Higher Education Strategy Associates

Category Archives: Student Aid

Includes student loans and grants, also scholarships, RESPs etc., and policy relating to these issues in Canada and elsewhere.

September 05

Did CIBC Really Just Call for Lower Tuition?

Last week, HuffPost ran a story highlighting a newsletter from CIBC Economics about higher education.  It was actually a pretty meandering letter (CIBC Economics pieces on higher education are usually notable for their interesting use of data and somewhat shallow understanding of actual policy – here’s an earlier example).  The newsletter touched on a number of issues around educational supply and demand, but what HuffPost glommed on to was what a point about tuition in STEM programs and led with the headline “CIBC argues against “Free Market” education, calls for lower tuition”.

So, true or false?  Is CIBC joining CFS on the barricades?

Well, sort of.  What the newsletter actually said, after noting with approval that enrolments in STEM programs were rising (indicating, in their view, greater student responsiveness to economic signals) and that tuition fees are rising faster in high-demand programs such as Engineering, was:

(This) price appreciation can slow or even derail the positive momentum observed in recent enrolment trends. If Canada wants to have more graduates in STEM or any high-paying field, the country needs to work to make it affordable. This type of pricing only exacerbates already ingrained income inequalities across the country.

So, two issues here.  The first is that contrary to what HuffPost implied, CIBC is not blanket anti-tuition fees.  It’s against higher tuition fees in STEM programs (particularly Engineering) because it likes STEM programs (particularly Engineering) and is under the impression that lower tuition will attract more students to the fields.  HuffPost’s headline was thus misleading at best.

But there’s a second issue, too; namely, that CIBC’s argument is pretty much bollocks. Here are four reasons why:

First: it’s flat-out wrong about the nature of the problem.  The problem of filling more engineering spots was always about supply, never about demand.  Engineering is an expensive discipline and ramping up the number of spots is expensive and in the absence of new money from government, funds basically have to be wrung out of the system through various types of program/admin savings and retirements.  That takes time.  And it’s this, more than changes in student demand, that account for the lag in enrolments.  I know CIBC is used to markets that clear, but higher education is not one of those markets and they shouldn’t analyse it as if it were.

Second: Because adding Engineering spots costs money, fees are part of the solution, not part of the problem.  If you reduced fees in Engineering, I guarantee you there would be fewer spots.  And how would that help?

Third: there’s zero evidence that increasing fees, in the context of a fairly generous student aid system where grants are significant and loans are easily available, have had or will have any noticeable effect on demand. Indeed, as the paper itself notes, these programs are growing in demand as fees rise.  It’s a Yogi Berra-esque “nobody goes there anymore, it’s too crowded” kind of argument.

Fourth: it’s wrong on equity grounds.  These are high-demand, high-reward occupations.  Why in God’s name would we want to increase private rates of return on these, when demand for spaces in these programs are already in excess of supply?  That would just increase windfall gains to the future wealthy.

In short: HuffPost exaggerated its headline.  But CIBC did make a suggestion about reducing tuition, one that suggests they don’t pay a whole lot of attention to the actual underlying dynamics of higher education beyond throwing a stat-heavy newsletter together on the subject once a year.

Do better, guys.

August 31

Free Tuition Developments

One major trend of the last couple of years in global higher education has been the arrival of a wave of “free tuition” policies in jurisdictions that formerly charged them and which – in some cases – have substantial private higher education sectors.  But announcing free tuition is one thing: actually pulling it off is another.  Let’s take a quick look-in at how things are playing out in various parts of the world.

In the Philippines, President Rodrigo Duterte (Luzon’s answer to Donald Trump) declared education at all public universities free in the state budget earlier this year, and the policy came into effect this fall.  Of course, this only affects a minority of students because public universities only educate about 45% of Filipino students: the rest attend one of the country’s 1500 or so private universities.  And fees were never that high to begin with (in the region of $150/year at most state colleges).

But what’s brilliant about the Philippines “free tuition” program is the packaging.  The budget for implementation is only P8 billion ($200 million Canadian or $160 million US), which is considerably short of what is needed to cover all students.  So to make up for it, they are i) putting an academic progress filter on the program (i.e. fail too many courses and you have to start paying fees) and more importantly ii) putting an income filter on it as well.  But, intriguingly, the law doesn’t say “targeted aid for the poor”; rather, what it says is “as a rule, fees shall be abolished” but that universities “shall create a mechanism to enable students with the financial capacity to pay…to voluntarily opt out of the tuition and other school fees subsidy or make a contribution to the school.”  In practice, what this means is that the funds will be distributed to institutions who in turn will provide fee waivers to students in order of financial need (a slightly more detailed explanation is available in this article from the Philippines Star).  Too rich?  No subsidy.  But the actual cut-off line will vary somewhat from institution to institution.

(I know that sounds weird, but running student aid through institutions rather than a national government is actually pretty common in southeast Asia).

Still, the government is sufficiently worried about extra demand that it is reinstating an entrance exam to keep growth in numbers down.  Which of course does make you wonder why they put free tuition in place in the first, if not to increase participation.

Over in Chile, President Bachelet has moved to expand the free tuition subsidy (“gratuidad”) to students from the sixth income decile starting this coming February; previously it was only available to students from the lowest five deciles.  In theory, the government is meant to nudge this up to the seventh decile by 2020, but the likelihood that the left will still be in power by then is pretty slim: polls right now have former centre-right president Sebastian Pinera well out in front, and he’s already more or less said he’s not committed to anything above the 50% threshold.

In the US, two states – New York and Oregon – brought in “free tuition” programs last year.  Oregon’s was a free community college plan, much like Tennessee’s; New York’s was a “targeted free tuition” system for 4-year colleges, which looked much like those in Ontario and New Brunswick only less well-targeted.  Now, both are slightly off the rails because of the weird way that legislation and appropriation happen separately in the US.  Despite “enacting” free tuition, neither state actually set aside enough money to actually make it work properly.  In Oregon, the short-fall means roughly 20% of students who should have been eligible will not receive benefits.  In New York, the demand for the new “Excelsior” scholarships exceeded the budgeted amount by a factor of three.  The best one can say for this situation is, as my colleague Robert Kelchen says, is that this is an unrivalled opportunity to test the “disappointment effect” in student aid.

Meanwhile, back in Canada, our two targeted free tuition programs – in Ontario and New Brunswick – seem to have started without much of a hitch.  For the moment, at least, we’re leading the pack in terms of coherent implementation.  Let’s hope it stays that way.

May 26

Lessons from the Rise of Tax Credits

I’m feeling low on creativity today, so I’m going to go to that old stand-by: telling war stories. And specifically, I’m going to go back and trace the rise of tax credits in the Canadian higher education system and what that tells us about policy-making in Canada.

Tax benefits for education go back to the late 1950s. There was pressure at the time to create a “national system of scholarships”, but this clearly was going to cause problems in Quebec. But Prime Minister Diefenbaker, on the advice of Ted Rogers and with the assistance of Brian Mulroney, found a way around this which was acceptable to Quebec: namely, by making tuition fees tax deductible. Lesson #1: the federal government in part views tax expenditures as a way to get around troublesome provinces.

These tax deductions for tuition and a monthly “education amount” were turned into tax credits in a general tax reform introduced in 1988 by then-Finance Minister Michael Wilson (which is still arguably the greatest thing any Conservative finance minister has done in my lifetime). The tuition credit did not include ancillary fees and the monthly amount was $60/month. And there it stayed until 1996.

Budget 1996 was not a happy time in Canadian history. As far as most people were concerned, we were in year 6 of a recession (a real one, where unemployment hit double digits and a third of the island of Montreal was on social assistance/EI, not like the past few years). The stomach-churning Quebec referendum night was less than four months in the past. The country was broke, and the logic of Paul Martin’s epoch-defining 1995 Budget meant that fiscal room for anything new was just about zero. Yet the government wanted to show that the federal government could still be relevant, particularly around youth unemployment, which was a concern at the time. So what did they do?

They upped the education tax credit to $80/month.

I know that sounds meagre. Trust me, in the context of February 1996, this was a moderately big deal. But it was the 1959 logic at work again. Need to show the feds can do something about an issue that matters to Canadians but is mostly in provincial control? Use the tax system!

Then in December 1996, the Finance Department’s pre-budget polling (which in those days was always, always, always done by Earnscliffe) numbers came in and they showed – totally unexpectedly – that education was suddenly the number two issue for Canadian voters. Terrie O’Leary, Paul Martin’s formidable chief of staff, immediately went to the office of Don Drummond (now Chief Economist at TD, then the ADM at Finance in charge of the budget). The conversation, the best I can reconstruct it from a couple of different sources, went like this:

O’Leary: I want something on education in the budget.

Drummond: (Acutely aware that the budget date was only about ten weeks away and it’s desperately late to start screwing around with it at this point): Not unless you want a replay of the Scientific Tax Credits fiasco.

O’Leary:  <A string of choice expletives to the general effect of “don’t talk back to me”>.

Well, of course Drummond needn’t have worried because when it doubt: tax credits!  The vehicle was already there, so they just juiced it. The $80/month education amount jumped in stages to $200/month, a smaller credit was added from part-time students, and the definition of tuition tax credits was expanded to include ancillary fees. Bonus: unlike the changes to Canada Student Loans and the Millennium Scholarships which were announced in the following year’s budget, there was no tedious negotiations with provinces. Lesson #2: tax credits are sometimes a tool of choice because they’re easy and quick to implement.

Then of course, the economy improved and Paul Martin started getting generous. In the fall 2000 mini-budget which preceded that year’s election (the Stockwell Day election, in case you’ve erased that period from your memory), he doubled the value of the education amount to $400/month for full time students and $120/month for part-timers.  Why? Well, in the preceding election, the Liberals had promised that any surplus money (and we started running surpluses in 1998), would go 50% to new programs and 50% to “debt reduction and tax cuts” (relative proportions not specified). It finally occurred to the Liberals that under this regime tax credits were gold, because depending on one’s choice of definition, tax credits could be counted as an expenditure or as a tax cut. And yes, they counted these as both, to suit the occasion. Lesson #3: tax credits are attractive because the communications around them are flexible.

That was more or less the high point of education tax credits in Canada. After that, they started to gradually fall out of favour. Quebec (2012) and Ontario (2016) have both abolished their credits, and Budget 2016 saw the feds abandon them in favour of higher grants. I suspect they will disappear from the provincial level over the coming decade.

But the point I want you to take here is not that government was misguided about tax credits back then and is smarter now. Apart from a couple of zealots in the Finance Department who prattle on about tax treatment of human capital, no one in the 1990s genuinely thought that tax credits were a particularly good tool to get money to students. What they had over other more direct means of support was convenience, simplicity, and the ability to be implemented completely independently of what a bunch of tiresome provinces think. In the late 1990s – the High Era of Competitive Federalism – that stuff mattered a lot more than it does today. If those conditions ever return, it would be easy enough to see how tax credits as a funding mechanism could return, too.


May 15

Provincial Budgets 2017

Springtime brings with it two certainties: 1) massive, irritating weekend traffic jams in Toronto as the city grants permits to close down Yonge street for a parade to virtually any group of yahoos, thus making it impossible to go from the cities east to west ends and 2) provincial budgets.  And with that, it’s time for my annual roundup of provincial budgets (click on the year for previous analyses – 2016 2015 2014 2013.  It’s not as bad as last year but it’s still kind of depressing.

Before we jump in, I need to remind everyone about some caveats on this data.  What is being compared here is announced spending in provincial budgets from year-to-year.  But what gets allocated and what gets spent are two different things. Quebec in particular has a habit of delivering mid-year cuts to institutions; on the flip side, Nova Scotia somehow spent 15% more than budgeted on its universities.  Also, not all money goes to institutions as operating funding:  this year, Newfoundland cut operating budgets slightly but threw in a big whack of cash for capital spending at College of the North Atlantic, so technically government post-secondary spending is up there this year.

One small difference this year from previous years: the figures for Ontario exclude capital expenditures.  Anyone who has a problem with that, tell the provincial government to publish its detailed spending estimates at the same time it delivers the budget like every other damn province.

This year’s budgets are a pretty mixed bunch.  Overall, provincial allocations after inflation fell by $13 million nationally – or just about .06%.  But in individual provinces the spread was between +4% (Nova Scotia) and -7% (Saskatchewan).  Amazing but true: two of the three provinces with the biggest gains were ones in which an election was/is being held this spring.

Figure 1: 1-Year change in Provincial Transfers to Post-Secondary Institutions, 2016-17 to 2017-18, in constant $2017

Province Budget Figure 1 Year Change Provincial Transfers


Now, this probably wouldn’t be such a big deal if it hadn’t come on the heels of a string of weak budgets for post-secondary education.  One year is neither here nor there: it’s the cumulative effect which matters.  Here’s the cumulative change over the past six years:

Figure 2: 6-year Change in Provincial Transfers to Post-Secondary Institutions, 2011-12 to 2017-18, in constant $2017

Figure 2 6 year chage in provincial transfers


Nationally, provinces are collectively providing 1% less to universities in inflation-adjusted dollars in 2017-18 than they were in 2011-12.  Apart from the NDP governments in Manitoba and Alberta, it’s really only Quebec which has bothered to keep its post-secondary funding ahead of inflation.  Out east, it’s mostly been a disaster – New Brunswick universities are down 9% over the last six years (not the end of the world because of concomitant enrolment declines), and a whopping 21% in Newfoundland.

The story is different on the student aid front, because a few provinces have made some big moves this year.  Ontario and New Brunswick have introduced their “free tuition” guarantees, thus resulting in some significant increases in SFA funding, while Quebec is spending its alternative payment bonanza from the Canada Student Loans Program changes (long story short: under the 1964 opt-out agreement which permitted the creation of the Canada Student Loans Program, every time CSLP spends more, it has to send a larger cheque to Quebec).  On the other side, there’s Newfoundland, which has cut it’s student aid budget by a whopping 78%.  This appears to be because the province is now flouting federal student aid rules and making students max out their federal loans before accessing provincial aid, rather than splitting the load 60-40 as other provinces do.

Figure 3: 1-Year change in Provincial Student Financial Aid Expenditures, 2016-17 to 2017-18, in constant $2017

Figure 3 1 Year change in student aid expenditures


And here’s the multi-year picture, which shows a 46% increase in student aid over the past six years, from $1.9 billion to just under $2.8 billion.  But there are huge variations across provinces.  In Ontario, aid is up 83% over six years (and OSAP now constitutes over half of all provincial student aid spending), while Saskatchewan is down by half and Newfoundland by 86%, mostly in the present year.  The one province where there is an asterisk here is Alberta, where there was a change in reporting in 2013-2014; the actual growth is probably substantially closer to zero than to the 73% shown here.

Figure 4: 6-Year change in Provincial Student Financial Aid Expenditures, 2016-17 to 2017-18, in constant $2017

Figure 4 6 Year Change in Provincial Student Aid

So the overall narrative is still more or less the same it’s been for the past few years.  On the whole provincial governments seem a whole lot happier spending money on students than they do on institutions.    Over the long run that’s not healthy, and needs to change.

March 30

What’s Next for Student Aid

A few months ago, someone asked me what I wanted to see in the budget.  I said i) investment in aboriginal PSE, ii) system changes for the benefit of mature students and iii) changes to loan repayment (specifically, a reduction of the maximum loan payment from 20%  of disposable income to 15%).  To my great pleasure, the government came through on two of those wishes.  But there is still a lot of work to do yet.

Let’s start with the Post-Secondary Student Support Program, which the Government of Canada gives to individual First Nations to support band members’ education costs.  The Budget provides a $45 million (14%) bump to this program but also said the Government would “undertake a comprehensive and collaborative review with Indigenous partners of all current federal programs that support Indigenous students who wish to pursue post-secondary education”, which I think is code for “we’d prefer a new mechanism which is somewhat more transparent than PSSSP”.

Let’s just say I have my doubts about how easy this collaborative review will be.  Indigenous peoples – young ones especially – have a lot of issues with the federal government at the moment, and it will be difficult to try to manage a focussed review of this one subject without a lot of other agenda items intruding.  I’ve written on this subject before, and there certainly are ways which the funding could be arranged to be managed more efficiently.  That said, some of these ways involve taking management away from band councils and giving it to some other aboriginal organization operating at a larger scale and not all bands are going to find that appealing.

Anyways, the takeaway is: if the feds are expecting a replacement to PSSSP to be in place by fall 2019, they’d better get to work yesterday.

Now, what about the new measures for mature students/adults returning to school?  This was a welcome budget initiative, because the policy discussion has perhaps been focussed too heavily on traditional-aged students for the past few years.  There are however, maybe two cautions I would put on the initiative and how it will roll out.

The first is the budget description of the $287M over three years for programs benefitting these students as a “pilot project’.  I am fairly certain that is PMO-speak, not ESDC-speak.  First of all, I’m moderately certain the law doesn’t allow pilots; second, the idea that provinces are willingly going to spend time and money re-jigging all their program systems to accommodate program changes that are inherently temporary in nature is kind of fanciful.  So I suspect what’s going to happen here is that over the next few months CSLP is going to come up with a bunch of different ways to help this population (change cost allowances for older students, and maybe for dependents too), re-jig how prior-year income is calculated, raise loan limits for this population, raise grant eligibility, etc etc) and then roll them out in roughly ascending order of how irritating they are for provinces to program.  It’s not going to be a big bang, which may limit how well the policy is communicated to its intended targets.

But there’s a bigger issue at play here which the government missed in its haste to get a budget out the door.  One of the biggest problems in funding re-training are the artificial breaks in funding and jurisdiction that occur at the 12-month mark.  If your program is shorter than that, you’re covered by various provincial labour market initiatives and on the whole your compensation is decent.  Longer than that, you’re on fed/prov student aid, which in general is not as generous (and more to the point is repayable).  It would be useful for the two levels of government to work together to provide a more seamless set of benefits.  Perhaps regardless of program length, learners could benefit from 8 months of the more generous treatment and then move on to a slightly less-generous mixed loan/grant system.  This wouldn’t be a quick shift: my guess is that even if you now started talking about how to achieve this, it would still take four or five years for a solid, specific solution to come into view (if you think universities are slow, try federalism).  But still, now’s as good a time as any to start, and perhaps the dollars attached to the mature students programs may be a good conversation starter.

My third wish – the one that didn’t get any traction in this budget – was for improvement in student loan repayment.  I’m not that disappointed in the sense that I’m not greedy (no budget would ever have given me 3-for-3), but I do think there I work to be done here.  Perhaps this gets enacted as part of the follow-up to the Expert Panel on Youth being chaired by Vass Bednar and due for release at some point this spring (although who knows, if the Naylor Report is anything to go by, we could be waiting into 2019).  Or perhaps not: it’s not like CSLP hasn’t already been given a huge whack of work for the next couple of years.

But if that’s the worst problem we have in student aid in Canada, I’d say we are in pretty good shape.


(As a coda here, I’d just like to pay tribute to the Canada Student Loans Program’s Director-General, Mary Pichette, who is leaving the public service shortly.  Mary’s been involved two big rounds of CSLP reform: the one in 2004/5 which first created the grants for low-income students, and second the ones around the 2016 budget (not just the increase in grants but the many smaller but still important changes to need assessment as well. 

 I won’t say –I’m sure she wouldn’t want me to – that those two reforms were down to her.  But they were down to teams that she led.  She did a lot over her two stints in the program to make the policy shop more evidence-based and her legacy is simply that she’s made life easier for literally hundreds of thousands of student across the country.  They can’t thank her, but I can.  Mary, you will be missed.)

March 02

Bravo, New Brunswick

Readers may remember that about this time last year, I was giving the Government of New Brunswick a bit of stick for a botched student aid roll-out. Today I am pleased to give credit where it is due, and congratulate the folks in Fredericton for fixing the problem and developing a much better student aid system.

Let’s go back 12 months to pick up the story.  In February 2016, the Ontario government had come up with a fabulous new system which basically made a promise of grants equal to or greater than average tuition for students from low to mid-family incomes.  At family incomes above that, students received a declining amount of money out to about $110,000 at which point the grant flattens to a little under $2,000 (a remnant of the government’s ludicrous “30% tuition rebate” from 2011) and then falls to zero a little over $160,000.  With a bit of clumsiness this eventually, sort of, got branded as “free tuition for low- and middle-income students, which it isn’t, quite, but close enough for advertising.  Cue what is seen to be a major policy success.

It was such a success that New Brunswick decided to copy it later last spring.  Like Ontario, they built on the change to Canada Student Grants and eliminated some of their own tax credits (including the egregiously wasteful graduate tax rebate) to fund a “Tuition Access Bursary”, which guaranteed a grant equal to tuition (up to a maximum of $10,000, which was more generous than Ontario) for students from families making under $60,000. Which is great, right?  Well, yes, except the problem is, there was no phase-out for the grant.  At $59,999 in family income, there you were raking in $6500 or so in grants and at $60,001 you got $1200 in grants (the federal middle-income grant) and that’s not great social policy.  Making it worse was the fact that families in that $60K to $70K would also be losing a lot of money in tax credits that both the federal and provincial governments were ending in order to pay for this new benefit; my back-of-the envelope calculation was that in this range, parents were going to be about $1,200 worse off as a result of the change.

In any case, because I and others pointed out this flaw, the government after a brief period of defensive blustering decided it was best to go back to the drawing board and revisit the formula.  They did so and last week came up with a new “Tuition Relief for the Middle Class”, which basically involved taking a sliding declining scale of grants for families earning between $60-100,000 onto the existing Tuition Access Bursary (which has been renamed the “Free Tuition Program”).  Arguably, the New Brunswick program is now somewhat better than the Ontario program because 1) it’s not just “grants up to “average” tuition”, a caveat which I suspect is going to leave a lot of people slightly cheesed off when the program starts and 2) It still manages not to subsidize people up to that absurdly high $160K + threshold that Ontario insists on maintaining.  Ontario gets points for making its aid portable, though – New Brunswick’s program is only available to students who study in-province, which I think is a shame.

The announcement – which you know, hey guys, it’s a good news story! – was marred somewhat by some media sniping about how the number of beneficiaries is about 30% short of what was estimated last year.  To me this is neither here nor there: government cost estimates on year 1 of a new program are often a matter of throwing numbers at a dartboard.  The good news is that there is still money to either raise the entry threshold for the Free Tuition Program or (better still) expand the debt relief program or top up the amount of money available to high-need mature students and parents through the New Brunswick Bursary Program.

Now, all we need for this to be perfect is for New Brunswick to come up with a smart, credible monitoring program to examine the effects of these changes on participation over the next few years.

(New Brunswick folk: that’s on the way, right guys?  Right?  Well, you know where to find me if you need a hand…)

Anyways, as I say, credit where it is due.  Well done, New Brunswick.

February 02

Manitoba’s Golden Opportunity

It’s tough to be in government these days: prolonged slow growth means it’s difficult to keep increasing spending at a rate at which citizens have become accustomed.  Instead, with rising costs and little appetite to raise taxes or fees, governing often seems to be one long exercise in nickel-and-diming.  Higher education – in most of Canada at least – has felt some of this, but in truth has been insulated more than most other parts of the public service.

But the key role of government should not simply be to find ways to cut: it should be about increasing the effectiveness of public expenditures.  And in particular, making sure public expenditures are designed in such a way as to promote and not hinder growth.  That’s why, if there was one place in Canada I wish I could be an Advanced Education Minister right now, it’s Manitoba.  Because, as I explain in a new paper HESA is releasing today, Manitoba has a boatload of poorly-performing expenditures in higher education tax credits that could be re-purposed into areas which could really help the province.

Here’s the scoop: Manitoba has two tax credits – the Education Amount Tax Credit and the Tuition Fee Income Tax Rebate – which are neither particularly effective nor have many defenders within the higher education sector.  The former tax credit is a hold-over from the Diefenbaker era which all provinces (except Quebec) got stuck with in their portfolios when the provinces moved from a tax-on-tax to a tax-on-income system back in 2000.  In the past 12 months, the federal government, the province of Ontario and the Government of New Brunswick have all eliminated this tax credit because it was neither progressive nor efficient, and funneled that money back to student assistance.  The latter tax credit is effectively a tuition rebate for students who stay in the province, which is batty and wasteful for number of reasons I’ve previously outlined here. In any case, it is demonstrably too small to achieve its intended goal of convincing students who would otherwise not live in the province to live in the province.  The result is this money is a windfall gain to graduates, paying them to do something they were going to do anyways.  The elimination of these two tax measures could yield approximately $67 million per year in savings which could be spent more productively elsewhere within the higher education sector.

$67 million is a lot in Manitoba higher education.  Taking that money away from unproductive tax credits could fund a whole lot of new, useful investments.  These include:

  • Adding $14 million/year to provincial student assistance fund.  Spent correctly, this would be  enough to fund an Ontario-like “free tuition” guarantee to low- and middle-class Manitobans even if tuition fees were allowed to rise by a third (which, given how low tuition is in Manitoba, is probably a not a bad idea).
  • Investing $12 million/year to increasing supports to Indigenous students and expanding community delivery of programming in or near First Nations communities
  • Supporting the expansion of work-integrated learning at Manitoba universities and colleges with the creation of a dedicated $15 million/year fund.
  • Redressing a long-standing imbalance in post-secondary spending by increasing the number of seats in non-Metro Manitoba with a $15 million/year investment.
  • Creating an $11 million/year employer-driven “quick response training fund” to make it easier for employers with expanding businesses to access bespoke training.

In sum, for the price of two badly-designed tax credits, Manitoba could make real investments in access, both in terms of financial aid and providing spaces in under-served areas, increase support to Indigenous students and communities, improve the quality of education and provide more funds for employer-led training that could help relieve skills bottlenecks for investors.  How could you pass this up?  Who wouldn’t do this?

Over to you, Manitoba.

January 19

American Higher Education Under Trump

Tomorrow, Donald Trump will be sworn in as the 45th President of the United States (actually, the 44th person to be President: Grover Cleveland’s two non-consecutive terms screw up the count).  What does this mean for higher education?

First off, let’s recollect that where higher education is concerned, the US, like Canada, is a federation where the main decisions about funding public education are made at the state level. Decreased state investment in institutions and consequent rises in tuition have given the federal government a larger though indirect role in the system because the salience of student aid has risen.  And of course, the government spends an awful lot of money on scientific research, primarily but not exclusively through the National Institutes for Health (NIH) and the National Science Foundation (NSF).  And let’s also recollect that while the President names the Secretary of Education, a lot of control over specific budget items rests with Congress, which, despite being controlled by Republicans, will have ideas of their own.

Recall that Trump barely spoke about higher education during the campaign, other than endorsing an even-more-expensive version of income-based repayment than the existing one which was recently discovered to be costing nearly over $50 billion more than expected (short version: he wants to raise the repayment maximum from 10% of income to 12.5% but shorten the time before forgiveness to just 15 years).  Also, his education secretary Betsy DeVos, is a K-12 specialist (I’m using the term loosely) with very few known views on higher education.  I think it’s a given that their instincts will anti-regulatory and pro-market (which means things are looking up for private for-profits), but it’s hard to see them initiating a lot of new policy.  Which means the policy reins, such as they are, will likely be held by the Republican Congress and not the White House.

So what to expect?  Well, I think we can rule out any continuation of the Obama White House’s free college agenda, or anything vaguely like it.  That idea won’t disappear, but it’s something that’s going to happen in the states rather than in DC (witness Andrew Cuomo’s decision earlier this month to launch his own Ontario-like free tuition-plan).  Beyond that, you’re likely to see some cutting back on institutional reporting requirements, particularly with respect to Title IX, the federal law on sex-discrimination in education, and possibly a push towards more competency-based education.

Where it gets interesting, though, is on student-aid.  It’s not just that we’re likely to see cuts in things like loans to graduate students and (pace Trump’s own views) loan forgiveness.  We may see a return to more private capital in student loans (which would mostly be a bad things); we may also see institutions be required to pay for some of the costs of their own students’ loan defaults (an idea colloquially referred to as requiring institutions to have “skin in the game”.  Some think that the new Congress may push what are known as “Income Share Agreements”, which are kind of like graduate taxes only the entity giving the student money and then collecting a percentage of income afterwards is some kind of private investment firm rather than government.  One of the most crazy/plausible ideas I’ve heard is from University Ventures’ Ryan Craig who mused recently on twitter about setting rules whereby institutions might have to provide a certain fraction of total aid via ISAs in order to be eligible to receive federal aid.

On the research side: who knows?  Clearly, climate science is going to have a hard time.  But health sciences often do well under Republicans; the National Institutes of Health went from $18 billion/year to $30 billion/year under Bush Jr, for instance.  And Trump might decide to do something big and crazy like announcing a lunar base or a Mars mission (the former is a favourite of Newt Gingrich, the latter an obsession of Elon Musk, who suddenly seems quite close with the incoming White House), either of which would have substantial positive ramifications for university science budgets.  So we’ll see.

But put all this into some perspective: as far as Congressional priorities are concerned, changes to student aid are going to come several light years behind repealing Obamacare and dismantling various environmental protections.  The former in particular has some pretty serious budget impacts as repealing Obamacare is going to cost a ton of money.  That’s going to cause a scramble for offsetting budget cuts – one could imagine some pretty big across-the-board cuts in which higher education-related programs will simply be collateral damage.

It’s bound to be interesting, anyway.  Though I for one am glad I get to watch it all from a safe distance.

December 09

Does Student Debt Matter If You’re Not Going to Pay It Back?

You can accumulate one hell of a lot of debt these days in the UK.  Just in an undergraduate degree, fees are ‎£9,000 per year plus you can get another ‎£10,702 in maintenance loans per year of you’re studying in London.  Over a three-year degree that’s ‎£59,106 or a tad over $100,000 (yes, really). So, at face value one can understand the spate of stories coming out of the UK these days talking about how their massive debt loads are going to paralyze them for life, stop them being able to buy housing etc.

Except, wait – these are income contingent loans, not mortgage-style loans.  The maximum payment you have to make in any given year is 9% of marginal income over 21,000.  And the debt incurred doesn’t necessarily need to be paid back.  Loans are forgiven after 25 years, regardless of how much you have repaid.  Estimates vary, in part because it depends on what discount rates one chooses and in part because the government criminally keeps messing with the terms of the loans, but at the moment it is expected that between 25 and 40% of student loan balances will never be repaid and a higher proportion of students (perhaps 50%) will receive at least some forgiveness on their loans.  For those who do not repay their loans, the UK loan system is more like a tax than a loan – a 9% surtax on income over 21,000 which lasts for 25 years after graduation (more on that here).

Despite massive nominal debts, students simply aren’t facing massive repayment burden.   A graduate making 30,000 is only repaying 810 per year, or about 3.1% of after tax income, which is a heck of a lot less than the amount that the average Canadian graduate with student loan debt is paying (our grads pay close to 8% of after-tax income on average).  And they’re paying that regardless of how big their debt is, which is not true in Canada either: at any given level of income over $25,000 per year, Canadian student loans borrowers’ rise along with the amount of debt they have up to a maximum of 20% of family income.

(If you’re wondering how that works – how UK loans can be so big and yet borrowers repay so little – it’s precisely because the government expects quite large losses on the program.  Student loan burdens are easy to reduce if you’re prepared to go to extreme lengths to subsidize them).

The point of income-contingent loan systems like those in the UK, with their guarantees, their maximum payments and their generous forgiveness systems is precisely  to do everything possible to make life easier for borrowers, to ensure that their student loan debts are not going to affect their ability to borrow for other things later on.

But perception is everything.  If graduates feel that their large debts constrain their ability to do make certain life choices like buying a house even though (technically) they don’t, then can we say the policy is actually working? There’s an interesting side point here. When deciding on applications for mortgages or other types of consumer debt, it’s unclear whether banks in places like Australia and UK actually treat income-contingent student loan debt differently than Canadian and US banks treat mortgage-style debt.  They should, but apparently nobody knows for sure because no one’s ever checked – not that banks would necessarily fess up if they didn’t.

Now, I’m not saying that these stories coming out of the UK are in fact true; people in opposition to government policies will tend to come up with whatever argument sounds good at a particular moment. But even if such views aren’t widespread, the point raised is a good one.  Student loan policy wonks have always assumed that if you provide guarantees and limit liability/risk on student loans, then students will be ok with debt.  But if the facts of the policy don’t change people’s attitudes about risk, then the policies will fail, no matter how well they deal with the actual problems at hand.

But what’s the alternative?  It’s a bit of a scary thought.

December 01

Important Changes to Canada Student Loans

The last federal budget made one large signal improvement to student assistance: the abolition of the education tax credit, and the re-investment of that money into an improved Canada Student Grant. Less remarked upon was a promise to simplify need assessment. Now the details of that effort are emerging, and they are pretty interesting.

The change has to do with the student contribution rules. In the Canadian student aid system, various forms of student income and assets are considered “resources” and the more resources you have, the less need you have and the less aid you can claim. If you have no resources at all you can usually get maximum aid, but as resources rise, aid is effectively clawed back. Different forms of income have traditionally been assessed in different ways – summer earnings were clawed back at one rate, in-study earnings were clawed back at another. Personal savings in one’s one name (as opposed to RESPs) were clawed back effectively at 100%, as were scholarships (subject to an exemption of $3000). All these different clawback rates were confusing, they required students to provide a lot of data (student aid forms would be a great deal simpler without all this) and – in theory at least – they discouraged work.

The new CSLP need assessment system aims to correct all of this. Instead of assessing all these different sources of income, under the news students will simply be required to make a flat personal contribution of between $1,500 and $3,000, based on family income (Crown wards, students with disabilities, students with dependents, indigenous students will see this requirement waived and not be required to produce even the minimum resources). Any income they earn above that level – whether through work or scholarships or what have you – will be theirs to keep; there will be no further clawback on that income. This of course also provides a lot of scope to simplify student aid forms.

What will the impact of this be? Well, it’s a two-sided coin. On the one hand, there is no doubt that students will have more income at their disposal and that should help with issues of retention and student poverty. At the same time, a reduction in assessed resources will mean an increased in assessed need which in turn will drive higher borrowing. Ceteris paribus, that means higher student debt, although presumably the increase in Canada Student Grants will offset this somewhat. That’s not necessarily bad – as I’ve shown before , student loan burdens are currently a lot smaller than they were fifteen years ago thanks to lower taxes and interest rates. As a result, it’s likely most borrowers would be able to shoulder more debt. But it’s a trade-off: more money today will mean more burden tomorrow.

There are some other changes worth noting as well. The most important – and from a personal point of view the most satisfying – has to do with required spousal contributions. Eleven years ago I wrote a piece called I Love You Brad But You Reduce My Student Loan Eligibility, which outlined the absolutely ludicrous expectations re: spousal contributions embedded in the Canada Student Loans Program. At the time, the clawback was effectively 80% on all income over $12,000 which was – and I am using the technical term here – totally bananas. It effectively cut off anyone with a working partner from student assistance. As of next year, the threshold for contributions will be raised substantially (the exact level has not yet been fixed but my impression is that is probably in the $30,000 range) and expected contributions will only amount to 10% of marginal income over that level. That’s excellent news: it’s going to put much more financial resources at in the hands of adult learners in married or common-law relationships. Similarly, CSLP plans to cease treating money obtained by First Nations students through the Post-Secondary Student Support Program (PSSSP) as a resource – thus giving those students access to much more money as well.

Overall, this is the biggest change to need assessment since the introduction of the Canada Student Financial Assistance Act in 1994. But there is a catch to all this: because student loans are a joint federal-provincial responsibility, for these changes to work smoothly both federal and provincial governments have to agree to assess things similarly. But these changes cost money and provinces don’t have much of it. Ontario and Alberta have already essentially adopted the flat contribution policy, but it’s not clear either will accept the rest of the package, although I have a hard time imagining Ontario not doing so. The others, though: there is at least a chance that some will choose not to go along with the deal, and stick to the current system of need assessment (in program jargon, this is called “dual assessment”). In such provinces, there will be no simplification of the student aid form because the province will still require the various pieces of information about different types of income. And dual assessment makes it harder, not simpler, to explain aid awards. But since Ontario and Alberta make up something close to 75% of the Canada Student Loans Program, the feds may not be that fussed by other provinces not making the leap.

In any case: the Canada Student Loans Program is making things a lot easier for students and that is to be applauded. It might not work out quite as well as it could because of some legitimate difficulties provinces face in following suit. But overall: this is really good news. Kudos to those in Ottawa (and Gatineau) for making it happen.

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