Higher Education Strategy Associates

Category Archives: access

March 08

The Coming Cost Debate in Ontario

Today I want to think about how the new Ontario system of student assistance is going to play out.  I think there is the potential here for quite an interesting and useful debate; but the timetable is somewhat tricky.

As you will recall, the Government of Ontario is rolling out a plan to provide enough grants to fully offset tuition in most university and college programs for students from families with incomes of less than $50,000.  That’s going to happen by 2017-2018.  But the really interesting thing they want to is what they call “net billing”.  It’s going to roll out sometime in early 2018 for students starting in the 2018-19 year.

Until now, student aid in Canada has worked on the fairly bonkers premise that you don’t need to know anything about your student aid package until after you’ve applied to and been accepted by an institution.  Mostly, that has to do with Canadians governments’ instinct to make things easier for themselves more than for clients.  You see students apply for college/university right around the time that governments make budgets (i.e. January-March).  Governments like to have the flexibility to change programs entirely at the last minute, and so prefer to make students wait until after budget season to apply for the next year’s aid.  What Ontario has done is say “that’s stupid”, and will now accept applications a few months earlier so that students’ aid request can be processed at the same time as their applications.  In effect the province has guaranteed that henceforth changes to aid are going to have to be announced a full application cycle before they take effect.  Result: henceforth, students will see on their acceptance letter what tuition is, what grants they will receive, and what “net tuition” is.

Now in the short term, this will work extremely well for the governing Liberals because by a COMPLETE COINCIDENCE (no, really), the next provincial election is scheduled for Spring 2018.  So tens of thousands of students and parents will be receiving these letters announcing clear, accurate (and low) net prices right before voting.  Amazing how that happens.

But in the slightly longer term – say the first twelve months of a new government, when some serious decisions are going to have to be made about paying off the province’s world-beating debt – there’s going to be another debate.  Because the data that feeds into those admissions letters will be in universities’ hands.  And they are going to show in excruciating detail how much public subsidy is going to people who don’t really need it.

Think about the histograms the Council of Ontario Universities will be able to produce.  They’ll be able to show, by income level and field of study, how little families are actually paying.  And they’ll be able to do it not just in reports for wonks like me, but also to parents in the actual acceptance letters.  “After grants, you pay: $1,000.  Actual cost of child’s education: $18,000.  Degree of subsidy: 94.5%”

For families under 50K, the average payment will be zero (which is about where it should be), and the figure will show 100%.  But families around $100K, whose net tuition payment might end up being $2000 or $2500, might be surprised to learn that they are being subsidized to the tune of 88-90%.  And families at $175,000, subsidized at perhaps 65%?  Hmmmm.

I don’t think many people – other than say, the Canadian Federation of Students and their wilder-eyed allies – genuinely believe that tuition for children of wealthier families should be free.  Most people agree that there should be some sort of net price slope, running from zero for students from poorer families and upwards as family income increases.  There’s no consensus about where the threshold for going above zero is, and no consensus about what the grade of the slop should be.  That’s mostly because we’ve never had data to look at the question properly before. 

But soon we will.  And that is going to kick start a discussion about who might be able to pay more, especially in times where governments are apparently no longer prepared to hand new money to universities and colleges.  Only this time, no one is going to be able to make misleading arguments about tuition and how it affects the poor, yadda yadda because  a) everyone will finally understand how little low-income students pay and b) because proposals to raise fees will explicitly be made in terms of net fees, and can be targeted specifically to on those families who can pay.  In fact, to start with they won’t be phrased as tuition increases at all, they’ll be phrased in terms of diverting some subsidies from (better-off) individuals to institutions.

And that’s all good.  We will -finally- have informed debate.  Expect the summer of 2018 to be particularly interesting, policy-wise.

February 16

Two Simple Reasons Tuition Rises Have Little Effect on Access

It’s that time again, when boards of governors are thinking about tuition for the upcoming year; and as a result, people will be rehearsing their arguments for and against tuition increases.  The basic argument against is the rather simplistic, “higher fees means lower participation”.  And it’s wrong.  Here’s why:

The argument essentially relies on that thing everyone remembers from first-year Econ, where you draw your first supply/demand curves.  When price falls, demand rises; conversely, when price rises, demand falls.  Therefore, a rise in the price of tuition must cause a drop in demand, right?

Well, no.  For this to happen, the starting price must be a market-clearing price – that is, the price that the market will bear.  But in Canada, there are very few universities where this is the case.  In most instances, tuition is already so subsidized that the price is well-below market-clearing levels.  So it’s possible to raise the price without actually affecting aggregate demand.

Think about it: even while we worry about the effects of a price change of a few hundred dollars, we also talk about how great higher education is, and how it makes a difference of tens or hundreds of thousands of dollars in lifetime income (depending on who’s doing the counting, and how).  Well, students aren’t stupid: if there’s an investment that’s going to bring them tens or hundreds of thousands of dollars, a matter of a few hundred dollars isn’t likely to deter them.  Want a prime example?  The massive tuition hikes in the UK in 2012 – which amounted to about $10,000 per year – made almost no dent in access rates (and to the extent they did, the effects were greater among the wealthy and white than the poor and non-white).  Want more data on this?  See here, herehere, and here.

(It’s a different matter when students don’t perceive the benefits that way, which is possible; however, the correct answer in that case is to get the informational issues sorted out.)

Ah, you say.  But what if it’s not a price/value issue?  What if it’s a liquidity issue?  Sure, students understand the value of the degree, but the issue is that they can’t put the money together in the short-term.  And tuition fees make it harder to make ends meet.

Well, that’s a fair point.  Students are cash constrained.  But remember that in Canada, we hand out north of $10 billion in loans, grants, tax credits, and scholarships to students every year.  And half of our students work – maybe not the most ideal source of money for school, but it’s still a mainstay for many learners, and a source of extra income if necessary.  Most students can cover extra costs if need be, which explains why, in point of fact, enrolment over the past three decades has tripled even as tuition has risen by roughly the same.

This is not to say that tuition can be raised with impunity.  Our student aid system is generous, but also it is complicated and opaque, and in need of reform. Some students already receive maximum aid: these students may have significant difficulties in meeting tuition rises, and offsetting measures need to be taken to protect them.  And just because tuition rises in general tend not to have much effect, this doesn’t mean that all fee increases work for all institutions: depending on what local competitors are doing, tuition hikes can sometimes be counterproductive.

In other words, there are good reasons to proceed with caution on tuition fees, to set aside extra funds for vulnerable students, and urge faster reform of student aid.  But they aren’t good reasons to forego a tuition rise altogether.

February 04

Lessons from Scandinavia on the Value of Tuition Fees

Whenever you hear somebody complaining about higher education funding in Canada, it’s usually only a matter of time before someone says “why can’t we be more like Scandinavia?”  You know, higher levels of government funding, no tuition, etc., etc.  But today let me tell you a couple of stories that may make you rethink some of your philo-Nordicism.

Let’s start with Denmark.  The government there is trying to rein public spending back in from a walloping 56% of GDP, and bring it back down to an only slightly less-imposing 50% by 2020.  And it’s doing this while the economy is still weak, and while oil prices are falling (Denmark has some North Sea oil so, like Canada, it tends to see low oil prices as a negative).  So cuts are on the way across many services, and higher education is no exception: universities there will see cuts of 2% in their budgets for each of the next four years.  Over to Finland, where it’s the same story in spades.  Nokia as a technological saviour/massive boost to government coffers is long gone, and economic contraction in Russia is hitting Finnish exports hard.  With the economy declining and the government trying to stay out of debt, the government there also laid out cuts to many services, including higher education: there the hit is a cut of roughly 13% out to 2020.

Now, in North America, when you hear about cuts like this you tend to think “oh, well, at least the government will let institutions make some of it back through tuition, either by increasing enrolment, or raising fees, or both”.  And in general, this attenuates the impact of funding cuts (unless of course you’re at Memorial in which case you are plain out of luck).  But remember, these are free-tuition countries.  By definition, there is nothing that can attenuate the cuts.  And so that 2% per year cut for the next four years in Denmark?  The University of Copenhagen has since announced a first round of cuts equaling 300M DKK ($62 million Canadian), equal to about 5.5% of the university’s operating budget, and that will involve cutting 500 staff positions.   Those cuts in Finland?  The University of Helsinki has decided to cut almost 15% of its staff positions.

Total reliance on government looks good on the way up; much less so on the way down.  That’s why tuition fees are good.  You know students will pay tuition fees every year, which makes them more dependable than government revenue.  Fees balance the ups and downs of the funding cycle.

Another thing tuition fees do is to provide an incentive for institutions to accept more students; if institutions can’t charge tuition and aren’t funded according to student numbers, their inclination will be to accept fewer students, thus undermining the “access” rationale for free tuition.  And this seems to be the case in allegedly-access-friendly Sweden, where enrolment in first and second degree programs has actually been in decline over the past few years.

Total Bachelor’s/Master’s Enrollment at Swedish Universities, 2007-2014














I know what you’re wondering: is it a demographic thing?  No.  The 2015 version of the annual report, Higher Education in Sweden (which is a great report by the way… one of those documents you wish every country could publish), makes it clear that the ratio of applications-to-acceptances for students with no previous post-secondary education (i.e. 18-19 year olds) has actually been rising for the last few years (from 2:1 to 2.5:1).  And it’s not a financial thing either: between fall 2010 and fall 2014, real expenditures at Swedish universities increased by 12%, or so.

So what’s going on?  Well, a few things, but mainly it seems to be that universities prefer to get more dollars per student than actually increasing access.  And I mean, who can blame them?  We’d all like to get paid more.  But I genuinely cannot imagine any jurisdiction in North America – you know, big, bad North America, with its awful access-crushing neo-liberal tuition regimes – where reducing spaces while government expenditures were increasing wouldn’t be considered an absolute scandal.  Yet this is what is happening in Sweden, and apparently everyone’s OK with it.

Total reliance on government funding can make universities complacent about access.  Fees can incentivize institutions to actually admit more students.  Fees have a role to play in access policy.  The data from Scandinavia says so.

November 04

How Canadian Universities Got Both Big and Rich

Earlier this week, I gave a speech in Shanghai on whether countries are choosing to focus higher education spending on top institutions as a response to the scarcity of funds since the start of the global financial crisis.  I thought some of you might be interested in this, so over the next two days I’ll be sharing some of the data from that presentation.  The story I want to tell today is about how exceptional the Canadian story has been among the top countries in higher education.

(A brief aside before I get started on this: there is nothing like a quick attempt to find financial information on universities in other countries to put our own gripes – Ok, my gripes – about institutional transparency into some perspective.  Seriously, you could fill the Louvre with what French universities don’t publish about their own activities.)

For the purpose of this exercise, I compare what is happening to universities generally in a country, to what is happening at its “top” universities.  To keep things simple, I define as a “top” university any university that makes the Top 100 of the Shanghai Academic Ranking of World-class Universities (ARWU).  In Canada, that means UBC, Toronto, McGill, and McMaster (yes, it’s an arbitrary criteria, but it happens to work internationally).  I use expenditures rather than income because fluctuations in endowment income make income numbers too noisy.  Figure 1 shows the evolution of funding at Canadian universities in real (i.e. inflation-adjusted) dollars.

Figure 1: Real Change in Expenditures, Canadian Universities 2000-01 to 2012-13, Indexed to 2000-01 (Source: Statistics Canada/CAUBO Financial Information of Universities and Colleges Survey)















So this is actually a big deal.  On aggregate, Canadian universities saw their expenditures grow by nearly 70% in real dollars between 2000 and 2010.  For “top” universities, the figure was a little over 80%  (the gap, for the most part, is explained by more research dollars).  Very few countries in the developed world saw this kind of growth.  It’s really quite extraordinary.

But a lot of that money went not to “improvement”, per se, but rather to expanding access.  Here are the same figures, adjusted for growth in student numbers.

Figure 2: Real Change in Per-Student Expenditures, Canadian Universities 2000-01 to 2012-13, Indexed to 2000-01















Once you account for the big increase in student numbers, the picture looks a little bit different.  At the “top” universities, real per-student income is up 20% since 2000, but about even since the start of the financial crisis; universities as a whole are up about 8% since 2000, but down by nearly 10% since the start of the financial crisis.

This tells us a couple of things.  First, Canadians have put a ton of money, both collectively and as individuals, into higher education over the past 15 years.  Anyone who says we under-invest in higher education deserves hours of ridicule.  But second, it’s also indicative of just how much Canadian universities – including the big prestigious ones – have grown over the past decade.  Figure 3 provides a quick look at changes in total enrolment at those top universities.

Figure 3: Changes in enrolments at highly-ranked Canadian universities, 2000-2001 to 2012-13, indexed to 2000-2001















In China, the top 40 or so universities were told not to grow during the country’s massive expansion of access, because they thought it would affect quality.  US private universities have mostly kept enrolment growth quite minimal.  But chez nous, McGill’s increase – the most modest of the bunch – is 30%.  Toronto’s increase is 65%, and McMaster’s is a mind-boggling 80%.

Michael Crow, the iconoclastic President of Arizona State University, often says that where American research universities get it wrong is in not growing more, and offering more spaces to more students – especially disadvantaged students.  Well, Canadian universities, even our research universities, have been doing exactly that.  What we’ve bought with our money is not just access, and not just excellence, but accessible excellence.

That’s pretty impressive. We might consider tooting our own horn a bit for things like that.

September 01

The Tennessee Promise

So, yesterday I talked about a big increase in access in the UK, which seems to have little to do with tuition fees.  Today, let’s talk about a developing story in the United States, where a lowering of net prices seems to have had a big impact on access.

You may recall that in the US over the last couple of years, there has been a growing movement for free community college, something that President Obama picked up on earlier this year.  But before Obama picked up this baton, free community college had already been introduced in Republican Tennessee, where governor Bill Haslam had turned something called “the Tennessee Promise into law in 2014.

Technically, the Tennessee Promise is not “free tuition”.  It’s only available to students entering straight from high school (which is a bit weird in terms of design, but whatever).  Students have to be full-time, maintain a 2.0 average, meet regularly with a mentor, and perform eight hours of community service per term.  And technically, what it does is reduce your tuition to zero after all other forms of aid and scholarship are taken care of (this is what is known in the business as a “last dollar” scholarship).  If you apply for the award and meet the terms, government will cover your tuition to the point where your net price is zero.  For a good number of people, this means free tuition with minimal strings attached, so let’s just call it free tuition.

Now, you might expect that with this kind of incentive, enrolment might rise a bit.  And you’d be right.  According to very early results, the number of freshmen is up 29.6% over last year.  Obviously this is a pretty impressive result, but before we get too excited, we should probably find out a little more about where these new students are coming from.  Are they “new” students, or are they mostly students who would have gone to a 4-year college, but have chosen 2-year instead?  And what about students’ financial background?  If you’re poor enough to be anywhere near maximum Pell grant ($5,775), the Tennessee Promise provides no additional aid, because tuition at Tennessee Community Colleges is about $4,000.  So it may well be that what the Tennessee Promise is doing is providing aid to people higher up the income ladder.  This is a little inefficient, but since (as I noted back here) community college students tend to come from poorer backgrounds anyway, this is not as regressive as it would be if it were implemented at 4-year colleges.

We should be able to answer these questions in a few weeks (yes, Canadians, in some places data is available in weeks, rather than years).  Even though Tennessee does not track applicants by income the way the UK does, the state’s excellent annual Higher Education Fact Book does contain two pieces of data that will help us track this.  The first is college-going rates by county, which will help us understand whether the jump in participation is concentrated in higher- or lower-income counties, and the second is the percentage of students who are Pell-eligible.  I’ll keep you up-to-date on this when the data is out.

The most intriguing possibility here is that rates of attendance for Pell-eligible students might be rising, even though the Tennessee Promise provides no actual added benefit for many of them.  It may well be that simply re-packing the way we frame higher education costs (“it’s free!”) matters more than the way we actually fund it (“your tuition is $4,000, and you also have a grant for $4,500”).

This would have significant policy ramifications for us in Canada.  As we noted last year in our publication, The Many Prices of Knowledge, many students at Canadian community colleges face an all-inclusive net price that is negative, or very close to it.  Similarly, poor first-year university students in both Ontario and Quebec have negative net prices.   No one knows it, because we package aid in such a ludicrously opaque fashion, but it’s true.  And if the Tennessee data provides evidence that the packaging of aid matters as much as the content, then it will be time for Canadian governments to re-evaluate that packaging, tout de suite.

August 31

An Interesting Story about Access in the U.K.

Remember how, in 2012, tuition in England rose by about $10,000-$12,000 (depending on the currency exchange rate you care to use) for everyone, all at once?  Remember how the increase was only offset by an increase in loans, with no increase in means-tested grants?  Remember how everyone said how awful this was going to be for access?

Well, let me show you some interesting data.  The following comes from UCAS, which, at this time of year, does daily (yes, daily!) reports on “accepted applicants” (that is, applicants who have been offered a place at universities for the term commencing in a couple of weeks).  Figure 1 shows what’s happened to student numbers from families in the lowest income quintile since 2011, which was the year before the tuition increase.

Figure 1: Number of Accepted Applicants from the Lowest Income Quintile, England, 2011-15














Big increase, right?  Over three years, it amounts to 19.8%.

“Oh well”, say the zero-tuition true believers, “this doesn’t prove anything.  What really matters is what happened to students from higher income backgrounds.  Surely, being less bound by financial constraints, their numbers grew even more”.

In a word: nope.  The rate of accepted applicants increased by more than three times faster for students from the bottom quintile (quintile 1) than it did for those from the top (quintile 5).  Of course that’s partly because they have a lot more room to grow: there are still about three times as many accepted applicants from the top quintile as the bottom quintile.  But the point is: contrary to expectations, the gap is closing.

Figure 2: Change in Number of Accepted Applicants by Income Quintile, England, 2011-2015, Indexed to 2011














“Ok”, say the skeptics; “let’s look at counterfactuals: what’s going on in neighbouring countries, where policy didn’t involve a massive tuition fee increase?  What about Wales, where tuition stayed at a little over £3,000, or Scotland where tuition is free (for Scots: English kids still have to pay the £9,000)?”

Fair question.  Figure 3 shows what happened to students from the lowest income quintile in all three countries: in Scotland, rates of accepted applicants are up by 28%, in Wales by 21%, and in England by 17%.

Figure 3: Change in Rate of Accepted Applicants, England, Scotland, and Wales, 2011-15, Indexed to 2011














“A-HA!”  Say the usual suspects.  “Clear evidence that free is better!”  Well, maybe.  But before declaring victory, why not look at rates of accepted applicants for low-income students across these three countries?   That is: what percentage of all youth from the bottom income quintile actually reach the stage of being “accepted applicants”?

Figure 4: Accepted Applicants from Bottom Quintile Families as a Percentage of all Bottom Quartile Youth, England Scotland, And Wales, 2011-2015














Quite a different story, isn’t it?  Turns out that in horrible, vicious, neo-liberal, £9,000 tuition England, 18% of lowest-income quintile youth apply, and are admitted to university.  In idyllic, equality-loving, £0 tuition Scotland, the figure is not much more than half that, at 10%.  So let’s just say that the evidence claiming fees explain participation rates, and changes thereof, is pretty limited.

But getting beyond the issue of fees, I think there’s a bigger story here.  Right across the UK, regardless of tuition fee regime, there is a massive uptick in participation from low-income students over the last couple of years.  Clearly, something is going right there with respect to low-income students.  Is it a change in aspirations?  Expectations?  Academic preparation?  As far as I know, no one has published on this – I have a feeling everyone was so keyed on explaining expected declines in participation that no one was set up to explain the opposite.  But whatever is going on, it’s a success, and other countries would do well to learn from it.

June 01

The Cost of Moving the Needle

One of the things about increasing post-secondary participation is that the cost of improving access increases all of the time – as you get closer to universality, the students you want to attract becoming increasingly marginal, academically, and require greater investments in order for them to succeed.

A really good example of this comes from the City University of New York (CUNY), which recently completed an evaluation of its Accelerated Study in Associate Programs (ASAP), which is meant to encourage completion among students taking Associate (i.e. 2-year) degrees at the school, on a full-time basis.  The program design is pretty much what you’d expect: it tops-up financial aid so that net cost is zero, plus throws in textbooks and a transit pass.  Each student gets a personal advisor/mentor/coach, as well as career counselling.  Participants get grouped together in small classes (25 students, or less), and the classes are block-booked so that students can take all their courses either in the morning, afternoon, or evening (of great assistance to students with work or family responsibilities).

This is not a cheap program.  At the time the program was being evaluated, it cost over $4,000 per student, per year, though the cost later fell towards $3,500 per student as the program ramped-up.  In the context of US 2-year colleges, such as the nine CUNY community colleges at which this program was implemented, and where per-student expenditure is about $8,000 per student, this is a heck of a lot of money.  But it works.  MDRC, one of the world’s top social science research organizations, evaluated the project recently using a random-assignment experiment, and found that ASAP’s effects on a range of outcome measures were “the largest it (had) found in any of its evaluations of community college reforms”.

The evaluation (executive summary available here) showed that 40.1% of program participants graduated within three years, compared to just 21.8% of students from the control group, and 25.1% had enrolled in a four-year college by semester 6, compared to just 17.3% in the control group (though many American community colleges offer more technical programs, the colleges at which the program was implemented mostly offered arts programs designed as pathways to 4-year colleges, so this metric is actually quite important, because completion without continuation to a 4-year college is of substantially lower value to the student).

Now, that’s a pretty impressive-sounding statistic: for $4,000/year, ASAP can almost double the graduation rate.   But let’s not get ahead of ourselves: in fact, it takes $14,000, spread over 3 years, to achieve this effect.  And even with a doubling, the program is really only affecting one-out-of-five students; one-fifth of students would have graduated anyway, and another three-fifths still don’t graduate.  So to produce one extra graduate, you actually have to spend something in the neighbourhood of $50,000 or so (it’s not actually 5 x $14,000, because you stop spending money once a student drops out).  That’s a lot of money to get one extra graduate, especially for a general Associate degree, where both public and private returns are quite low.

This is by no means a criticism of ASAP: it’s a good program delivering excellent results.  But it does go to show how much money it takes to move the needle on degree completion.  That’s not all going to come from new government sources; it’s going to require changes in institutional business models to reduce costs in order to put more money into things like counselling, advising, and support.

November 17


If I could ban one word from higher education discussions, it’s “affordability”.  It’s a word without precision, and, particularly when used as a synonym for “accessibility”, it’s downright misleading and harmful.

The worst is when someone uses the raw price of a good – in this case tuition – to indicate “affordability”; as in: “tuition went up 5% last year, and that makes it less affordable”.  This is simply asinine.  When the price of milk or gas goes up, we don’t wring our hands about the “affordability” of milk or gas.  We don’t do this for two reasons.  The first is that “affordability”, as a concept, is a ratio and not a point. It’s a function not just of price, but of available resources.  If people were serious when talking about affordability, they would be talking about it in terms of fractions, not prices.

(This of course raises a question – what should we use as a denominator?  When I talk affordability, I tend to use mean or median family income, because nearly all students entering post-secondary education for the first time are drawing on family resources to do so.  The Canadian Centre for Policy Alternatives tends to use much smaller numbers as a denominator, like whatever the minimum wage happens to be.  I get where they’re coming from on this – many students, as they get older, pick up more of the burden of their education costs [though they also tend to earn significantly more than minimum wage].  My number will tend make the fraction fairly small.  Their number will make it look large.  Who’s right?  It depends; to some extent, we both are.)

Which brings us to the second issue: there are people for whom a night out at the movies is affordable, and others for whom it is not.  For some people a Mercedes S-500 is affordable, for others (most of us) it’s not.  Demand curves slope downward, and affordability matters at the margin, not the average.  Most people are simply not affected by an increase in price.  Even in the largest tuition increase in history – the English tuition hike of 2012, where tuition rose by nearly $9,000 – the net effect on applications was only about 5%.  To the extent that affordability affects accessibility, the issue is always about how it affects student at the margin, not how it affects the average student.

That’s why student aid is important.  Student aid helps the students at the margin (or at least it does so everywhere outside Ontario, where “needy” has been re-defined by a vote-grubbing government as anyone with income under $160,000).  Having grants offsetting higher costs is precisely the way affordability concerns should be dealt with – provided you think that affordability is an access issue.

The problem is, for most people the question of affordability is about almost anything other than accessibility.  For most, it’s about making sure that whoever is paying for tuition has more money in their pocket to have a better “quality of life”.   Parents – you deserve that second vacation each year rather than paying tuition!  Students – you should have smaller loan repayments on your way to being the upper-middle class of tomorrow!

Affordability – as a ratio – is thus an important concept in the way we design student aid to help students at the margin.  But the way most people try to explain the concept, and the purposes for which they deploy the concept, are either wrong or disingenuous.  We need to talk a lot more about access and a lot less about affordability.

September 02

Higher Education as a Positional Good

In policy circles, we talk a lot about whether education is a public or a private good (it’s both), and what the implications are for pricing.  But one thing we don’t talk enough about is the extent to which education is a positional good.  And that’s a problem because our decisions on this topic have serious implications for the way we fund higher education.

What’s a positional good?  It’s a good that derives part of its value from the fact it’s valuable, but not everybody has it.  It’s kind of like when a particular article of clothing becomes “cool” – if too many people wear it, it ceases to be cool.  Status goods are a zero-sum game – every time someone else gets something I have, its value to me decreases.

Now think about education.  If too many people get a Bachelor’s degree, its value as a signal of skill goes down, even if everyone’s still gaining the same set of skills.  Think about what that means: the consequence of education being a positional good is that as access to higher education increases, the value of a “plain” Bachelor’s degree decreases, and degree-holders have to find new ways to distinguish themselves.

One way to do this is to focus less on the credential and more on where it was obtained.  Thus, one common pattern in higher education is that as access increases, so too does stratification.  Harvard degrees, for instance, have increased significantly in prestige as access to education has improved. We haven’t seen much of this phenomenon, because – as Joseph Heath recently pointed out – in Canada our most prestigious institutions accommodate a pretty large proportion of our student body.  Combine McGill, Toronto, and UBC and you’ve got about 14% of the entire population (the equivalent for, say, Yale/Harvard/Princeton is about 0.1%).  Since our top institutions don’t confer (much) exclusivity, Canadians look for higher education distinction in the collection of additional degrees.  Hence the explosion in professional Master’s degrees and (to a lesser extent) PhDs.

What makes higher education so weird as a field of policy is that it’s pretty much the only type of status good that governments subsidize.  And that’s really quite weird when you think about it.  What idiot would try to promote universal access to something that, by definition, not everyone can have?

We justify subsidizing degrees because to some extent they do raise skills and productivity, which is good for everyone, not just the people who get the degrees.  But the fact is, when it comes to private returns, in the early career phase at least, what matters is the positional value of the degree.  And not everyone can get into Harvard, or into a PhD program.  If they could, those goods would lose all meaning.  Scarcity is what makes them valuable.

The cry of people who say that there are too many spots in higher education/ law school/ teacher training are really making an argument that there aren’t enough status goods to go around.  That’s in part the consequence of subsidizing education to improve access – you’re bound to get excess demand.

As they say in the computer business, that’s a feature, not a bug.

March 25

The Cost of Expanding Access in Poor Countries

I’ve been dealing a lot with issues of access in Africa (specifically, Senegal and Uganda) over the past couple of months.  And I think I’m coming to the conclusion that there are some situations where it flat-out doesn’t make any sense to expand access.

If you’re a producer of good and services, the main advantage of poor countries is that labour is cheap.  This is why manufacturing has, over the years, drifted to lower-wage countries – first Mexico, then China, and so on.  But universities don’t work that way.  Academics are significantly more mobile than other workers; If university pay falls behind in Ghana they’ll move to Nigeria or South Africa; if it falls behind in South Africa, they’ll move to the UK or Australia.  So to keep them, salaries have to be well above local norms.  Scientific equipment is sold at a global price, as are journals and periodicals (price reduction schemes do exist for Africa, but universities in places like the Balkans or the ‘Stans are pretty much out of luck on that), which is a huge burden for poorer countries.

As a result, the price differential between rich countries and poor countries for producing university graduates is substantially less than it is for producing widgets.  You can see this most easily if you express countries’ expenditures per student on higher education as a fraction of GDP/capita.  In advanced OECD countries, that number is usually in the region of 30%; in Africa, it is frequently over 100% (and even with that disparity, it’s not even close to buying a similar end-product).  It’s quite simply enormously expensive for governments in this situation to expand higher education.

The natural instinct of higher education policy wonks in this situation is always the same: pile on more resources.  If government can’t afford it, let fee-paying students (either in public or private universities) make up the difference.  And that works, up to a point.  But you still run up against the same problem: the cost structures of those institutions aren’t that different from those of public universities, and the troubles the government has in raising money for public services is mirrored by the troubles individuals have in finding well-paying jobs to pay for that education.

Student loans are sometimes mooted as a solution to the problem, but the repayment problems are enormous.  In Africa, for instance, it’s fairly typical that the cost of a year of study is equal to about 40-50% of an entry-level salary.  That means that even if a graduate does find a job right away, their outstanding debt will be on the order of 150%-200% of their income.  Not sustainable.

This isn’t a question of public vs. private.  It is simply a question of return on investment.  At certain levels of development, there are points beyond which you either have to radically reduce the cost of higher education (perhaps via intensive use of MOOCs, as the Kepler project in Rwanda is doing), or you have to say “enough is enough”, because the return isn’t there.  It’s politically difficult to do, but as with any good, one needs to acknowledge when marginal costs start exceeding marginal benefits.  This may be one of those cases.

Page 1 of 41234