HESA

Higher Education Strategy Associates

Category Archives: Policy

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.

March 23

Getting Mugged By Your Own Government

Good morning from Maputo, where word has reached me regarding a truly awful piece of government policy emanating from Regina.

Page 14 of the provincial budget briefly suggests that something miraculous has occurred in provincial funding policy:

This budget provides 1.0 per cent operating increases for universities, affiliated colleges and regional colleges and 2.0 per cent operating increases for technical institutes and federated colleges.  Overall, the 2015-16 Budget includes $661.2 million in post-secondary operating and targeted funding, a reduction of $8.17 million from last year’s budget.

Got that?  The budget for operating funding is going up, yet provincial funding is going down.  That’s like magic!  Unfortunately, the finance minister ruined things in the next sentence by explaining the illusion:

That decrease is mitigated by the University of Saskatchewan supporting the 2015-16 expense growth capacity by using $20.0 million from its reserve funds.

“Supporting the expense growth capacity” is an interesting euphemism.  Next time someone mugs you and takes your money, just remember you’re supporting the mugger’s expense growth capacity.

Now, let’s be clear about what happened here.  In the six years between 06/07 and 12/13, operating revenue and expenses at U Sask both grew by about 50%.

Yes, really, they were growing by 7% a year.  In 2012, the university realized this wasn’t likely to continue indefinitely and decided to rein-in the rate of expenditure growth so that it matched the institution’s projected rate of revenue growth (roughly 3.5%).  This is what TransformUS and all those cuts were about, but even with the cuts, U Sask’s budget in 2015 was still projected to be 66% larger in nominal terms than it was back in 2006.

(Go ahead, someone tell me about underfunding.  I dare you.)

Anyways, come 2013-14, U of S came up trumps with its budgeting.  A year or so ahead of schedule, the university hit all its net revenue targets and ended up with a surplus of $21 million – a figure not unadjacent to the $20 million the government just decided to boost from U Sask’s coffers.  Since USask temporarily has the cooties due to the whole Buckingham fiasco last year, it’s an easy mark for a government needing a few bucks to plug holes in its budget.

U Sask should, by rights, be screaming blue murder.  Absent new cuts, its own figures show it will be back in deficit in a year or so (see page 27 here).  Which is why USask’s post-budget statement, which suggested at worst mild disappointment, was so completely baffling.  That $20 million came from a scarring round of buyouts and layoffs.  For the university to shrug and say, “well we didn’t really need that money anyway” is puzzling in the extreme.

But the worst thing here is the precedent being set.  After this, no responsible Canadian university President should ever budget for a surplus.  Only by running deficits can institutions be sure of not getting mugged by their own governments.  Indeed, the new model of responsibility might be UQAM, whose debts briefly touched $380 million a few years ago (they have since come down to a “manageable” $150 million).

This is an awful piece of policy, which incentivizes institutions to make their finances as brittle as possible.  God forbid it become policy anywhere else.

February 12

Free Election Manifesto Advice

OK, federal political parties.  I have some election manifesto advice for you.  And given that you’ve all basically accepted Tory budget projections and promised not to raise taxes, it’s perfect.  Completely budget neutral.  Here it is:

Do Less.

Seriously.  After 15 years of increasingly slapdash, haphazard policy-making in research and student aid, a Do Less agenda is exactly what we need.

Go back to 1997: we had three granting councils in Canada.  Then we got the Canadian Foundation for Innovation.  Then the Canadian Foundation for Sustainable Development Technology.  Then Brain Canada, Genome Canada, Grand Challenges Canada, the Canadian Foundation for Healthcare Improvement, The Canada First Research Excellence Fund – and that’s without mentioning the proliferation of single-issue funds created at SSHRC and NSERC.  On commercialization, we’ve got a College and Community Innovation Program, a College-University Idea to Innovation Program, a dozen or so Centres of Excellence for Commercialization and Research (CECRs) – plus, of course, the wholesale revamp of the National Research Council to turn it into a Canadian version of the Fraunhofer Institute.

It’s not that any of these initiatives are bad.  The problem is that by spreading out money thinly to lots of new agencies and programs, we’re losing something in terms of coherence.  Funding deadlines multiply, pools of available cash get smaller (even if overall budgets are more or less what they used to be), and – thanks to the government requirement that a large portion of new funding arrangements be leveraged somehow – the number of funders whose hands need to held (sorry, “whose accountability requirements need to be met”) is rising very fast.  It all leaves less time to, you know, do the actual science – which is what all this funding is supposed to be about, isn’t it?

Or take student assistance.  We know how much everyone (Liberals especially) loves new boutique student aid programs.  But that’s exactly the wrong way to go.  Everything we know about the $10 billion/year student aid business is that it’s far too complicated, and no one understands it.  That’s why people in Ontario scream about affordability and accessibility when in fact the province is nearly as generous as Quebec when it comes to first-year low-income university students.  For people to better appreciate what a bargain Canadian higher education is, we need to de-clutter the system and make it more transparent, not add more gewgaws.

So here’s the agenda: take a breather on new science and innovation programs; find out what we can do to make the system simpler for researchers; merge and eliminate programs as necessary (is Genome Canada really still worth keeping, or can we basically fold that back in to CIHR?) – while ensuring that total funds available do not diminish (a bump would be nice, too, but the simplification is more important).

As for student aid?  Do a deal with the provinces to simplify need assessment and make it easier for students to know their likely aid eligibility much further in advance.  Do a deal with provinces and institutions to convert tax credits into grants to institutions for a large one-time tuition reduction.  Do not, under any circumstances, do anything to make the system more complex.

I know it goes against the grain, guys.  I know you need “announceables” for the campaign.  But in the long run, it’s more important to do things well.  And to do that, we really need to start doing less.

February 10

The Unbearable Mediocrity of Canadian Public Policy

A few months ago, I wrote a very harsh review of a paper written by the former head of the Canadian Council on Learning, Paul Cappon.  I was mostly cheesed off by Cappon’s mindless (and occasionally mendacious) cheerleading on behalf of an expanded role for the federal government in education.  But in one respect, Cappon had a point: though I disagree with him about what level of government should be doing it, we need someone in Canada setting goals for our systems of higher education.  Because as it stands, we effectively have none.

Take Ontario (please).  Here we have a government that will sanctimoniously tell you how much it cares about access.  My God, they love access.  They love access so much that they will hand out money to just about anyone in its name, no matter how preposterous.  But ask yourself: if the government cares so much about access, why does it not have a measurable access goal against which to evaluate progress?  In the absence of such a goal, one gets the sense that the Ontario government measures progress by how much money it spends, not by what it actually achieves.

Ontario’s Ministry of Training, Colleges and Universities publishes an annual “Results-based Plan”, which contains a list of “goals” that are laughable in their vagueness (the most specific goal being: “raise Ontario’s post-secondary attainment rate to 70%”, without either defining what is meant by post-secondary attainment rate, or attaching a date to the goal).  But none of the provinces to Ontario’s east have any targets for access, either; the closest we get is Quebec, where the ministry does have quite a list of annual targets, but they tend toward the picayune – there are no targets on access either in terms of participation rates as a whole, or for under-represented groups.

Heading west, things hardly get better.  Ministries of Advanced Education in Manitoba and Saskatchewan have annual reports that track trends on key educational goals, but that offer no associated targets to meet.  British Columbia does have a target for “increasing participation and successful completion of all students”, but bizarrely, the indicator chosen for this is not participation rates, but rather unemployment rates for graduates (and the “target” – if we can call it that – is to have unemployment rates less than or equal to high school graduates, a bar so low it may actually be underground).  Alberta alone actually publicly sets itself goals on participation rates.

It’s more or less the same for other policy areas.  Retention?  Quebec has a couple of commitments with respect to doctoral students, but that’s about it.  Research?  Again, only Alberta.  Post-graduate employment rates?  Only those seriously unambitious ones from British Columbia.

Does it have to be this way?  I point your attention to this very useful document from the European Commission on the “Modernisation of Higher Education in Europe” (which in this case covers issues of access, retention, flexibility of studies, and transitions to the labour market).  It shows quite clearly how many governments are adopting specific, measurable targets in each of these areas.  Ireland has set a target of 20% of new university entrants being mature students.  Finland wants to increase male participation to equal that of women by 2025.  A few years ago, France set a target 31.5% of its undergraduates to come from disadvantaged socioeconomic groups by 2015.  Similarly, Slovenia set a target of reducing non-completion rates from 35% to 12% by 2020.

Goal-setting is important.  It encourages a focus on outcomes and not activities and, as a result, makes governments more open to experimentation.  But it’s also hard: it exposes failure and mediocrity. Canadian policymakers, for reasons that I think are pretty deeply etched in our national character, prefer a model of “do your best” or “let’s spend money and see what happens”.  It’s a model where there can never be failure because no one is asked to stretch, and no one is held accountable for results.

Policy-making in higher education doesn’t have to be this way.  We could do better; we choose not to do so.  What does that say about us?

February 04

The “Skills for Jobs Blueprint”

I don’t pay as much attention as I should on this blog to matters British Columbian, mostly because I don’t get out there often enough.  But the province’s “Skills for Jobs  Blueprint” cries out for some critical treatment, because frankly it’s not all that smart.

Turn back the clock a bit: in April 2014, the BC government rolled-out a series of policies that were collectively branded as the “Skills for Jobs Blueprint”.  Much of it consisted of relatively sensible changes to trades training in view of the upcoming Liquid Natural Gas (LNG) mega-project.  However, included in this package was some other stuff that sounded like it had been dreamt up on the back of a cocktail napkin.  These included: more generous student aid to students enrolled in disciplines related to “high-demand” occupations, and requiring institutions to spend at least 25% of their budgets on disciplines related to “high-demand” occupations (to be phased in by 2017-18).

The student aid pledge was just silly: if these are truly high-demand occupations, they’ll pay more, and students will have less problem re-paying loans.  Why would you give more money to these people? The requirement for institutional spending had the potential to be ridiculous, but wasn’t necessarily so.  Whatever purists might think, public authorities spend money on higher education mainly to improve the local economy; and besides, depending on how broadly “high-demand” occupations were described, they might already be spending 25%.  There was the possibility, in other words, that it would require no change at all on institutions’ part.  But that would depend crucially on how BC defined “high-demand”.

This is where it gets maddening.  When the government finally released its definition of high-demand, it had nothing to do with a skills gap, and was not in any way based on analyses of supply and demand.  Instead, it was simply the 60 occupations with the most job openings.  Or, put differently: according to the government of BC, the highest-demand occupations are simply the 60 largest occupations.  Oy.

Now, it’s hard to tell whether institutions actually line up 25% of their spending on priority disciplines related to the “big 60”, since BC doesn’t work on any kind of funding formula.  However, it is possible to reverse engineer this kind of thing by looking at enrolment patterns, and assuming that spending weights are similar to what one would see in other provinces (read: Ontario and Quebec), as we demonstrated back here.  Which is what my colleague Jackie Lambert did.

The results were instructive.  Quite clearly, all colleges meet the test.  Among universities, it’s slightly more complicated.  If you simply take all enrolments in the academic programs most directly related to 59 of the 60 “most desired” occupations, and weight them in the ON/QC style, you find that province-wide, these programs already make up 32% of expenditures, and all universities except Emily Carr would meet the 25% cut.  However, the 60th occupation with the most “demand” is university professors (yes, really), which technically can be filled by doctoral students from any program.  Throw those in and you end up with almost 47% of all dollars being spent on “priority” areas.

Ideally, this result would mean the province could just declare victory (“Look!  25%! We showed them!”) and go home.  But these days, government can’t just be seen to be ordering institutions about; they have to actually be ordering them about.  So my guess is BC will avoid declaring victory, and instead use the ambiguity created by the lack of a funding formula to jerk institutions around a bit “(Spend here!  Don’t spend there!”), just to show everyone who’s boss.

Plus ça change…

January 28

Another Australian De-regulation Update

So the last time we tuned into antics in Canberra, the government was trying to pass a fairly ambitious piece of legislation that would completely de-regulate tuition fees while (more or less) maintaining the HECS system, which means post-graduate contributions are always tied to income, and thus do not become too onerous.  The government was also going to cut institutional grants by about 20%, but keep the “demand-driven” system in which government dollars follow students no matter how many students attend.

The problem with this, politically, is that the government does not control the Senate.  With Labour and Green opposed to the coalition, the government needs to attract six of eight votes belonging to independents and minor parties to get anything done in the upper chamber.  Late last year, four of those senators were making positive noises. Two others (including the delightful Jacqui Lambie – seriously, click that link, it’s totally worth it) were implacably opposed, while the final two in play – Dio Wang of the vaguely Ford-ist (minus the drugs) Palmer United Party, and Independent Nick Xenophon – were opposed, but perhaps open to passing a deal with amendments.

So the government switched into deal-making mode, right?  Wrong.  For reasons that defy rational explanation, the coalition opted for a snap December Senate vote on the package, as-was.  Cue a two-vote loss.  Frank Underwood would not have been amused.  In Australian parlance: the coalition whips were clearly a few sheep short of a full paddock.

But that wasn’t the end of the story.  In response, the lower house simply adopted the same bill again, and sent it back to the Senate – only this time the government was ready to deal.  The 20% cut in government grants, those “necessary” savings that required the government to introduce de-regulation?  Turns out they’re negotiable – de-regulation apparently now matters more than fiscal probity.  The universities can hardly believe their luck: full freedom to increase fees, and no loss in government grant?  I don’t know exactly what’s going through vice-chancellors’ heads right now, but I’m betting that the words “eating”, “too”, “having”, and “cake” are all in there somewhere.

Problem is the government isn’t negotiating with vice-chancellors, it’s negotiating with Wang and Xenophon.  Wang has now said he is personally for de-regulation, but will abide by a caucus decision on the party line when voting (the question remains open as to how this would work, given that the only other Palmer senator is dead-set against the bill).  Xenophon wants the whole matter of university funding tossed over to a big bipartisan commission, a position which manages to be both sensible and absurd.  Sensible in that yes, changes of this magnitude are best done in bipartisan fashion, because otherwise institutions get policy whiplash if the opposition comes to power and undoes the change (a point I made back here).  On the other hand, it’s absurd in that there have been quite a few inquiries and commissions into higher education in the last few years; there are few secrets about the current system’s strengths and weaknesses.  Also, bipartisan commissions take two to tango, and there’s precious little sign the opposition Labour Party has any interest in handing the government a way out of this debacle (even if, as is whispered, some of them actually approve of the policy).  Xenophon presumably knows this, which is why his position – in Canadian parlance – is classic ragging the puck.

The clock is ticking on this proposal.  Universities need to know what to tell incoming students about their fees, so the question pretty much has to be solved by March.  That means another vote in the next five weeks or so.  Given the government’s ham-handedness in handling the file to date, odds are it’s not going to pass, though stranger things have happened.  But given the vaulting ambitions of Australian universities, and the seemingly limited desire of Australian government to fund higher education (per-student government funding is 30-40% lower than in Canada), it’s hard to imagine this option not coming back in some form in 2016.

January 27

Setting Tuition Fees

On what basis can tuition fees be set?  Let us count the ways.

The most obvious is “whatever the market will bear”.  This is the way most goods and services are priced, and the system on the whole works pretty well.  Private institutions around the world also work on this principle.  So do public institutions in many places, at least where MBAs and international students are concerned (also out-of-state students in the US).

But other than that, public institutions are not permitted to charge market-based prices (if Australia ever passes its deregulation bill it will be the exception – but more on that tomorrow).  They therefore have to find some other principles on which to base prices.

One option is to ask people to pay in some kind of relation to the returns on their education.  In a pure graduate tax system (which doesn’t actually exist anywhere), this happens directly because education payments are tied to annual income.  A rough-justice version of this concept sees fees vary by field of study, according to average returns in each field.  Canadian universities superficially do this by charging higher fees in fields like medicine, dentistry, and law than in Arts and Science.  But then again, in most cases, Canada’s variable fees only kick in at the second-degree level – at the first-degree level there is actually very little variation.

Australia has shown more gumption here: since the mid-90s their version of tuition fees (i.e. HECS contributions) have divided fields of study into three “bands”, with the lowest one (paying $5,000/year) containing fields like humanities, languages and education, the middle one (roughly $7,500/year) including computer science and engineering, and the top one ($8,500/yr) including law, medicine, etc.  (Of course, they then went and altered this scheme by designating science and maths as “national priorities”, and reduced their tuition to about $4,000/yr, but whatever.)

A third option is to charge students in relation to what it costs to educate a student.  In practice, this looks a lot like charging based on returns, because the capital-intensive programs also tend to be high-return programs.  However, law and business tend to cost a little less in this variation, and Fine Arts tends to cost more.  However, lack of clarity on how to define “costs of education” makes this a difficult system to adopt.

These are all ways of varying tuition; in practice, however, there is little variation in first-degree programs at public universities around the world, apart from Australia.  The reason is fairly simple: in most places, fees are controlled directly or indirectly by government.  And where government is involved, the key principle in deciding fee levels is: “what can we get away with?”  Because for governments, tuition is less a legitimate revenue stream that institutions use to reach financial (and hence academic) goals, and more a necessary evil that must be subordinated to short-term electoral calculations.

Some Canadian governments take this idea completely meta.  When Manitoba abandoned its tuition fee freeze in 2009, it chose to tie its tuition to the mid-range of what institutions in other provinces charge.  That is to say: tuition in Manitoba is the average of what other provincial governments think they can get away with.  Alberta does the same thing on a case-by-case basis: where institutions can prove that some of their programs are under-priced compared to similar programs at other major Canadian universities, the government will grant an exception to its blanket tuition policy and allow these programs to raise tuition to match.  Somehow, this process came to be known as the “market-modifier” system, which is odd considering there appear to be no markets at work here whatsoever.

Anyways, the upshot is there are lots of possible ways to set tuition, very few of which are likely to see the light of day because governments are disinclined to give up control of the fee-setting process either to institutions or an algorithm.  C’est la vie.

January 13

Packaging Student Aid

One of the things about student aid that makes it such great fun as a policy area is that it’s as much about framing as it is about actual policy.  For instance, which of the following two policies would you like to have?

a)      A policy where students are asked to bear a huge amount of debt – over $100,000 in some cases for an undergraduate degree – over 25 years, and where three-quarters of students will never repay their loans in full; or:

b)      A policy where graduates are asked to pay a 9% surtax for 25 years, up to a maximum of about $100,000, but much less (possibly even $0) if their earnings are low.

If you’re a regular reader of the Guardian, you’ll probably recognize the first policy as being the one implemented by the Cameron government in 2012, to cover fees in English universities.  That’s the one the progressive types are always pointing at and shouting: “Look!  Students are being horribly indebted AND the government is losing lots of money through the program!  Quelle fiasco!”

But here’s the thing: that second program is also the English loan scheme.  As I’ve explained before, for the three-quarters or so of graduates not expected to pay off their loans in full, the scheme is simply a graduate tax.  It’s not explained that way, but that’s what it is.  It’s a packaging issue.

There’s something similar going on in student aid policy in the United States; namely, the interest in something called “Income Share Agreements”.  It’s been kicking around for awhile (the American Enterprise Institute wrote about it a year ago), but is getting more of a hearing these days because Florida Senator, and potential Presidential candidate, Marco Rubio is now backing it.  It’s basically a Human Capital Contract – someone gives you money today, and you agree to give them a set portion of your income for a set number of years.

If that sounds like a Graduate Tax, that’s because it’s exactly how a graduate tax works – the difference in this case simply being that you’re not giving that money to government, but rather to an individual who has chosen to “invest” in you.  The beneficiary is different, but the flow of funds is precisely the same.  But that difference is enough to get the idea some love from a Tea Party favourite.

And that is to say nothing of our experience in Canada where the CFS, which absolutely hates income-contingent loans, and has done so for years, applauded the introduction of the Repayment Assistance Program (RAP) – which basically makes the Canada Student Loans Program fully income-contingent – because the government simply chose not to call the program “income contingent”.

This all goes to show: in student aid, few people actually look at substance.  The real debate is about the packaging.

January 12

That Obama Free Community College Proposal

I was going to start on a series about growth in non-academic staff numbers today, but the news out of Washington late last week was too spectacular, so I’m bumping it.  Did Obama really say he wanted to make community college free?

Well, yes he did.  But he might not have meant it the way we all heard it.  And whatever happens, it’s unlikely to occur any time soon.

Let’s start with what he actually said (White House fact sheet, here).  He said he would make tuition free for “responsible students” (read: on course to graduate on-time, with a 2.5 GPA) attending community colleges and taking courses towards a 4-year degree, or an occupational training course in an “in-demand” field.  But there were some catches.  Only institutions that adopt “promising and evidence-based” programs to improve graduation rates will qualify.  States also have to agree to participate, kick-in 25% (or thereabouts) of the funding without cutting any other higher education programs, plus adopt a new outcome-based formula-funding system that funds completions rather than enrolments.  It’s not clear how many states will agree to this (nor, indeed, is there much likelihood that a republican congress would agree to those kind of state spending mandates).

There are obviously a whole bunch of questions that weren’t answered in the initial announcement.  The main one was whether Obama meant “free”, or if he actually meant “government would cover the cost”.  That makes a big difference; Pell grants already cover the cost of tuition for nearly half of all community college students.  If that were the standard, it would imply that all of the new money would be going to students currently considered wealthy enough not to need grants.  That would make the new program very similar in distributional consequences to the notionally universal $1,500 refundable tax credit that Bill Clinton introduced in his second term, but which in fact was only available to those receiving less than $1,500 in Pell.

Another question, not raised much in the US, is: if the initiative is in fact successful at increasing the number of students at 2-year institutions (some of whom, to be fair, could simply be people switching from 4-year to 2-year), where are they all going to study?  In many states – California, for example – the systems are already at breaking point.  Who funds the growth required to make this system successful?

A lot of people seem to think that the President really did mean “free tuition” (i.e. no displacement of Pell grants, which are income-based), based on a comment made last week by his spokesman.  But on the other hand, the spokesman also said the program had been costed at $60/billion over ten years, or $6 billion per year, or about $666 per community college student.  Given that average tuition is about $3,800, it’s hard to see how this plan makes sense unless the administration: a) doesn’t expect most states to participate; b) doesn’t think many students will qualify; and, c) doesn’t in fact mean free tuition, but rather just “cover the cost”.  Or maybe the administration threw together a bunch of nonsense numbers that don’t matter.  Regardless, the likelihood of this becoming policy anytime soon is pretty low; it’s value is mainly rhetorical and as a marker for future policy initiatives by future Presidents.

As I said a last year, free tuition in community colleges makes a fair bit of sense.  The main rationale for fees is that: a) there are substantial private benefits, and, b) the clientele is mainly better-off and don’t need all the subsidies.  But those don’t hold true in community colleges the way they do in universities.   So while there might be some better ways to use that amount of money, this is still a generally worthwhile and positive initiative.  Would that a Canadian government could be so bold.

January 09

The Canada Apprentice Loan: Adventures in Federalism

As I noted a few months back when writing about the 50th anniversary of the Canada Student Loans Program, CSLP was at the heart of one of the federation’s key moments in fiscal federalism.  In 1964, Lester Pearson was running into opposition in Quebec on two of his major policy initiatives: the Canada Pension Plan and the Canada Student Loans Program.  A deal on both was eventually struck: any province could “opt-out” of a federal program and receive a compensating “alternative payment”, so long as they ran a program that provided citizens with essentially the same benefits.  The actual clause in the Canada Student Loans Act (stripped of some confusing jargon) reads as follows:

16. (1) Where the government of a province has, at least twelve months before the commencement of a loan year, informed the Minister in writing that a provincial student loan plan will be in operation in that province in that loan year and that [the province does not wish to participate in the CSLP], the Minister shall pay to the province… an alternative amount calculated as provided in this section.

Through to the early 90s, this was the standard way to create new programs in Canada.  If a province wanted out, you simply lopped-off a portion of the program’s budget and handed it to them.  It was only ever Quebec that wanted to do this, but in theory it was available to every province.

Now, along comes the Canada Apprentice Loans, announced in last year’s budget.  They have their own legislation, the Apprentice Loans Act, which became law last year via the budget omnibus legislation. This is a point worth underlining – it means that these loans are administered on a different legal basis than Canada Student Loans.  And what’s immediately apparent when you read the legislation is that not only has the concept of opting-out gone out the window, but it’s turned around, smashed the glass, and done a serious crowbar-job on the frame, too.

Here’s the new wording:

7. The Minister may pay a province the amount that is determined in accordance with the regulations if:

(a) the Minister determines that apprentices registered with the province are unable to enter into agreements for apprentice loans under section 4;

(b) the province has in place a program providing for financial assistance to apprentices; and

(c) the Minister considers that the purpose of the program is substantially similar to the purpose of this Act.

Put simply, provinces do not have the right to opt-out under the new Act.  The minister can choose to setup a deal and give compensation to a province if she/he chooses (which of course was immediately done with Quebec), but it’s a gift of the Minister.  If Alberta set up its own program and asked for treatment similar to Quebec, the Minister would be legally within his rights to tell them to take a long walk off a short pier.

The fact that this passed essentially unnoticed tells you something about the state of our federation.  Even ten years ago, this wording would have made Quebec go ballistic, and probably Alberta as well.  Now: nothing.  And so the government led by the man who drafted the Alberta firewall letter enacts the most centralist piece of new legislation in fifty years.

Kind of fascinating.

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