the elitist view of universities (all these students devalue the degree!) and the weird view some in Canada have that the only problem with the labour market is that workers are too stupid to see the opportunities in front of them.

The paper is a hot mess of unfounded assertions and questionable logic which raises at least 5 questions (I’d guess readers can come up with a few more of their own) which I think the author needs to answer before the paper can be taken seriously.

1.Why does Coates keep saying today’s young people feel too “entitled”? What does he mean by this disparaging term?  What evidence is there to suggest this generation display a greater sense of entitlement than any previous generation?  Or is this just an arrogant way of saying youth don’t do what Coates thinks they should do?  (Also: does Coates spend a lot of time yelling at kids to get off his lawn?)

2. Why does Coates repeatedly denigrate the idea that “the labour market should be directed by the uninformed educational choices of 17-19 year-olds”?  Has it not ever been thus?  Was there some golden age in Canadian history when the state or business made career decisions on young peoples’ behalf and where economic outcomes were demonstrably better?  Can Coates name a democratic nation where 17-19 year-olds don’t make their own educational choices?  

3. Why, if as Coates claims, no one can know the future of the labour market, is he so damn sure we need more college/trades graduates?  Coates: “it is extremely difficult to anticipate downstream market demand for employees”.  Coates: “Governments have a poor track record when it comes to picking winners in the economy”.  Well, if that’s true, isn’t this entire paper – which based on the idea that we know that more college/trades education and less university education is a good idea – an enormous waste of time?  (Or, more simply, “wrong”?)

4. What evidence does Coates have for saying Canadians are defaulting “to the traditional view that a university degree is the best avenue to prosperity” and “turning their children’s dreams against blue-collar work”?  Here’s a quick summary of educational attainment for Canadian males, aged 30 or under, who did their post-secondary education in Canada:

 Figure 1: Highest Level of Educational Attainment, Males Aged 30 and Under, Canada, 2010

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Got that?  Among males under 30, there are almost as many apprentice and trades certificate holders as there are bachelor’s holders.  Throw the colleges in and it’s more than two to one.  Another way to look at the data is to compare the number of males with Bachelor’s degrees with those working in those “in-demand” area Coates is continually babbling about – construction trades, mechanics, precision production, transportation, and all Engineering sub-fields who have less than a bachelor’s degree.  Here are the numbers:


Figure 2: Bachelor’s Degree Holders vs. Workers in Five Key Trades, Males under 30, Canada, 2010

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 In short: Averse to blue-collar work?  Not even vaguely true.

 

5.   Why does Coates think blue-collar work is so hot anyway?  The problem with blue collar work – apart from the fact that it’s seriously gender-biased – is that it’s cyclical.  A lot of people in Canada – including Coates, apparently – forget that because the current commodities cycle has been going on so long, but when commodities prices fall blue collar outcomes are pretty terrible.  Back in the mid-90s, when oil was cheap, we only had about a quarter as many apprentices as we do now.  In the 1980s, unemployment rates for trades grads was over 15%.  How good do you think blue collar will look if oil is permanently back down to $50 and China’s growth rate heads down to 3%?

Coates does have a point in that universities need to do more to make their graduates employable, and he’s also right that more post-secondary learning needs to be experiential in nature.  But to go from there and say that we need fewer university graduates is just a baseless assertion.  He can and should do better.

April 10

Better Know a Higher Ed System: South Africa (Part 2)

A couple of weeks ago, I laid out some of the basic issues in South African higher education.  Today, I want to focus on two particular sets of institutional issues that I think make the country’s policy landscape quite distinctive.

The first area has to do with how institutions raise income.  Sub-Saharan African countries tend to fall into two groups: those that are over-reliant on government funding (most of Francophone and Lusophone Africa), and those that are reliant on private fees paid mainly to private institutions or through dual-track tuition systems at public universities (most of Anglophone Africa, especially East Africa).  What you don’t tend to see in Africa are universities relying on self-generated non-fee income to fund themselves.  Here’s where South African universities’ money comes from:

Figure 1: South African Universities’ Income by Source (Source: Vital Stats, Public Higher Education 2012, Council on Higher Education, South Africa)

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One could quibble around the edges with this: if you count all the money government spends on student aid, the state stream is considerably bigger (and the tuition stream smaller), but the really amazing thing is the third-stream income, which comes neither from government or students. At 31%, it’s pretty much the highest percentage of anywhere in the world.

Figure 2: Third-Stream Income as a Percentage of Total University Income, South Africa and Selected OECD Countries (Source: Vital Stats, OECD Education at a Glance 2104, Table B3.1)

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Interestingly, South African institutions are achieving this without a significant tradition of charitable giving.  This isn’t a US private college situation where the money is all coming from endowments; according to a 2009 survey, endowments account for only about 11% of the money.  About a third of it comes from contracts, and over 55% of it comes from things like sales of service.

Sure, the big old (sotto voce: “white”) institutions like Wits and UCT do better on this measure than others (48% and 40%, respectively), but even the poorest institutions (the universities of technology) make 15% of their income this way – same as Japan and Australia.  That’s evidence of a very high degree of entrepreneurialism.  Admirable.

The other interesting thing about South African institutions at the moment is the attention being paid to curriculum.  As I noted previously, South Africa is plagued by drop-outs; only about 50% of starters complete their studies.  The culprit, by general agreement, is under-preparedness of students; there is an articulation gap between secondary and post-secondary (which makes initial transitions difficult) and curricula in many subjects contain transition points that takes for granted certain knowledge and abilities that all students may not have.

(Interestingly, while there are wide gaps in primary and secondary schooling available to Africans and whites, the dropout problem is only partly related to this.  Though there are differences in completion rates by “population group” [the preferred way to say “race” in South Africa] they actually aren’t that wide: 6-year graduation rates for Africans are 47%, compared to 59% for whites.  Compare that to the US, where the rates are 40% for Blacks and 62% for whites.)

So, your country’s system has an articulation problem, a transition problem and – to top it off – worries about how well current education is preparing students for the future labour market.  What do you do?  Well, the current preferred solution to this problem (outlined in this document) is to lengthen periods of study:  that is, to move from a system of mostly three-year degrees to a system of mostly four-year degrees.  And this isn’t simply a matter of adding a base foundation year – what’s being contemplated is a wholesale re-writing of curricula from the ground-up.  In some ways, it’s a more daunting task than the Bologna curriculum re-write, which often involved little more than slicing five-year degrees into a three-year Bachelor’s degree, and a two-year Master’s.

It’s not entirely clear whether this will happen – cost implications are significant, and there isn’t a lot of money in the kitty in Pretoria.  But having gone through our own debate about degree-lengths a few years ago, it’s refreshing to see a discussion driven by desired learning outcomes and curriculum analysis rather than vigorous hand-waving from politicians.

South African universities have taken extraordinary measures to close the funding gap;  if they were able to take similarly bold measures to tackle the attainment gap, the payoff would be profound.

April 09

Australian Deregulation (Again) and the Future of Tuition Fees

So deregulation in Australia now looks to be dead and buried.  But in its death throes, the debate finally coughed-up some interesting ideas about how to pay for higher education.  Here’s the re-cap:

Not long after my last article on this subject, the coalition decided to put a second deregulation bill to a vote in the Senate.  The first bill failed by two votes.  The second one, after months of lobbying and arm-twisting, failed by four.  This suggests a couple of things:

1)      Minister Christopher Pyne and the Liberal party are as thick as two short planks when it comes to parliamentary management;

2)      If you give the opposition ten full months to yell “$100,000 degrees!”, you’re going to lose.  That some degrees were going to cost $100,000 was probably inevitable, but the idea that more than a handful would do so was risible.  The problem is that there’s really no way to model the consequences of deregulating a good such as education, which is at least partially a Veblen good.  As such, there’s no great way to refute those claims.  In other words: if you’re going to deregulate, do it quickly.

So the universities aren’t going to get any new money from students, which is a bit of a problem since there isn’t a whole lot of money coming from government either.  Pyne cancelled a planned 20% cut from the 2014 budget to university finances as a sweetener to get the deal through, but now that the deal has tanked there is genuinely no telling what the government’s next move might be (and the 2015-6 budget is right around the corner).

Now, right before the bill went down, ANU economist Bruce Chapman – the inventor of HECS back in the late 1980s – entered the fray.  He was an opponent of deregulation precisely because price increases, which students could pay using HECS, wouldn’t really act as a price signal, and hence would allow institutions to run-up fees far more than was socially useful.  But unlike the Labor Party he used to work for (it’s terribly difficult being a Labor loyalist in Australia these days, because of their ineffable uselessness), Chapman actually engaged with the government and suggested an alternative.

Effectively, Chapman suggested deregulation, plus a luxury tax: institutions can raise fees, but government can (and should) reduce public funding at something less than a dollar-for-dollar rate in response. Basically, if Melbourne raises an extra $10 million in fees, the government could cut their public subsidy by $5 million.  This allows institutions to use the market to get more money, but also puts some brakes on the process.  Institutions will still get their money, but students on the whole will probably pay less than they would under full-deregulation, the government will be on the hook for less HECS debt, and the financial gap between more and less prestigious institutions will be smaller.  It’s not an entirely novel idea – the Browne Review in England proposed something similar in 2010 – but it nevertheless has merit, and  deserves some examination here in Canada, too.

Pyne now says the Chapman proposal could form part of his third (!) deregulation bill, but university presidents have had enough, and have stopped backing deregulation (some interesting comments on this here from Hannah Forsyth).  You can go nuts working out their tactical motivation for abandoning the government at this point, but to me it just looks like they’ve decided this government is a goner, politically – why waste political capital backing anything from the present government, which would certainly be eviscerated by the next lot?  Better to negotiate elements of a Chapman package with Labor once they’re in power, and can claim the idea as their own.

At the dying end of this business came another interesting idea about how to set fees, this time from the excellent Andrew Norton.  He argues (here) that an egalitarian approach to setting fees would be to equalize them on the basis of average time-to-repayment.  Since time-to-repayment is a function of income in Australia, the equivalent here would simply be to set them as a function of average income, an idea I explored back here.  On recent trends, Arts fees should be falling, and Engineering fees should be rising.  Yet somehow, over here, such a simple idea seems beyond the pale of discussion.

Australia’s higher ed policy landscape is crazy in many ways, not least of which is the way university presidents tend to form circular firing squads on many issues.  But their vigor in discussing big policy issues in higher education is bracing; a welcome contrast to all the hiding from reality going on in Canadian governments.

April 08

ATMs and the Future of Education

I recently came across a fascinating counterintuitive piece of trivia in Timothy Taylor’s Conversable Economist blog.  At the time ATMs were introduced in 1980, there were half a million bank tellers in America.  How many were there 30 years later, in 2010?  Answer: roughly 600,000.  Don’t believe me?  See the data here.

Most people to whom I’ve told this story tend to get confused by this.  ATMs are one of the classic examples about how technology destroys “good middle class jobs”.  And so the first instinct many people have when confronted with this information is to try and defend the standard narrative – usually with something like “ah, but population growth, so they still took away jobs that could have existed”.  This is wrong, though.  When we look at manufacturing, we see absolute declines in jobs due to (among other things) automation.  With ATMs, however, all we see is a change in the rate of growth.

The key thing to grasp here is that the machines did not put the tellers out of business; rather, they modified the nature of bank telling.  To quote Taylor, “tellers evolved from being people who put checks in one drawer and handed out cash from another drawer to people who solved a variety of financial problems for customers”.

There’s an important truth here about the way skill-use evolves in the economy.  When most people think about technological change and its impacts on skills, they initially tend to presume “more machines → high tech → more tech skills needed → more STEM”.  But actually this is, at best, half the story.  Yes, new job categories are springing up in technical areas that require new forms of training.  But the more important news is that older job categories evolve into new ones with different kinds of requirements, and requiring a different skill set.  And in most cases, those new skills are – as in our bank teller example – about problem-solving.

Now, as a society, every time we see job requirements changing, our instinct is to keep kids in school longer.  But: a) pretty soon cost constraints put a ceiling on that strategy; and, b) this approach is of limited usefulness if all you’re doing is teaching the same old things for longer.

At a generic level, it’s not hard to teach in such a way that you’re giving students necessary skills to thrive in the future labour market.  Most programs, at some level, teach problem-solving (identifying a problem, synthesizing data about it, coming up with possible solutions, evaluating them, and coming up with a solution), although not all of them test for them explicitly, or explain to students how these skills are likely to be applied later on.  More could be done with respect to encouraging teamwork and interpersonal skills, but these aren’t difficult to add (although having the will to add them is something different).

The more difficult problem has to do with understanding where technology is likely to replace jobs and where it is likely to modify them.  What do driverless cars mean for the delivery business?  At a guess, it means an expanded market for the delivery of personalized services during commuting time.  Improved automatic diagnostic technology or robot pharmacists?  More demand for health professionals to dispense lifestyle and general health counselling.  Increased automation in legal affairs?  Less time on research means more time for, and emphasis on, negotiation.

I could go on, but I won’t.  The point, as Tyler Cowen makes in Average is Over (a book whose implications for higher education have been criminally under-examined) is that the future in many fields belongs to people who can best blend human creativity with the power of computers.  And so the relevant question for universities is: to what extent are you monitoring technology trends and thinking about how they will change what you teach, how you teach it, and how you evaluate it?  Or, put differently: to what extent are your curricula “future-ready”?

In too many cases, the answers to these questions land somewhere between “not very much” and “not at all”.  As a sector, there is some homework to be done here.

April 07

Not Mutually Exclusive

One often hears university administrators say things like: “if we don’t reduce growth in salary mass, we’re all in trouble”.  Sometimes, the word “academic” gets thrown in front of salaries, for good measure.  In response, one often hears faculty unions say: “but academic salaries are down as a proportion of operating spending since 1992”, or “salaries as a proportion of the budget have remained constant in recent years”, and conclude from this that salaries can’t possibly be the problem.

How should we evaluate these claims?  Well, first off, we should acknowledge that these are all true statements.  Let’s start with the question of academic salaries as a proportion of operating budgets.  Between 1990 and 2002, these did fall substantially, from about 39% of total operating expenditure to about 30%.  But it has remained more or less constant thereafter.  There were multiple reasons for this fall, the main one being that academic staff numbers actually fell during the mid-90s under the effects of that decade’s austerity, which meant that absolute dollars spent on staff were frozen from about 1992 to 1999.

Figure 1: Academic Salaries as a Percentage of Total Operating Expenditures, 1991-2012

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Of course, one countervailing factor here is that a greater proportion of compensation is now going out in the form of benefits (mainly pensions) rather than salaries.  So sometimes, instead of looking just at academic salaries, we want to look at total compensation – and not just for academics, but for all employees.  Figure 2 shows all compensation as a percentage of operating budgets.  This, too fell in the 90s, but is just now starting to edge up a bit again, to around 75% of total spending.

Figure 2: Total Spending on Compensation as a Percentage of Operating Budgets, 1991-2012

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Now, looking at these graphs, you could very well ask: “so what’s the problem?”  As indeed many faculty unions do.  Well, the answer is that these graphs represent fractions: expenditures as a percentage of total expenditures.  But it’s worth looking at both the numerator and the denominator here.  Figure 3 shows what has been happening to total operating expenditures in Canada.  Between 1998 and 2012, expenditures increased by 67% after inflation, or an average of 4.7% per annum in real dollars.

Figure 3: Total Operating Expenditures and Expenditures on Compensation, in $2012, 1991-2012

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So it’s quite possible to look at Figure 2 and say, “up to 2012, staff compensation was in no way a cause of financial hardship to universities”.  However, to go from here, to saying: “therefore we don’t need to worry about compensation, and things can continue on as before”, requires one to believe that university revenues will continue growing at 4.7% per year, in real dollars.  And flat out, that hasn’t been happening, and isn’t going to happen anytime soon.

Take a look at the last couple rounds of provincial budgets.  On average, the 2013-14 budgets saw funding go down by 0.7%.  The 2014-15 round saw them increase by about $7 million nationally (or 0.066%).  And that’s in nominal terms – in real terms, that’s a decrease of about 4%.  Now, tuition increases of 6.6% over two years makes up for that a bit, but at best – even including the effects of rising international student numbers – we’re probably looking at increases in operating budgets of about 1.5% in the last two years, and in all likelihood for the foreseeable future ( and this year will almost certainly be less than that).

So, assuming 4% increases in compensation costs, and 1.5% increases in income, what does Figure 2 look like, extended out a couple of years?  Figure 4 tells the tale.

Figure 4: Total Spending on Compensation as a Percentage of Operating Budgets, 1991-2017 (Projected)

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The result, simply, is that at present rates of expenditure and income growth, compensation will rise from 75% of the budget in 2012, to 85% of the budget in 2017.  Or, put another way, to make room for compensation growth, universities will have to cut their non-salary budget items by nearly a third over the next few years.

And that’s why, despite faculty unions being correct about the salary growth having been affordable up to now, the evidence still points to present salary mass growth as being unsustainable going forward.  The two stores are not mutually exclusive.

April 06

College Tuition 2014-15

Statistics Canada, for reasons best known to itself, only tracks tuition for university programs.  For college programs, we’re basically in the dark.  We’ve got nothing, nada, zip.

In theory, it’s not all that difficult to work out.  All you need to know is price and enrolment for each program offered: sum the prices, divide by enrolment, and voila!  Average tuition.  And yet nobody does it (my guess for why Statscan doesn’t do it?  Something less than full confidence in the enrolment data that comes in from colleges).

(Actually, Canada’s not alone in this.  In truth, there are very few countries with accurate tuition indexes.  Most countries either have zero tuition, or a set tuition fee, or fees [under Australia’s HECS system, students pay one of three prices depending on what fields of study they are in, with no variation by institutions], or they have a huge multiplicity of prices, often due to having many private institutions.  Almost no one keeps track of what goes on in private sectors, which is why you will search in vain for decent statistics on tuition in places like Brazil, Mexico, Russia, or even China for that matter.  The miracle has more to do with the fact that we have a decent set of tuition statistics for universities – albeit ones with some pretty loopy characteristics, as I noted back here – rather than the fact we don’t have one for colleges.  But I digress.)

The more faithful among you may remember that we here at HESA Towers tried to come up with a college tuition figure a few years ago.  In retrospect, our numbers were probably a little high in at least one province (Saskatchewan).  So this time, we think we’ve fixed the problems, and are giving it another shot.

Here’s how we came up with our numbers.  We looked at posted prices on institutional websites, and then – where tuition varies across programs – came up with an enrolment-weighted average fee for diploma-level programs (both shorter and longer programs are excluded from these calculations). In Newfoundland, Nova Scotia, New Brunswick, Prince Edward Island, and Saskatchewan there is only one institution, so the calculation is relatively straightforward. In Alberta, an estimated enrolment-weighted tuition figure for diploma-level programs was provided to us by the provincial government. In these six provinces, we are pretty confident about our numbers.

In the other four provinces (Ontario, Manitoba, British Columbia, and Quebec), we did not do a census of institutions; instead, we obtained fee and enrolment data from a representative sample of college institutions, enrolment-weighted the fee data, and assigned it to the entire province.  I know what you’re thinking: Quebec CEGEPs do not charge tuition.  However, they do charge a variety of fees for things like athletics, student services, etc., and we counted those. In these four provinces, there is a bit more of a margin of error in that we are not fully certain how representative our sample is.

Caveats aside, here’s what we found.

Figure 1: Average Tuition in College Diploma Programs

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Saskatchewan and Prince Edward Island have the highest average fees, at just under $4,700.  This does not of course mean that all students are paying this amount; in fact, most are paying less, but both schools have enough high-tuition programs to pull up the average.  In most provinces, the average is somewhere between $3,100 and $4,100, though Quebec and Newfoundland are substantially below that.  The national average is $2,396.

That’s the picture for 2014-15 anyway.  We’ll try to keep this index up-to-date each year – look for an update on this in September.

April 02

More Inter-Provincial Finance Comparisons

Yesterday we compared provinces on PSE spending as a percentage of GDP – that is, as a percentage of their ability to pay.  More or less, what we found was that most provinces were pretty similar, at 2.5% of GDP, with Saskatchewan a bit lower, Alberta a lot lower, and Nova Scotia and PEI much higher.  But provinces have different economic capabilities and different student participation rates.  So how do all these different expenditure patterns play out where it counts, in dollars per student?

Before I get into the actual numbers, some quick explanatory notes: all income and enrolment figures are for 2011-12, and expressed in 2012 dollars.  The income figures represent all income, not operating, meaning that any big capital projects in that year will skew things a bit.  The “government” figures include both federal and provincial spending.  To keep things relatively consistent, I express student numbers in Statscan FTEs (3.5 PT = 1FT), rather than headcounts; BC and Alberta, who have way more part-time students than anyone else, would look a bit worse if we did this using headcounts only.  Finally, although I am expressing everything in terms of institutional income, since income and expenditure are pretty much identical, you can assume that everything I say here for per-student income is basically true for per-student expenditure, as well.

Got that?  OK, off we go.

Figure 1 shows what income per head looks like in the college sector.  Nationally, colleges receive $16,585 per FTE student per year, just under two-thirds of which come from government.  Most provinces have averages above this, but Ontario and Quebec (which between them have almost 75% of the country’s college students) spends less.  The surprise here is Alberta: despite receiving slightly less than the national average as a percentage of GDP, on a per-student basis its colleges and institutions receive a fairly outlandish $32,000 per FTE, of which about $19,000 comes from government.

Figure 1: College Income per FTE Student by Source and Province, 2011-12

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Now, let’s turn to universities.  On average, Canadian universities have income of $31,000 per FTE, which is ahead of pretty much any university system in the world, with the exception of US privates.  Most provinces are pretty close to that level: only Manitoba is substantially below $30,000 per student, and only Saskatchewan, and Newfoundland are substantially above it.  In most provinces, universities get about 60% of their total income from government; the exceptions are Ontario and Nova Scotia (where it is about 45%), Newfoundland (73%), and Quebec (66%).

Figure 2: University Income per FTE Student by Source and Province, 2011-12

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If this doesn’t look like what you’re used to seeing (e.g. Quebec universities don’t seem underfunded compared to Ontario universities), it’s partly because we’re not strictly looking at operating funding here: research funding from the federal government is also included, and that can change the lens a little bit.

Another truth here: the highest levels of funding are in Newfoundland and Saskatchewan.  While Memorial, Saskatchewan and Regina are all decent universities, none of them tend to make anyone’s top ten list of Canadian institutions.  Reasonable people might therefore question the strength of the link between per-student funding and quality.

Combine figures 1 and 2 and you get Figure 3, which shows average income across all post-secondary institutions per FTE.

Figure 3: Institutional Income per FTE Student by Source and Province, Colleges, 2011-12

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Now, Quebec goes to the bottom of the pile, but that’s mostly because of weak funding in the college sector (which is fair enough, because much of it is effectively the final year of high school).  The biggest winners are – surprise, surprise – the three oil provinces of Newfoundland, Saskatchewan, and Alberta, all of whom are see institutional income of $35,000 per FTE student or thereabouts, which is roughly 35% higher than the national average of $25,800 per student.

It’s a very different picture than the one we saw yesterday when looking at expenditures as a percentage of GDP.  Essentially, rich provinces don’t need to spend as much of their income on higher education to have good post-secondary education.  As noted yesterday, Nova Scotia universities receive 2.5 times as much, in % of GDP terms, as do Alberta universities; yet, due to differences in provincial GDP and enrolments, Alberta institutions actually receive more dollars per FTE.

So which is the better measure, dollars per student or % of GDP?  It kind of depends on one’s perspective.  Institutions, naturally, care about the dollars: if someone else has more, they want parity so they can compete.  But governments and citizens probably care more about % of GDP, which is a measure of society’s ability to pay for things.  Every percentage of GDP used by PSE is a percentage that can’t be used to pay for something else, be it roads, hospitals, or personal consumption.

In other words, you can make a decent case for pretty much any province to be among the country’s best or worst, depending on whether you use a GDP framework or a per-FTE framework.  This is intensely annoying to people who crave certainty and exactitude, but that’s the way it is.

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