Higher Education Strategy Associates

Category Archives: student aid

April 23

The Implications of Net Zero Tuition

Over the past two days, I’ve been explaining how Canada spends as much on non-repayable aid as its PSE institutions collect in tuition fees for domestic students – meaning, in net terms, that Canadian students pay zero tuition.  Today I want to explore the implications of this.

Let’s start with what it doesn’t mean: it doesn’t mean that many people are going to school for free.  All this funding is pretty lumpy. Many Quebecers and Newfoundlanders are receiving significantly more money than they are paying – ditto First Nations and students in Quebec CEGEPs.  On the other hand, education is pretty expensive in Alberta because of the way the provincial government chose to slash student aid funding at the outset of the recession.

Another group also making out pretty well is graduate students in non-professional fields.  They make up about 10% of the post-secondary student body, yet with their hold over the bulk of government and institutional merit scholarships, and their being nearly all independent students (and hence receiving more generous student aid packages), they are likely taking home something like 25-30% of the entire non-repayable available aid (of course, one could make the case that money for graduate students shouldn’t really be thought about in the same way as student aid, since it’s really support for research.  There’s no hard-and-fast line here, but it’s worth a debate).

But here’s what it does mean: at over $7 billion in aid, 90-95% of it going to full-time students, we are spending something on the order of $5,500 per full-time student in non-repayable aid – and that includes those full-time CEGEP students who are paying $0 in tuition.  Pure and simple, it makes a mockery of the idea that there is some sort of generalized affordability crisis.   Nobody – absolutely nobody – is paying sticker price for tuition, and a substantial proportion of students are paying nothing at all (or very close to it).  The next time someone (say, the Canadian Centre on Policy Alternatives, for instance) tries to peddle an “affordability crisis”, they need to be refuted vigorously.  Insufficient student aid money is not the problem.

What is a problem is that not enough of this money gets to the right students.  Sometimes, this is because the money is geographically restricted (e.g. too much aid in Quebec, not enough in Alberta), but the main reason is that our tax credit system, which puts $2.5 billion in the hands of students and their parents each year, is a colossal waste of potential.  Re-distributing that money more according to need (as Quebec, in the one decent thing to come out of the Red Square movement, did back here) is long overdue as a policy measure.

That some students need extra funds is not in doubt, as all serious observers of Canadian higher education know.  What separates the serious people from the cranks and the dilettantes, however, is precisely the ability to believe this without concluding that the problem is a generalized one, or that the only solution is to freeze or reduce tuition.  Net zero tuition makes that position completely untenable.

April 22

Canadian Students Pay Net Zero Tuition

Yesterday, we noted that Canada hands out over $10 billion to its students each year.  Of that, $6.6. billion goes to students in the form of tax credits or grants; another $700 million is spent on savings incentives of various sorts.  All told,  over 70% of the $10 billion is non-repayable.

How does that compare to what students spend on tuition?  Well, this isn’t entirely straightforward.  We know from CAUBO/Statscan statistics that in 2011-12, universities collected $7.37B in fees from students.  What we don’t know is how much of this comes from Canadian students and how much comes from foreign ones.  At best, what we can do is approximate.  The Canadian Bureau for International Education (CBIE) says that in 2011, there were 131,500 international students in Canadian universities, of whom roughly 12% are doctoral students.  Stastcan says that in that year, international undergraduate fees averaged $17,500.  Let’s assume that the doctoral students among them are paying zero, but the rest are paying full freight.  That means: .88 times 131,500, times $17,500 = $2.025 billion in foreign student fees.   And by extension, $ 5.35Bn in domestic student fees.

What about on the colleges side?  That’s a little more fuzzy.  For starters, the latest college data I have floating around the office is from 2007-08 (it’s a free email, people, you get what you pay for).  It showed colleges collecting a little under $1.9 billion in fees  (in $2011) from all sources, including continuing ed and trade-voc programs.  Build in a wee bit of growth and we’re probably talking about something in the neighbourhood of $2.2 billion in terms of total fee intake.

What share of that is domestic?  Again, it’s fuzzy.  The CBIE data isn’t clear about colleges’ share of international students, but it’s probably the lion’s share of “trade” and “other PSE” combined, so call it about 18% of the 239,000 international students here in 2011, or about 43,000 in total (Colleges Ontario’s 2012 environment scan says there were 18,000 international students in Ontario alone in 2011, so that seems about in the ball park).  We have absolutely no idea what international student fees are in colleges because nobody tracks that, but let’s really low-ball it and say the average is $7,000.  That would imply international student fee income of about 300 million on the nose, and, by implication, a domestic tuition “take” of $1.9Bn.

So, just to tally things up here:





Total domestic tuition income in = $7.3 billion.   That’s almost exactly, on the nose, what goes out in non-repayable aid to students and their families each year.

Net zero tuition.  I’ll look at the implications tomorrow.


April 21

Canada’s Annual Student Assistance Bill: $10 Billion, Most of it Non-Repayable

Let’s just count up all there is out there, shall we?  Just for fun.

There’s loans, obviously.  In 2010-11, there was a little under $4 billion of those.  Of that, however, about half a billion was forgiven through loan remission, meaning  that “Net Loans” – was about $3.5 billion.  On top of that, there was about another $1.3 billion in up-front grants given out that year (roughly half from the feds, half from the provinces).

(How do I know this, you ask?  Because I’ve been doing surveys of provincial and federal student loans for over 10 years.  I have a database.  Well, CMEC technically owns it, but you know what I mean.)

Government Student Aid by Type, Canada 1993-94 to 2010-11, in ‘000s of $2011














Then there are the various federal and provincial tax credits for tuition, plus the education and textbook credits. These are calculated by using CRA taxfiler data (most recent years available here) to see how many credits have been claimed, and then multiplying out by federal and provincial tax rates to calculate the value of the credits claimed.  Altogether, that’s another $2.3 billion going to students and families for higher education (roughly two-thirds of it from Ottawa).

Canada Education Savings Grant?  Canada Learning Bond?  Another $700 million, or so, combined.  Then throw on another $350 million for provincial merit grants and tri-council scholarships.  All told, that $5.13 billion in non-repayable aid given out each year (call it $4.4 billion if you want to exclude the CESG/CLB, which, after all, is for future students), plus another $3.5 billion in loans.  Total?  $8.6 billion in assistance, only 40% of which is loans.

But wait!  We’re not finished here.  According to the annual Canadian Association of University Business Officers/Statscan Financial Survey, universities collectively gave out just over $1.5 billion in scholarships.  Toss in another $350 million or so in First Nations’ Band Funding under the Post-Secondary Student Support Program, and we’re up to $10.6 billion in aid going to individuals each year, fully $7 billion of which is non-repayable.  And that was three years ago.  It’s gone up since then by maybe another $300 million, all told  (mostly driven by Ontario’s 30%-off tuition grant, and increased institutional spending on scholarships).

$7.3 billion – or even the $6.6 billion if you don’t want to include the CESG/CLB stuff – is a heck of a lot of money.  It’s almost the size of the entire budget for the province of Newfoundland.  It’s more money than governments spend on our entire national college system.  And it all goes to students.  And it’s all non-repayable.

How about that?

An interesting question is: how does this figure stack up when compared to how much students pay in tuition?  Tune in tomorrow.

March 19

The Canadian Way of Higher Education Subsidies

One of the biggest arguments in student assistance is about who to subsidize and why.  Unfortunately, because we are rarely explicit in the way we talk about subsidies, discussions tend to be a dialogue of the deaf.

One school of thought says we should subsidize students based on their parental income.  Students from poor families need more help to succeed than students from wealthier families, and so the former should pay less, and so we should pay them grants to reduce the net cost of attendance.  Then there’s a second school of thought, which says that the way to focus subsidies is to focus on needy graduates.  Forget the upfront subsidies: the people we need to support are the ones who don’t do well out of their education, and as a result remain low-income for years.   The third school of thought holds that everybody should receive the same subsidy no matter what their parents make, or what they make afterwards.  And then there’s a final school of thought, which says we should reward “good behaviour”, however defined.

Other countries are pretty explicit about their choices.  The Americans go pretty heavy on the parental income track (though the beneficial effects of this are counteracted by other funding and policy choices).  The UK is quite explicit about using the graduate income track as a means of subsidy: everybody borrows oodles of money to pay expensive tuition fees, and the ones who make out worse get these loans forgiven (eventually).  Much of Europe – especially Scandinavia – operates under the third school of thought, even at the price (in a few countries) of having an unnecessarily badly-funded system as a result.  The fourth view is surprisingly widely-held around the world, as it applies to anywhere that has a dual-track system of higher education (most of the ex-socialist countries of Europe, much of Latin American and Anglophone Africa) where “meritorious” students get first crack at the subsidies.

In Canada, we have a mish-mash of strategies, partly because we’re a federal system, so coherence is always a problem, and partly because we have a real tendency to reach for solutions before fully articulating the problem.  Our student aid system mostly works on the parental system, but allows students to declare independence relatively early (in practice, age 22), which effectively moves to the universal system.  We have a relatively generous Repayment Assistance Program (RAP), which uses the needy graduates approach.  And  though we aren’t especially heavy on merit awards, our $700M/year Canada Education Savings Grant, which rewards savers, is just a variant on the “reward good behaviour” approach.

You see, Canada just doesn’t do joined-up coordinated approaches; rather, we tend to just reach for whatever looks shiny, and implement it.  The result is a system that spends wildly in all directions, with nothing resembling an underlying philosophy.  Each individual program is arguably successful on its own terms, but the result is a system tha is arguably less successful than it could be if we focused spending on one or two of these pathways.

March 18

How ICRs can Become Graduate Taxes: The Case of England

As noted yesterday, graduate taxes and income-contingent loans have many similar features.  They both defer payments until after graduation, and they are usually payable as a percentage of marginal income above a given threshold.  In England right now, the payment scheme on ICR loans is that students pay 9% of whatever income they earn over £21,000 (roughly C$38,000).  The difference between the two is that with a loan you have a set amount to pay, and when it’s paid you’re finished.  With a graduate tax there is no principal, so you just keeping paying that fraction of your income for as long as the tax lasts.

That sounds like a simple and clear delineation, right?  Well, here’s a twist: what if the loan were so big that you had no practical chance of ever paying it off at the set repayment rate?  What would the difference between an ICR and a grad tax be then?  The answer is: practically nothing – and that’s exactly where England finds itself right now.

Let’s step back a bit: in 2010, the UK government decided to let institutions charge tuition up to £9000.  They also decided to allow students to borrow this amount for tuition (plus more, again, for living expenses) under the repayment scheme described above.  When they did this, they were under the misapprehension that universities might actually try to compete for students on price, and hence assumed an average tuition of about £7000.  Rather predictably, average tuition shot straight to £8500.  As a result, it’s quite common for students to be borrowing £12-13,000 per year, or £36-39,000 for a degree (that’s C$66-72,000 – yes, really).

Crazy, right?  Cue all the “intolerable debt burden” stuff.  But wait: these loans aren’t like the ones we’re used to.  Repayment is based on your income rather than size of debt – no graduate is ever required to pay more than 9% of their income over £21,000 in any given year, so the burden in any given year is pretty limited.  And – here’s the kicker – the loan gets forgiven after 30 years.  So, if you don’t finish paying, your obligation disappears without you having any debt overhang. Exactly like a Graduate Tax.

How many won’t pay it off?  Well, these things are difficult to predict, but even over 30 years, paying 9% of your income over $38,000 isn’t likely to completely pay off very many of these loans.  The government’s own financial forecasts are that 35-40% of the total net present value of the loans will have to be forgiven (others put it 8-10% higher).  At a rough estimate, that probably means 70 to 80% of all borrowers will see some loan forgiveness.

At this point you start to wonder if debt numbers really matter in this system.  Forget ICR: for most people, the current system is simply one in which government transfers billions of pounds in 2014 to institutions using student loans as a kind of voucher system, then turns a portion of those loans into student grants in 2044 via loan forgiveness.  In the meantime, graduates pay a 9% surtax on income over £21,000.

Altogether, a very wacky system.  Not a model for anyone, really.

March 17

Oregon’s “Pay It Forward” Scheme and the ICR vs. Graduate Tax Problem

You may have heard some rumblings from south of the border over the past few months with respect to a program called Pay It Forward (PIF).  The brainchild of a student group called Students for Educational Debt Reform, this idea was picked up by the Oregon assembly last summer; within a few months, over a dozen state governments were examining similar draft legislation.

The basics of the program are these: instead of paying tuition, students agree to pay a percentage of their future income (the percentages vary by state – in Oregon it’s 0.75% per year of study) for 20 years after graduation.  Some people mistook this for a version of income-contingent loans because it emphasized paying for school after-the-fact rather than up-front, and also because repayments were to be made as a function of income.  But there’s one key difference.  Loans have a limited liability: once you pay off the principal and interest, you’re done.  With PIF, there is no principal – once you start paying into a hypothecated fund, destined for the state’s higher education institutions, you keep on paying for 20 years no matter what.  This is formally known as a “graduate tax”.

Graduate taxes tend to be more progressive than income-contingent loans.  If you’re at the bottom of the income scale, you probably come out better off – you simply never pay anything.  If you’re at the top of the income scale, you’re likely going to pay a lot more because a portion of your income will go into public coffers long after you’d likely have paid off a loan.  Interestingly, the famous Yale Tuition Postponement Option of the early 1970s (designed by Nobellist James Tobin, and used by Bill Clinton when he attended law school there) went off the rails for precisely this reason – the richer students got tired of paying for the poorer ones, and started making a fuss.

One downside to a graduate tax is that it’s harder to collect than a loan.  In the US, for instance, it’s hard to imagine enforcing something like PIF, unless it was instituted nationally (if someone moved from Portland to Chicago, would Illinois be responsible for collecting the PIF contribution?).  A graduate tax was in fact examined relatively thoroughly not once but twice in England (the 1997 Dearing Report and the 2005 fee reform), and was rejected precisely because of concerns about grads evading repayment through emigration.

Another downside is: where exactly does the money come from while you’re waiting for graduates to start earning money?  If tuition is covering 40% of institutional expenditure, someone has to make that income good over the 20 or so years before the grad tax makes up the difference.  It’s not clear who that might be; if the state had money to do this, it probably wouldn’t be faffing around with ideas like PIF.  You could securitize the revenue stream, of course, but that also might get tricky.  Income-contingent loans lack graduate taxes’ most potentially progressive features, but they do have the advantage of: a) being collectable, and b) producing income for institutions in the short term.

There is of course one country that is trying very hard to merge the ideas of ICR and graduate taxes, with some really odd results.  More on the English experiment tomorrow.

February 20

Why Can’t We Just Means-Test Tuition?

A couple of weeks ago, I had an exchange with a colleague who couldn’t figure out why tuition wasn’t means-tested.  It just makes sense, he said: make the rich kids pay lots of tuition, and make the poor kids pay very little.

I argued that it was means-tested.  If you didn’t have means, you’d get a grant, which would reduce tuition (though I allowed that this was done a lot less effectively than it could be, given how poor our targeting system in student aid is).  ”OK”, he said, “but why not cut out the middle-man and just vary tuition directly according to a student’s parental income?”

Now, there’s something to be said for this.  Clarity, for starters.   As we noted yesterday, there are already tens of thousands of low-income students attending for free, and nobody seems to know it.  If we could just re-package aid and fees into a single, easily understood figure, that clarity might go a long way to improving access.

It’s also not unprecedented: in 1998, when tuition fees were introduced in the UK, the fees were made variable based on income.  Students from families making over £30,000 were charged £1,000; those from families making between £20,000 and £30,000 were charged £500, and those from families making less than £20,000 were not charged anything at all.  Similarly, in a couple of the German states that introduced tuition after 2006, waivers were instituted so that poorer students paid nothing at all.

There are basically two reasons why we don’t do this in Canada.  The simple, technical reason is that in most parts of Canada, universities are still notionally in charge of tuition and admission, and universities don’t ask students what their income is.  In the UK, government agencies outside the university were in charge of both, so it was easy enough to achieve.  For us to do that here would require taking away at lest some institutional autonomy and/or making sure that whoever makes the admission decision also knows a student’s family background.  Ontario’s provincial university application centre (OUAC) might be the kind of organization to do this, but elsewhere in Canada it would be more difficult, as each individual institution would have to tool up a separate income-assessment system.  Not impossible, by any means, but difficult.

But the bigger issue is simple raw politics.  If government grants were folded into a single tuition price, how could the federal government get credit for all its tax credits and Canada Study Grants?  How could Ontario get credit for its Utterly Inane 30% Tuition Rebate?  And, depending on how rigid you wanted to be about this one price rule, it might also prevent universities from using their student aid and scholarship budgets strategically.

In short, the barriers to simple, easy-to-understand means-tested tuition systems are less technical than political.  It’s a case of the need to be seen to do good trumping the need to actually do good.  Sad but true.

February 19

Free University and We Don’t Even Know It

I’ve long believed that post-secondary education should be free for bright, poor kids.  And although there’s room for differences over what constitutes “poor” and “bright” (I’ve got a strict-ish definition of the former, less so the latter), it seems to me that this is a sentiment with which most people agree.

But here’s the thing: in actual fact, there are an awful lot of bright poor kids already going to university for free, and nobody seems to notice.  The problem is that we just don’t package it in a way that people recognize it as being free.

Take Quebec.  What’s that?  Lowest fees in the country, but kids still have to pay?  Pshaw.  Over 100,000 university students there receive grants.  The median grant is $4,500.  Average tuition and fees is $2,000 or so.  A quick look at statistics from Quebec Aide Financiere Aux Etudes suggests that at least 40,000 students are receiving more money from government than they are paying to go to school.  Unless you’re deliberately trying to be obtuse about it, that makes 40,000 people getting a free university education.

Ah, you say.  But what about mean old Ontario, where tuition and fees are now up around $7,000.  Well, actually, there are a substantial number of students getting free education there, too.  Thanks to the Ontario Tuition Grant, full-time dependent students from families making under $160,000 (yes, the limit’s an utter travesty – we’ll discuss it another time) get $1,730/year from the government.  Those from families with income under $40,000, or so:  they’re eligible for another $1,600 from the Canada Student Grant.  Add in another $2,300 or so in education tax credits, and we’re up to $5,600.  If the student is doing well at school – say, high 80s – that can qualify them for another $1,500 or so in entrance awards.  That’s $7,100 in non-repayable government aid – more than what they are paying in tuition.

Or, another combination: Imagine the same student from a family earning roughly $60,000.  Probably wouldn’t get the Canada Study Grant, but would get everything else, meaning they’d be receiving about $5,500.  If they left home to go to school, the likelihood is that they’d get a loan in the $9,000-$10,000 range – of which anything over $7,140 would be forgiven (that is, turned into a grant).  So, again, free tuition.

I could go on province-by-province (Saskatchewan and Manitoba do pretty well in this kind of accounting), but I’ll spare you. There are no numbers that would allow us to say for sure how many people are receiving this kind of money.  For what it’s worth, my guess, based on my knowledge of student aid in Canada, is that the number is probably in the 100-150K range, but it’s hard to know for sure.

You’d think that this would be one of those things about which everyone – especially provincial governments – would be standing up and shouting to the rafters: it’s a heck of a good news story.  And yet, absurdly, nearly no one even knows its even happening.

How did this state of affairs come about?  More tomorrow.

February 18

The Canada Apprentice Loan

One of the signature pieces in last week’s budget was the Canada Apprentice Loan (CAL).  Very few details were given out at the time (see p. 70 in the budget, here), but what details did emerge suggest two things to me: first, that the idea went into the budget less-than-fully-baked; and second, that it could turn out to be a fairly significant political mess.

The proof of this being less-than-fully-baked is the lack of detail surrounding the idea.  While the scheme seems to be about putting money into apprentices’ hands during block training periods, it made no mention of how this loan would mesh with the significant amounts of EI money apprentices already receive during those periods (training periods are considered a period “out-of-work” under EI, so apprentices are eligible for EI during this time, and receive payments equivalent to 55% of their normal working income as a result).  Does it replace the EI money?  It seems unlikely that the Tories would try a bait-and-switch, but the silence about integration suggests the issue hasn’t been thoroughly thought through.

But if it’s additional, what’s the $4,000 for, exactly?  Living costs? That would put the amount available to them over 100% of their wage rates. If that happens, all hell will break loose on the Canada Student Loans front.  CSLP doesn’t work on a wage-replacement principle, it works on an allowance principle: that is, it assumes that the purpose of student loans is to top-up students to a particular maximum, based on living arrangements, presence of children, and local cost of living.  For a single student living away from home, that probably means about $1000/month.  But apprentices earning $16/hour in their job already receive about $1600/month in EI funding.  If you lend this better-off group more money, what possible excuse do you have to say no when student groups come asking for similar treatment for CSLP?

Another possibility is that the loans are specifically for training costs.  But then why make it $4,000?  A Canadian Apprenticeship Forum paper from 2007 (see: here) showed that average training costs – including tools and apprenticeship registration fees – were just $1300, and that 50% of apprentices paid less than $800.  Nothing’s changed significantly since then, so why the super-high maxima?  Again, setting maxima well above actual need is going to set off a clamour for similar treatment in the CSLP.

Here’s my take: the current federal government is very fond of apprenticeships.  But the problem is that most of the levers of apprenticeship policy are in the hands of the provinces.  The only thing the federal government can really do is pump money into apprentices’ hands in the hope that the extra funding will make more people want to be apprentices.  That’s probably about as deep as the thinking went on this file before it went into the budget.

It’s possible it will get better upon implementation (as the recent ruckus on income-splitting shows, at least some of the Tory cabinet seem able to re-evaluate policy in the face of evidence), but as it stands right now, the roll-out of the CAL could be more problematic than the federal government seems to think.

January 29

Why is Student Debt Not Increasing?

Yesterday, we discussed why student debt burdens were falling.  One of the key ingredients in that recipe was that student debt had remained stable, or even fallen, over the last decade or so.  This is a puzzling piece for many because it seems counterintuitive.  So what’s going on?

Well, costs are increasing, but only modestly so: since 2000, tuition has only been rising about 2% above inflation.  There’s been no real change in the percentage of students living away from home – and for those who do live away from home, the picture is mixed: students in Western Canada are paying a lot more than they did 10 years ago; students in Ontario, on the whole, tend to be paying less.  Nationally, it mostly evens out.  Given these changes in costs, one would expect modest but noticeable increases in borrowing, ceteris paribus.  So something else must have changed in order to offset this.  But what?

Is it a question of students themselves having more resources?  Probably not.  As Figure 1 shows, student employment is remarkably stable over time.   So, too, is their average hourly income from wages, which surveys show is almost always 20-30% above minimum wage.

Figure 1: Student Employment Patterns, Canada, 1997-8 to 2009-10












What about money from parents?  This seems to be up a little bit: average transfer in 2001-2 was about $2000 (in $2011), and is now about $2500.  What has changed, however, is the amount of money students get through RESPs.  This was negligible ten years ago; now, roughly 30% of students receive money from this source, and it’s a significant amount, too ($4,000/year, on average).  Obviously, much of that’s going to students who aren’t on student aid, but for those who are, it’s more than enough to explain the slowing rise in debt.

Then there’s the rise in student assistance.  Institutions have massively increased their scholarship budgets.  In the 1990s, about one in three new students got some kind of entrance scholarship.  Now it’s two in three.  The total amount spent on grants and remissions by provincial and federal governments jumped from $600 million/year in 1995, to almost $1.8 billion in 2010 (both figures in $2011 real dollars).  And of course, governments have added an extra $1.5 billion in tax credits.  Not all of that ends up in students’ pockets (some ends up with parents, some gets deferred until after graduation), but enough does to take a bite out of rising costs.

Figure 2: Increases in Total Government Student Assistance, Canada, 1993-94 to 2010-11 (in real $2011)














None of these, on its own, amounts to a silver bullet to explain why student debt is stable or falling.  But together, it’s easy to see: more grants, more tax credits, the creation of the RESP are, together, probably putting about $3 billion extra into students’ hands every year.  Call it about $3,000 per year, per student.  Then add institutional aid, and throw in the extra billion or so that has gone to grad student funding in the past fifteen years.  That brings us to about $4,000 extra, per student.  That’s more than enough to explain why debt isn’t increasing.

In fact, the real question may be: why hasn’t it decreased more?

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