HESA

Higher Education Strategy Associates

Category Archives: Funding and Finances

June 13

A Marginally Less Mediocre Set of Provincial Budgets

So, it’s that time of year when I bring you the round-up of what’s happened in provincial budgets over the past few months. Usually, when I do this, I look both at student financial aid and transfers to institutions; this time, I’m going to skip the student financial aid stuff because there’s essentially no change (rock steady since 2013 at around $2.35 billion in constant dollar terms).

One thing that happens a lot when you look closely at budget estimates is that it’s surprising how often what’s actually in the budgets doesn’t actually match how they are described in news reports. For instance, this year it was widely reported that post-secondary institutions in Newfoundland got the chop – but according to budget papers their operating budgets are essentially unchanged from last year (though capital budgets have been cut by $5 million). On the other end, the Alberta NDP was widely applauded for major new investments in higher education but as near as I can tell, this year’s operating transfers are only 3% (in real dollars) ahead of where they were two years ago (though capital funding is way up). That doesn’t mean that the alternative narratives are wrong; I’m looking at big-picture all-inclusive province-wide transfer data; there are other ways of slicing the data which get you quite different results. But its’ worth keeping in mind that the pictures that governments and institutions see are not always the same.

Anyways, here are the year-on-year changes in provincial PSE budgets, in constant dollars:

Figure 1: Year-on-year change in inflation-adjusted transfers to post-secondary institutions, 2015-16 to 2016-17, by province

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Four provinces saw a decline in both real and nominal dollars: Newfoundland, PEI, New Brunswick and Saskatchewan. Of these, two (NL, SK) saw cuts land disproportionately on the capital side. In New Brunswick, a couple of weeks after the budget, the government announced a one-off increase in funding from some weird new innovation/growth slush-fund-y kind of thing which generally has me a bit perplexed; however, because these comparisons are for reasons of comparability budget-to-budget, I have not included this here (they will presumably show up in higher baselines in next year’s comparison. British Columbia and Nova Scotia both increased expenditures, but by slightly less than inflation.

Quebec’s budget increase was slightly (0.18%) larger than inflation. Ontario’s increase was 0.8% but this was entirely due to a bump in capital spending – if we focused on operating dollars alone Ontario would show a slight decline. Manitoba’s new Progressive Conservative government increased spending on higher education of 1.75%; that’s slightly less than what the departing New Democrats had promised but still second-best in the country (don’t get comfortable; the budget cuts are coming next year). Alberta saw a stonking increase of nearly 11% in real dollars but roughly two-thirds of the growth in spending there comes from higher capital expenditures; like the federal government, Alberta has gone big on campus construction as a recession-antidote. With respect to the rest of the increase, some of it actually seems to stem from measures adopted in the previous fiscal year but only actually spent in this fiscal (Alberta, recall, had a weird budget cycle last year which saw the budget only adopted in October).

So the good news is that there was an increase in government expenditures nationally, but how big an increase is a matter of interpretation. If you include capital spending (as I do here), then nationally we had an increase of $375 million, or a just under 1.6%. However, very little of that is going into capital expenditures; take out the changes as one can discern in capital funding (not all provinces break it out clearly in their estimates) then the increase falls to less than $100 million, or less than half of a percentage point.

Over the last five years, what we see is a 3.1% decline in total transfers to institutions, as shown below:

Figure 2: Total Provincial Transfers to Post-secondary Institutions, 2011-12 to 2016-17, in constant 2016$

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Now, it’s important to keep these numbers in perspective. There are a lot of countries where institutions have got hit a lot worse. And of course, our institutions are able to offset losses in public funding by raising tuition (a bit), adding students and taking in more full-fee paying international student – paths not always open to institutions elsewhere.

But on the other hand, bear in mind that system-wide our costs are rising by 3% a year after inflation. Something, eventually, is going to have to give.

June 09

Modes of College-Going

At HESA towers, we’ve recently been looking at some data on student costs of living in various countries.  This has prompted a number of observations with respect to the ways in which higher education – however global and transnational it may occasionally appear to be – is still deeply rooted in national cultures.

One of the things that started us going down this route was looking at estimates of cost of living for American students.  Everyone of course knows that students at American universities live in relative luxury what with the hotel-style dormitories, gourmet food options, climbing walls, lazy rivers and whatnot.  But what kind of staggered us when we took a look at the data was that American students actually appear to be paying *more* once they leave campus.  According to IPEDS, On-campus cost of living is $11,795 (C$14,792), off-campus (not with parents) cost of living is $12,986 (C$16,484) (for comparison, surveys show average living costs of off-campus not-with-parents in Canada is around C$8,500).

Now take this data with a grain of salt: American cost-of-living data is not based on surveys as it is in Canada, but on a compilation of institutional estimates of costs of living (at diligent institutions this may be based on student surveys but at less diligent institutions it may be a number dreamt up with a view to making students eligible for larger sums of students loans).  But at a deeper level there is a truth here.  American families (middle-class ones anyway) do view the higher education experience in a slightly different way than Canadians do.  Up here, there is a sense that post-secondary is a time when students “pay their dues” and live frugally; in the US, college is supposed to be “the best four years” of a student’s life.  And that materially affects the standard of living we expect students to maintain which in turn affects how much students “need” in order to attend college.  And apparently, that amount is “nearly twice as much per year as in Canada”.

Or, take the UK.  This is a country where over 70% of students leave home to go to school.  This has been falling gradually from the low 90%s twenty years ago, but the fall has been very gradual and seemingly unrelated to spikes in tuition fees (the increasing proportion of students from non-white backgrounds, who may not subscribe to this cultural tradition, is a likelier culprit.  You’d think that as tuition went from $0 to $16,000 you might get a *little* bit of price response, but no: spending huge wodges of cash to live away from home is so ingrained as a being part of the “university experience” that even big increases in costs (both tuition and, if you’re studying in London, rent) make little dent in the practice. 

Of course, in some parts of Europe, it’s the opposite: almost nothing gets students out of the house in Italy and Greece (even with low or no tuition): living away from parents simply isn’t part of the DNA.  In theory that should make higher education more accessible because it’s cheaper, but there’s not much evidence that’s the case.  In Scandinavia, people tend to draw out their time in universities, entering later and spending a lot of time switching back and forth between school and the labour market (more on that here). Result: on average, Scandinavian students are a *lot* older than North American ones.  Similarly: in South Korea, males have to do (roughly) two years of universal military service, which for reasons which I’ve never been able to work out, most males do in the *middle* of their university career (a common pattern is to do military service after sophomore year), which means their time-to-completion stats look very weird.

Anyways, the point of all this is simply to  remember that while higher education is a “common” global experience which a growing percentage of the world’s youth undergo, it remains embedded in some deeply national cultures about how students should transition from youth to adulthood.  It’s a major reason why access and student aid policy doesn’t travel well; it’s also why international comparisons  of students and student outcomes need to be done *very* carefully.

June 08

Are NSERC decisions “skewed” to bigger institutions?

That’s the conclusion reached by a group of professors from – wait for it – smaller Canadian universities, as published recently in PLOS One. I urge you to read the article, if only to understand how technically rigorous research without an ounce of common sense can make it through the peer-review process.

Basically, what the paper does is rigorously prove that “both funding success and the amount awarded varied with the size of the applicant’s institution. Overall, funding success was 20% and 42% lower for established researchers from medium and small institutions, compared to their counterpart’s at large institutions.” 

They go on to hypothesize that:

“…applicants from medium and small institutions may receive lower scores simply because they have weaker research records, perhaps as a result of higher teaching or administrative commitments compared to individuals from larger schools. Indeed, establishment of successful research programs is closely linked to the availability of time to conduct research, which may be more limited at smaller institutions. Researchers at small schools may also have fewer local collaborators and research-related resources than their counterparts at larger schools. Given these disparities, observed funding skew may be a consequence of the context in which applicants find themselves rather than emerging from a systemic bias during grant proposal evaluation.”

Oh my God – they have lower success rates because they have weaker research records?  You mean the system is working exactly as intended?

Fundamentally, this allegedly scientific article is making a very weird political argument.  The reason profs at smaller universities don’t get grants, according to these folks, is because they got hired by worse universities –  which means they don’t get the teaching release time, the equipment and whatnot that would allow them to compete on an even footing with the girls and boys at bigger schools.  To put it another way, their argument is that all profs have inherently equal ability and are equally deserving of research grants, it’s just that some by sheer random chance got allocated to weaker universities, which have put a downer on their career, and if NSERC doesn’t actively ignore actual outputs and perform some sort of research grant affirmative action, then it is guilty of “skewing” funding.

Here’s another possible explanation: yes, faculty hired by bigger, richer, more research-intensive institutions (big and research-intensive are not necessarily synonymous, but they are in Canada) have all kinds of advantages over faculty hired by smaller, less research-intensive universities.  But maybe, just maybe, faculty research quality is not randomly distributed.  Maybe big rich universities use their resources mainly to attract faculty deemed to have greater research potential.  Maybe they don’t always guess quite right about who has that potential and who doesn’t but on the whole it seems likelier than not that the system works more or less as advertised.

And so, yes, there is a Matthew effect (“for unto every one that hath shall be given, and he shall have abundance”) at work in Science: the very top of the profession gets more money than the strata below them and that tends to increase the gap in outcomes (salary, prestige, etc).  But that’s the way the system was designed.  If you want to argue against that, go ahead. But at least do it honestly and forthrightly: don’t use questionable social science methods to allege NSERC of “bias” when it is simply doing what has always been asked to do.

June 07

Improving Higher Education in Africa Through Philanthropy

My reputation in Canadian higher education, for better or for worse, is that of being “the guy who knows what’s going on in other places”.  This credits me with a lot more knowledge than I actually have. But it does occasionally prompt people to ask me some interesting questions.  Recently, someone (hi, Krista!) asked me: so what would you say to someone who has a few million dollars to spend, and wanted to spend it on improving higher education for sub-Saharan Africans?

That’s a really good question.  So here’s my answer. 

What most people are inclined to do, as a first pass, is to create scholarships which allow promising African students to study abroad.  The Mastercard Foundation, for instance, did this as its first initiative.  But while this provides life-changing opportunities for the individuals selected, it does virtually nothing for the continent because by and large students who leave don’t come back.  Mastercard, to its credit, figured this out after a couple of years and changed tack.

So the next option is to try to find ways to fund African universities themselves.  One thing Mastercard now does is fund scholarships at selected high-quality African universities such as Ashesi University in Ghana or the African Institute of Mathematical Sciences in Cape Town.  This is a better idea than sending students abroad (it’s cheaper for one thing, so a given amount of money can help more people) and the institutions can use the income to improve their facilities and offerings.  That’s not bad.  But we can still do better.

Let’s start at the top.  African nations have collectively adopted a lot of high-sounding policies about Science, Technology and Innovation, but frankly the policy capacity of African governments to make this happen is pretty low.  If government capacity is the issue, it’s time to focus training on public servants, few of whom have a strong sense of how higher education and the private sector can and cannot support one another to support innovation.  Take 500 or so public servants from across African public sectors, run constant short-course training over three years through established African public policy institutes such as the Ghana Institute of Management and Public Administration (GIMPA) or the Eastern and Southern Africa Management Institute (ESAMI).  The cost of something like this could be in the low millions; the effects across the continent could be lasting and significant. 

Want something more ambitious?  Try expanding the models of higher education available in Africa.  There’s nothing like a good Canadian Polytechnic or north European “University of Applied Science” anywhere.  Someone should build and fund one for a decade or so – and spend big so that it’s something people want to emulate.

Not big enough yet?  Well, how about actually creating an African peer-reviewed research fund?  One of the problems with creating genuine African research flagships is that an enormous portion (in some cases as much as 90%) of their research budgets come from donors with specific research agendas.  The money is welcome, but shifting donors priorities make it difficult to develop an indigenous research capacity.  The World Bank’s decision to create a few dozen “African Centres of Excellence” is a step in the right direction, but it’s still in a sense “big science” – why not take the same approach and seed African science through thousands of small ($15-20,000) curiosity-based grants?  $100 million over five years could have a heck of an impact.

Or, finally, there’s the biggest challenge of all: re-designing the African university from the current model where all learning is assumed to happen in the presence of a teacher (and students therefore spend 35-30 hours in class per week), to a more North American model where students are expected to do more on their own and are therefore only required to spend 15 hours per week in class (I’ve written about this in more detail back here.  Quite simply, further massification is going to be impossible unless teaching gets less intense, but tradition and faculty interests make it difficult to see how this process will start.  But using philanthropic dollars to found a half-dozen universities to revolutionize the system?  Teach north-American style with a whole new, leaner production-function?  Now that would be a genuine game-changer, one that would open up enormous new possibilities for the entire continent.

June 01

Early Results from the Tennessee “Free Tuition” Experiment

You may remember a blog I wrote last year concerning something called the Tennessee Promise.  Described by some as a “free tuition” program, essentially what it did was ensure that every Tennessee student enrolled in a Tennessee community college received student aid at least equal to tuition.  In the fall, the state touted that first year, direct-from high-school enrollments in Tennessee colleges had increased by fourteen percent.  But now, however, some more complete data is available in the form of the State’s annual higher education factbook, which allows us to look a little bit more deeply at what happened.

What the numbers show is something a little bit weird.  If we look just at direct from-public-high-school -to-community-college/college of technology, the numbers are actually much better than initially advertised.  In 2014, this number was 13,527; in 2015 it was 17,550, and increase of nearly 30%.  That’s quite astonishing.

However, not all of this jump in enrollment at colleges came from “new” students.  To a considerable degree, the jump in the number of community-college bound students came from cannibalizing students who would otherwise have attended 4-year colleges, as shown in the figure below.

Figure 1: Public In-State Public High School Graduate Enrolment by System, Fall 2011-Fall 2015

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So, Community College and College of Applied Technology enrollment rose by about 4,000, but enrollments in 4-year colleges fell by 2,000, meaning effectively that half the growth came from people switching from other types of higher education. Still, net growth in enrollments at all levels was about 2,000 , or 6.8%, which is pretty impressive given that growth in the three previous years combined was only about 4%.  It sure seems like there is something positive going on here.  But what?

Well, free tuition promoters would have you believe that what’s happening here is a rush of previously-excluded poor students suddenly attending because education is more affordable.  Unfortunately, we can’t directly check students’ socio-economic backgrounds, so we can’t know for sure who’s responding to these lower net prices.  However, because the factbook shows transition rate by county, we can look at different enrollment responses by county median household income. Figure 2 plots the percentage increase in enrollments in each of Tennessee’s 95 counties against their median household incomes

Figure 2: Percentage increase in college-going rate, Tennessee 2015 over 2014 by County, vs County Median Household Income

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Pretty clearly, there’s no relationship here, which at face value suggests that participation rates of students from poor counties did not increase any faster than the rates of students from richer counties.  But that’s not quite right.  Remember we are looking at percentage increases, and poorer counties tend to have lower participation rates.  Therefore, in order for the percentage increase to be the same in richer and poorer counties, the percentage point increase actually has to be larger in richer counties.  (think about:  a 10% rise for a county with 30% participation rates is 3 percentage point; for a county with a 60% part rate, a 10% rise requires a jump of 6 percentage points).

So, a pure, unsophisticated simple-stupid pre-post analysis of the Tennessee data, suggests that the Tennessee Promise appears to have i) caused a 30% increase in 2-year college-going rates among high school graduates, half of which was diverted from other types of higher education and ii) caused a 6.8% overall increase in transitions to all forms of college, but that this increase did not primarily take place due to increases of the college-going rate of students from poorer counties.

Make no mistake, this is still a very good outcome for a program that only costs $14 million per cohort per academic year; it works out to $7,000 per new student added to the post-secondary system, which is pretty cheap.  Nevertheless, it’s worth noting that those benefits don’t seem to necessarily accrue to youth from poorer backgrounds.

 

May 27

Three Unconnected Thoughts on PSE and Aboriginal Peoples

1)      Changing Disciplines

In the last five years or so, I’ve seen a real change in the way Aboriginal students are moving through the country’s PSE system.  For a whole number of reasons, aboriginal students were traditionally concentrated either in humanities disciplines like history and sociology, or they were in disciplines which led to careers in social services or direct band employment (child care, police foundations, education, nursing).  STEM and Business fields simply weren’t in the picture.  That’s changed substantially over the past few years.  Aboriginally-focussed business programs are popping up all over the place.  Increasingly, we are seeing enrolments in STEM (though there is still a long way to go).  So what’s changed?

A couple of things, I think.  First, the demographics of First Nations students are changing.   Time was, a very high proportion of aboriginal students came in after quite a period out of school, typically in their mid-20s.  Nowadays, we are seeing a lot more students transition at an earlier age, direct from high school (and more often than not from urban, mainstream high schools).  On average, this background prepares them better for PSE than graduation from on-reserve schools. Hence, they tend to be applying for and getting access to more selective courses.

But this begs the question: what’s behind this shift at the secondary level?  A lot of it is demographics.  A greater proportion of First Nations youth are living in urban areas, and so on average they have better access to better schooling.  Drop-out rates are still high and there is much to be done to improve inner-city schools, but conditional on completing high school First Nations graduates seem about as prepared as mainstream students to deal with the rigors of PSE.

Another important factor here is the aging of the last generation to have experienced residential schools.  Parents pass on their views of education to their children; unsurprisingly, those who had been through residential schools weren’t always inclined to encourage their children to invest a lot of their identity in schooling. On top of poverty, racism, etc., this probably had a lot to do with low aboriginal participation rates until fairly recently.  But most residential schools closed in the 1970s; so most of the kids now coming through the system are the grandchildren of the last residential schools generation.  Soon it will be the great-grandchildren.  The bad memories of residential schools are by no means gone, but they are of less relevance in terms of pre-disposition to invest in schooling, and that matters.

Finally, there’s the money issue.  Institutions are finding it a whole lot easier now to raise funds for aboriginal scholarships or other focussed initiatives than they used to.  And that certainly improves the quality of the aboriginal student experience, which probably contributes to improved completion rates.

2)  Money

People are rightly getting peeved at the federal Government for having not come through on its promise to add $50 million in funding for First Nations education through the Post-Secondary Student Support Program (PSSSP).  I expect that’s a promise the Liberals will try to fulfill next year or the year after (there may be a delay as the Feds ponder the implications of the Daniels decision which puts Metis Canadians on the same legal footing as First Nations vis-à-vis the federal government.

But what people haven’t remarked on is the huge boost in funding that First Nations students could receive should they sign up for federal and provincial students aid.  In Ontario, virtually all on-reserve students will be eligible for $9,000 in grants through the new Ontario Student Grant: elsewhere, they will be eligible for at least $3,000 through the improved Canada Student Grant.  If First Nations make their students apply for this aid before applying to their bands for PSSSP, then all their students will have at least some base amount of funding.  That would mean bands wouldn’t need to give as much to each individual student, and could use freed-up funds to provide aid to more students, thus alleviating the well-known waiting list problem.  But that would take a bit of organization to make sure band educational counselors know how to help their students navigate the federal/provincial aid system.  Something our friends at Aboriginal Affairs might want to think about.

3) Truth & Reconciliation

Since the release of Justice (now Senator) Murray Sinclair’s report last year, some Canadian post-secondary institutions have made some extremely useful gestures towards reconciliation, like requiring all students to take  at least one class in aboriginal culture or history.  Which is great, except it’s not actually what Sinclair asked for.  Rather, he asked that students in specific professional programs (i.e. health and law) be required to take courses in Aboriginal health and law, respectively.  As I said at the time I thought this was a stretch and that prestigious law programs would resist this (quietly and passive aggressively, of course).

It’s been a year now – and to my knowledge (everybody please correct me if I am wrong) – no university law or medical school has adopted this proposal.  I wonder how long before this becomes an issue?

May 17

How Rich are China’s Universities?

Last week, Mike Gow at the Daxue blog linked to some interesting data recently published by the Chinese government with respect to the budgets of the country’s top universities.  It only covers those institutions which report to the Ministry of Education (and therefore misses some important institutions like the University of Science and Technology of China (which reports to the Chinese Academy of Sciences) and the Harbin Institute of Technology (which reports to the Ministry of Industry and Information Technology).  It suggests that, at the very top of the Chinese system, there are some jaw-dropping amounts of money being spent.

Let’s focus just on the C9 schools (the Chinese equivalent of the U-15/Russell Group/AAU/G-8, or at least on the seven for which data was provided).  Here is the data for 2015-16:

Table 1: Income & Enrollments of Top Chinese Universities

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*From Wikipedia.  I know, I know, but it’s all I had.

**Using the Big Mac Index to covert from RMB to USD at rate of 3.57 to 1

Now, the jaw-droppingness of these figures depends a lot on whether you think it makes more sense to compare institutional buying power based on market exchange rates or based on purchasing power parity (PPP).  For universities, which pay salaries in local currency but compete for staff and pay for journals and scientific journals in an international market, there are some good arguments either way.  It should also be noted that it’s not 100% clear what is and is not in these figures.  Does Tsinghua’s figure include the holding companies that own shares in all of Tsinghua’s spin-off businesses?  Unclear.  My guess would be that it includes income from those businesses but not the businesses themselves – but it’s hard to know for sure.

Comparing these numbers to those of top American universities is somewhat fraught, because of the way American universities account for income from their teaching hospitals.  Thus Duke reports about twice as much income per student as Harvard because one includes medical billings and the other does not; if you correct for this, the two institutions are about the same.  Correcting as best I can for teaching-hospital income, and excluding Rockefeller University because it doesn’t really have any students and excluding Caltech (which has about $1 million/student in revenue) because it’s such an outliers and would break my nice graph, the top five in the US and the top seven in China looks like this:

Figure 1: Total Income, Chinese C9 Universities vs. Top 5 US universities, in USD at PPP

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The basic point here is that Peking and Tsinghua are – on a PPP basis at least, and excluding medical income on the US side without being sure that it is excluded on the Chinese side – at least roughly in the same league as Harvard, though not quite in the same league as MIT, Stanford and Johns Hopkins.  The rest of the Chinese universities trail a bit: the poorest of these, Xi’an Jiao Tong, would be at about the level of Berkeley if you use a PPP comparison, and Florida State if you use the exchange rate.

Now let’s move to the UK, where the top five universities in terms of dollars per student are Cambridge, Imperial College, University College London, Oxford and Edinburgh.    The comparison changes quite a bit depending on whether or not one uses PPP or exchange rates.  On a PPP basis, Tsinghua and Peking would lead all UK universities; on an exchange-rate basis, they would be 5th and 6th – that is, behind Cambridge, UCL, ICL and Oxford but still ahead of Edinburgh.  Either way it suggests that, financially at least, the top Chinese universities are on a similar playing field as the top UK ones.

Figure 2: Total Income, Chinese C9 Universities vs. Top 5 UK universities, in USD at Exchange and PPP

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Next, let’s go to Canada.  Here are the top five Canadian schools compared with the top seven Chinese ones.  On a PPP basis, UBC is the only Canadian university which would crack the top seven in China.  But on an exchange-rate basis, all of our top five would come ahead of Nanjing and close to Fudan.

Figure 3: Total Income, Chinese C9 Universities vs. Top 5 Canadian universities, in USD at Exchange and PPP

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Finally, let’s take a look at Australia, where universities are frankly much less well-funded than elsewhere.  On a PPP basis, even the weakest of the C9 – Xi’an Jiao Tong – would come ahead of the best-funded Australian institutions (Australian National University).  On an exchange-rate basis, ANU would rise ahead of Xi’an Jiao Tong and Nanjing, but would still lag behind the other Chinese institutions, by a factor of 2:1 in the case of Peking and Tsunghua.

Figure 4: Total Income, Chinese C9 Universities vs. Top 5 Australian universities, in USD at Exchange & PPP

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The bottom-line is that while most Chinese universities are still a ways away from the top international standards in terms of income, expenditure, research base, etc., at the very top it seems that the C9 institutions are now very much in the global elite as far as funding is concerned.  They are not yet there as far as research output is concerned – only Peking and Tsinghua make the Times Higher Top 100 and none make the Shanghai Academic Rankings of World Universities – but that’s only a matter of time.  Rankings (and prestige) are a result of cumulative effort and financing.  Another decade with these kinds of numbers will make a very big difference indeed.

May 16

The New-Brunswick Step-Function

So there’s a kerfuffle going on in New Brunswick about the government’s new “tuition-free” policy for students from families with under $60K in income which I mentioned in passing a couple of weeks ago.  Basically, the problem is that the government drew up the program hurriedly, on the back of an envelope, and didn’t think through the consequences.

If you just listen to the launch announcements, the new New Brunswick program is similar to the new Ontario program (which you may recall I praised to the skies: Ontario promised “free tuition” (actually, grants equal to or greater than average tuition) for “low and middle income families” while New Brunswick promised grants equal to tuition for anyone with family incomes under $60,000.  Same, right?

Wrong.  The difference is that the Ontario program has a long phase-out.  That is, grants fall as income rises, but gradually.  In New Brunswick, they drop off a cliff at $60,000.  A student from a family with income of $59,999 will get (effectively) $7,000 or so in grants, but at $60,001, you’re only going to get about $1,200.  Figure 1 shows eligibility for federal grants (in blue, for 2015-16 and 2016-17), and the New Brunswick Tuition Access Bursary (TAB) and the Ontario Student Grant (OSG) – the OSG line is a bit messy, and I assume it will actually be a bit smoother than this, but this is a best-estimate based on the Ontario budget papers).

Figure 1 – Eligibility for Grants, Ontario Study Grant Vs. New-Brunswick Tuition Access Bursary

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In the business, this is what’s known as a “step-function”, and is generally best avoided because it creates all sorts of weird incentives.  In this case, a New Brunswick family with two parents earning $30,000 each and a kid in university will be way better off rejecting a salary raise than they would be accepting it, as their kid would lose $5800 in grant funding every year. 

But the problem in New Brunswick goes deeper than that.  It’s not just that such parents will lose money in the future, it’s that they are going to be worse off than they are now.  New Brunswick is paying for this move by ditching the provincial tax credits for tuition and education, and this elimination is on top of the federal government ditching its education and textbook tax credits to pay for the upgrade in federal grants.  What this means is that everyone in New Brunswick will lose about $1600 worth of tax credits.  For those at the low-end of the income scale, that’s fine, because this will be offset by the higher grants.  But for a family earning $60,001, they will be losing that $1600, but only gaining $400, thanks to the increase in federal grant.  Something similar happens in Ontario as well, but only once you get past about $110,000 in family income.  In New Brunswick, we’re talking about taking away $1200 per year in aid from people earning $60,000.  That’s a big, nasty hit. 

You may well ask “why didn’t New Brunswick have a more phased-out reduction”?  Well, it’s hard to tell.  The minister, after claiming her program was identical to Ontario’s, later told CBC that she had no idea Ontario had a phase-out and New Brunswick didn’t.  Which is, you know, a bit worrying.  But the bigger reasons are that New Brunswick a) has never spent that much on student aid, and so didn’t have as big a base of money to redistribute as Ontario and b) appears to have only re-invested half the money it saved from axing various tax credits (that’s an estimate – it hasn’t been super-transparent with cost estimates of the program; one wonders if this isn’t the reasons the government didn’t announce this measure as part of the budget where the figures would have been more transparent).  Had it re-invested more fully, New Brunswick probably would have had enough money to do an Ontario-style phase out.

Now, in addition to having announced a flawed policy, the Government of New Brunswick has annoyed the crap out of me personally by claiming that I provided the inspiration for said policy. To that end, it appears to have been handing out partial copies of a paper produced for the previous government in 2011-12.  Since my client has been (selectively) leaking my work, I don’t particularly feel bound by any of the usual confidentiality provisions. So here’s what actually happened:

HESA did do some work for the New Brunswick government – specifically, the Ministry of Advanced Education and Labour – in the fall of 2011.  We were asked two questions.  One, were the back-end subsidies New Brunswick was then using (a timely-completion loan remission program, the usual tuition & education tax credits and a graduate tax benefit) effective?  Two, could we come up with some more interesting ways to use that money? 

To the first question, we answered no, for a variety of reasons which, if you’re a regular reader, you can probably guess.  To the second question we said the money should be used three ways.  One, a new grant program to deal with “unmet need” (that is, need in excess of current aid maximums), which primarily would have benefitted students with dependents.  Second, because student debt and repayment is a much more serious problem in the Maritimes than it is in the rest of the country (because of higher debt & lower graduate incomes), we suggested a hard debt-ceiling of $7,000 per year, with the remainder turned into grants.  Last, we suggested some investment in early-intervention programs.  We did NOT suggest anything like what the provincial government has done.  And frankly I’m more than a bit teed off the present government chose to publicly present our findings that way.

Bottom line: getting rid of tax credits is good.  Re-investing funds in a way that concentrates more spending on lower-income students is good.  Bravo to New Brunswick to getting those two things right.  But details matter.  This government got the details wrong by not fully re-investing and putting too high a burden on middle-income students.  It needs to fix this.

May 06

What Ottawa Spends

The Parliamentary Budget Officer did everyone a solid yesterday by publishing a really helpful compilation of federal government expenditures on higher education. According to the publication, the Government of Canada in 2013-14 spent $12.3 billion on post-secondary education (not including money for apprenticeships, training programs or labour market agreements; that includes $5.1 billion for “human capital measures”, which is mostly Canada Student Loans and Tax Expenditures of various kinds, $3.5 billion for research, three-quarters of which is from the granting councils and the remainder through various departmental programs, and $3.7 billion through the Canada Social Transfer, which is a theoretically earmarked.

The graph below shows the evolution in expenditures in nominal dollar. While the growth is therefore somewhat exaggerated because of inflation, it’s interesting to note that overall, expenditures increased by a third, from $9 billion to $12 billion, between 2005-6 and 2013-14. This would have been a very good talking point for the Tories in the last election; it’s a bit of a mystery why they didn’t use it.

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(In case you’re wondering what the bump in human capital formation spending is in 2009-10 and 2010-11, I’m pretty sure it’s the cost of the transitional measures relating to the end of the Millennium Scholarship Foundation).

The report has a nice little projection about what future expenditures in post-secondary are going to be. The PBO seems to think there’s going to be a lot of cost growth because of an upswing in student numbers. I think that’s somewhat unlikely given the demographics; on the other hand, I think there will be cost growth as an increasing number of students figure out that they are eligible for free money under the new student aid arrangements. So it’s probably a wash. In any event, here’s what’s PBO thinks the future looks like:

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The one bit of the report I find a little off is the section on who is using tax credits. The problem with analyzing the use of tax credits is that it combines parental use of tax credits with student use of tax credits. This is a problem because students are concentrated in the bottom income deciles. So if the child of a millionaire uses tax credits, it’s counted as being used by Canadians from the bottom quintile of income, which let’s be honest is a bit misleading. But still, overall, this makes a powerful point: tax expenditures are skewed to the wealthier end of society and it’s an awfully good thing that they are being phased out in order to fund poorer students.

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(Remember though: the reason tax benefits are skewed to upper quintiles isn’t because they are worth more to those individuals. These are credits, not deductions. No, the reason they are skewed is because the children of parents from upper-income quartiles are that much more likely to attend higher education and especially universities. In other words, *all* spending on higher education gets distributed this way. Which is a prime reason why education should not be free – this is the way the benefits of such a move would be skewed).

Anyways, there’s nothing special or complicated about the PBO analysis. It’s just really nice to have all this stuff well documented and presented in a straightforward manner in one place. Kudos.

(Note: I will be taking a break from blogging next week. Back on May 16)

April 29

Free Harvard Fair Harvard

Harvard has a unique Governance structure.  Basically, it has two boards and no Senate.  One of the two boards – the Board of Overseers – is composed entirely of Harvard alumni.  It has thirty members and the membership turns over a bit each year with annual elections.  This year’s annual election is a bit of a doozy.

Back in January, an alumni and businessman by the name of Ron Unz submitted a slate of candidates – which included consumer activist and former Green Party presidential candidate Ralph Nader – on a “Free Harvard/Fair Harvard” platform.  His double-barreled manifesto, as its name implies, is to get Harvard first use some of its vast endowment to reduce tuition and second to move to a system of race-blind admissions.

What should we make of this?

Well, the first demand is ludicrous.  75% of Harvard graduates end up with no debt, either because they come from wealth and can afford the fees or have income sufficiently low that they received something close to a full ride (technically, Harvard doesn’t give a full-ride in the sense that a student will be expected to work a few hours a week no matter what, but it’s awfully close).   In practice, for a family of 3 with no assets outside of housing and retirement funds, income needs to be about $150,000/year before the aid package drops below the level of tuition (you can play with Harvard’s net price calculator here.  Pretty clearly then, making Harvard “free” genuinely would only benefit those with very high family income.  And frankly why would anyone want to do that?

The second demand is trickier.  The slate is making quite a bit of hay out of data that Asian-American students are being discriminated against in the application process.  Unz himself wrote quite a fierce piece on this in 2012, which suggested that as far as Ivy League admissions are concerned, Asians are the “new Jews” – a reference to the fact that Ivies imposed much higher entrance requirements on Jews than gentiles prior to WWII so that the former did not swamp the latter and drive away all those nice WASPs to whom the Ivies were in fact beholden for fund raising (this story is told in excellent detail in Jerome Karabel’s The Chosen, which is a history of admissions and the concept of merit at Ivy League schools).  Unz in effect argues – and it is difficult to disagree with him, based on the evidence – that increasingly the group that is “paying” for affirmative action (that is, policies which give Black and Hispanic students preferential access to spots at Ivy League schools) is Asian-Americans, not whites.

There’s no doubt that Unz’s narrative is troubling (though it should be noted not all his claims appear to be factually correct).  That said, his solution here is effectively to end affirmative action.  Given the extent to which Harvard graduates dominate public life in the United States, ending affirmative action would have an enormous effect on the ability of Blacks and Hispanics to access some of the upper corridors of American society.  Add that to the fact that Unz has in the past funded groups with some fairly unpleasant white supremacist associations, as well as sponsoring ballot initiatives against bilingual education, and you can see why some people think that behind Unz’ pre-occupation with fairness for Asian-Americans lie some much nastier anti-Black and anti-Hispanic prejudices.

The presence of the Unz slate has prompted the formation of an opposing “Coalition for a Diverse Harvard” slate, which is vigorously defending the current admissions system.   The balloting is by mail, and results will be announced on May 26th.  The results will be closely watched, particularly in a Presidential election year.  If Harvard’s own alumni – a group which you’d think would be in the tank for the Democrats – votes against affirmative action and for spending more endowment money on the richest of the rich, it will cause some interesting ripples in the campaign.  For that reason, I think it’s quite unlikely to come about, but then again I wouldn’t have guessed Ralph Nader would ally himself with this set of ideas, either.

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