HESA

Higher Education Strategy Associates

Category Archives: tuition

June 30

The Effects of Tuition Fees (Part 2)

As I mentioned last week, a major paper I’ve been working on for over a year with colleagues from DZHW on the subject of the effects of fees was published last Monday by the EC (available here).  In my last post, I talked about how fees affected institutions – today, I want to talk about how they affect students.

In our report, we looked at case studies over 15 years (1995-2010) from nine countries – Austria, Canada, England, Finland, Germany, Hungary, Poland, Portugal, and South Korea.  These countries represent very different experiences.  Some have private higher education, others don’t.  Some have public sectors that change fees, while others don’t (Hungary and Poland are in the middle, where public universities provide education free for some while charging for others).  And looking across all the different cases, we found = the following:

1)      Most tuition increases have no perceptible effect on enrolment.  The only cases where clear-cut effects could be discerned was in England in 2012, where the increase was about $10,000 in a single year, and in the de-regulation of professional fees in Ontario in the mid-90s (where, bizarrely, low-income students were not affected, but middle-income students were).

2)      That said, there are also some clear-cut cases where tuition has been a driver of increased access.  In both Poland and South Korea, major increases in enrolments were driven by the existence of fee-supported places (mainly but not exclusively in private institutions).

3)      Though this is partly a matter of many countries having education data-sets that make Canada’s look enviable, there is very little evidence that changes in fees have done much to change the composition of the student body.  In every country where there is data, underrepresented groups have done better over time, regardless of the fee regime.  Even in the extreme case of England 2012, under-represented groups (the poorest income quintile, black and Asian students) tended to be less affected by the tuition increase than richer, whiter students. (The one exception here is older students, who were disproportionately affected by the changes.)  To the extent that late-entrants to higher education come from poorer backgrounds, this should be seen as a kind of hidden socio-economic effect of fees.

4)      Changes in tuition fees seem to have had no discernible effects on students’ choice of major, and few discernible effects on students’ decisions about where to study (in Canada, for instance, rates of out-of-province study are actually up over the last decade).

5)      It is not so much that fees themselves have no effect; rather, it is that in nearly all cases, fees are introduced with accompanying increases in student aid.  Sometimes it is paltry compared to the size of the fees required (e.g. South Korea in the 90s), sometimes it is implemented in a fairly clunky way (Germany, mid-2000s).  But it is always there to offset the worst effects of fees.  And in the case of England 2012, it was there to ensure that students weren’t required to pay a single extra penny of costs up-front, which seems to have had a major factor in limiting the impact of the world’s largest-ever tuition increase (in the short-term at least).

The lesson here?  Unless you’re planning on going England-style crazy, international evidence fee increases are unlikely to affect access in a measurable way.

June 23

The Effects of Tuition Fees (Part 1)

For the last eighteen months or so, I’ve been working on a project with colleagues Dominic Orr and Johannes Wespel of the Deutsche Zentrum für Hochschul- und Wissenschaftsforschung (DZHW) for the European Commission, looking at the effects of changes in tuition fees and fee policies on institutions and students.  The Commission published the results on Friday, and I want to tell you a little bit about them – this week I’ll be telling you about the effects on institutions, and next week I’ll summarize the results with respect to students.

The first question we answered had to do with whether or not a rise in tuition ultimately benefits higher education institutions.  Critics of fees sometimes suggest that extra fees do not in fact result in institutions receiving more money, because governments simply pull a fast one on the public and withdraw public money from the system, thus leaving institutions no better off.  Our examination of nine case studies revealed there were certainly some occasions where this was the case – Canada in the mid-90s, Austria in 2001, and the UK in 2012 – but that in the majority of cases fee increases were accompanied by stable or increased government funding.  Moreover, in all the cases where there was an accompanying decrease in public funding, it was signalled well in advance by governments, and indeed the increase in fees was deliberately designed to be a replacement for public funds. We did not find a case where a government “pulled a fast one”.

The second question we asked was how universities reacted to the introduction of fees: did they suddenly start chasing money and becoming much more sensitive to the demands of students and donors?  The answer, by and large, was no, for three reasons.  First, tuition isn’t the only financial incentive on offer to institutions; particularly if they are already funded on a per-student basis, the introduction or increase of fees isn’t likely to change behaviour.  Second, institutions won’t go after fees in ways that they think will negatively affect their prestige.  In Germany for instance, many universities have considerable latitude to raise income via teaching through continuing-education-like programs, but effectively they don’t do this, because they believe that engaging in that sort of activity isn’t prestige-enhancing.  And third, institutions often delay altering their behaviour too much because they don’t believe government policy will “stick”.  In Germany, specifically, the feeling was that the introduction of fees was unlikely to last and so there was no point in getting too invested in attracting new students to take advantage of it.

In fact, although fees in public institutions are often touted as a way to make universities more flexible and more responsive to business, the labour force, etc., this never actually works in reality, because universities are saddled with enormous legacy costs (you can close a program, but you still have to pay the profs), and have a particular self-image that means  they closely-tied to traditional ways.  What does seem to work – at least to some degree – is to allow the emergence of new types of higher education institutions altogether.  In Poland, it was only the emergence of private universities that allowed the system to take on the explosion of demand in the 1990s.  In Finland, an entirely new type of higher education institution (ammattikorkeakoulu or “Polytechnics”) was developed to take care of applied education, and accounted for 80% of all enrolment growth since 1995.

Next week: the effects on students.  See you then.

May 26

Tuition Fees and Inequality

Stop me if you’ve heard this one before: it’s unfair that some people graduate with debt, and others don’t.  The ones that do tend to have started off poorer to begin with.  And so instead of being a means of social mobility, tuition ends up being a means of perpetuating it – the ones who start off poorer end up poorer.  That’s bad, and that’s why we should have no tuition.  Eliminate tuition and you eliminate inequality.

Let’s take this one-by-one.

First of all, eliminating tuition doesn’t eliminate debt.  Sweden, famously, has both free tuition and significant debt.

Second of all, while the notion that the poor are the ones with debt is mostly true, it’s not entirely so.  Some well-off kids borrow – usually in their fifth year when their parents’ income no longer counts against them in the need assessment process.  And some poorer kids get through without loans by working and living at home.

But the most important of all is a point articulated by the American writer Matt Bruenig in this article: eliminating tuition does not, in any way, change inequality between rich and poor students.  To a large degree, the kids who graduate without debt do so because their parents pay their bills.  If you make tuition free, it reduces (but does not eliminate) the need to borrow; it also means that wealthier parents get to save their money.  The gap between rich parents and poor parents is not made narrower: they are both saving the same amount of money.  And the idea that the gap between graduates is made narrower depends entirely on the notion that rich parents will look at all that money they’re saving and not pass it on to their kids.

Does anyone really believe that?  Does anyone really believe that if rich parents had more money they’d pass less of it on to their kids?  No?  Then your argument relating tuition to the perpetuation of inequality is wrong.

Bruenig makes the argument – correctly – that if you are going to base your tuition policy around the idea that it should serve to reduce inequality (something many sensible people would think is nuts), then the only way to do that is by charging sharply progressive fees.  Ask the kids from poorer families to pay little or nothing, and ask the kids from wealthier families to pay more.  And in practice the way you do that is by charging high fees and off-setting it with need-based grants.

Anything else fails the inequality-reduction test, simple as that.

May 21

Rationalizing Regressive Subsidies

A couple of weeks ago, I wrote a blog analysing the distributional effects of tuition reductions vs. targeted grants, and concluded that the latter was far more progressive in their impact than the former.  In response, Carleton professor Nick Falvo wrote a piece on OCUFA’s Academic Matters website saying that I was “wrong about tuition”.  Because some of his arguments are interesting – to his credit, he didn’t reach for the appalling argument that a regressive distribution of benefits is OK because the rich pay more taxes – I thought I would take some space here to respond.

Although Falvo claims to be demonstrating that my thesis about regressivness is wrong, at no point does he actually address the distribution issue.  Rather, he essentially concedes this point, and then make a series of arguments about why tuition reduction is preferable to targeted grants despite their regressiveness.

Falvo makes five separate arguments about the superiority of a free-tuition arrangement over a tuition-plus-grant arrangement.  The first is that free tuition is more “efficient” than grants because the administration costs are lower. But this is silly.  In fact, SFA administration costs in Canada run about five cents on the dollar.  Why you’d spend billions of dollars on one type of subsidy, just to save a few tens of millions by getting rid of the few hundred public servants who administer the existing programs, is a bit beyond me.

The second argument  is, essentially, that grants don’t work because sometimes tuition rises faster than grants.  But the more efficient solution to this – were this indeed a problem – would of course be to spend more on grants, not decrease tuition.

His third and fourth arguments are mutually contradictory.  One is that targeted subsidies create disincentives to work (the “welfare wall” argument); the other is that targeted grants are too complicated to understand, and that free tuition is more effective because it is easier to understand than a fees-plus-aid strategy.  The first implies that families have quite a good understanding about how subsidies work, and adjust their behaviour accordingly; the second implies that they don’t.  My view is that the second theory is more likely to be the correct one.  Sticker prices are simpler to understand than net prices.  The question really is whether this actually matters.  How much damage does poor communication actually do to access?  Is it sufficiently bad that we should spend an extra couple of billion on it?  For that to be the case, one would need to prove not simply that some people are deterred by financial barriers (undoubtedly true), but that they are deterred in large numbers because of their misunderstanding of extant financial incentives.  On the basis of existing evidence, I’d guess that’s not the case.

Falvo’s final point is that free tuition is a more politically saleable proposition than grants – because more people will benefit, it is easier to create and maintain voting coalitions in favour of it.  Even if that’s true, it is an appalling argument.  Stephen Harper certainly sold the Universal Child Care Benefit much easier than Paul Martin sold the (targeted) expansion of daycare spaces, but that doesn’t make it good public policy.

The argument that the only way, politically, to get a dollar to the youth from the poorest quartile is to give three dollars to youth from the richest quartile is an awfully convenient one… if you’re from the top quartile.  I simply don’t believe we have to settle for a system where the only way to get money to the needy is to buy-off the rich.  And I remain completely baffled why people who claim to be progressive actively promote such an idea.

May 09

Who’s Progressive?

To the extent that finances act as a barrier to higher education, they are an obstacle to those without resources – that is, those who tend to come from lower-income backgrounds.  It is, therefore, simply common sense that if you want to relieve financial barriers, you concentrate resources among those with the fewest means.

Except, it doesn’t seem to be common sense among many of those who consider themselves “progressive” in Canada.  “Progressives”, for reasons that are almost incomprehensible, prefer solutions that give far more money to students from high-SES backgrounds.  Why?  Good question.

The best way to focus aid is to use grants based on income (or, second best, on assessed need).  By using income-targeting, you can get money to exactly who you want.  Say you have $100M that you want to put towards affordability.  Want to give all of it to students in the lowest income quartile?  You can do that.  Split it between the bottom two income quartiles? You can do that, too.  Or maybe spread it out a little more thinly so that it cuts out gradually – say, 60% to bottom income quartile, 30% second quartile, 10% third quartile?  You can do that, too.  Grants make many different types of investments possible.

Figure 1: Some Possible Distributions of Grants Across Income Quartiles

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But some people despise this idea.  Some people say things like, “lower tuition is the best form of student aid”.  Implicitly, because people from richer families are likelier to attend post-secondary education, the distribution of $100 million, if delivered in the form of a tuition cut, looks like this:

Figure 2: Distribution of Benefits of a Tuition Reduction, by Income Quartile

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That doesn’t actually look so good compared to a grant, does it?  In fact, it’s even worse than it seems.  That’s because a $100 million reduction in tuition ends up affecting other types of aid as well.  For every dollar of tuition reduced, students and their families lose 21-28 cents (depending on the province) in tax credits.  And, to the extent that anyone has provincial need-based grants (as opposed to the mainly income-based federal ones), a dollar less in tuition means a dollar less in need, which in many cases means a dollar less in grant.  Thus, for high-need students (which is not quite the same thing as low-income students, though there is some overlap), a dollar less in tuition can mean $1.25 less in non-repayable aid.  That is to say, they are worse off after the tuition reduction than they were before.  But the rich kids who had no need of student aid to begin with?  They’re better off by $0.75.

All told then, if you spend $100 million to reduce tuition, the spread of benefits looks something like this:

Figure 3: Distribution of Benefits of a $100 Million Tuition Reduction, by Income Quartile, in Millions

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Of the $100 million in reduced tuition, $42 million gets recouped by one level of government or another, either through reduced tuition tax credits or reduced grants.  Of the remainder, only 13% goes to the poorest quartile, and only 38% goes to the bottom half.

So, ask yourself: who’s progressive?  The folks who want to give 50, 60, or 100% of their money to kids from the bottom income quartile?  Or the folks who want to give almost three times as much to the top quartile as to the bottom?

May 07

Why Everyone Loves International Students (Part 1)

A nice simple post today: why universities are going bananas for international students.

The first figure shows undergraduate tuition fees for international students in each province.  They range from a little under $10,000 in Newfoundland, to just over $25,000 in PEI.  The national average for this period is $18,840; in Ontario it is $23,000.

International Undergraduate Tuition Fees by Province, 2012, in $2013

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What’s more, fees for international students have been going up quite steadily for two decades.  Over the last 21 years, fees for international students have risen annually by an average of 4% in real terms (i.e. over and above inflation).

Average International Undergraduate Tuition Fees by Province, 1990-2012, in $2013

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And these fee rises seem to have no effect on demand.  Check out the rise in the number of international students.  Is that great or what?  High fees?  Lots of international students.  Raise fees?  MORE International students!

International Student Enrolments, 1992-2011

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Does anyone expect universities to turn down that kind of money, from an apparently inexhaustible source?  Especially when the amount they get from government is flat, and tuition is tightly regulated?

OK, yes, the decision to take in international students is, in fact, marginally more complicated than I’m making it out to be here.  I’ll get to that tomorrow.  But the basic case for international students is right there in those three graphs.

Money talks, you know.  Gotta pay the bills.

May 01

Scare Tactics

So, my blog posts on Net Zero Tuition got some attention last week, not least because Margaret Wente took up the cudgels on the issue.  The reaction to it was disheartening to say the least.

From ordinary students and recent graduates, the response was basically some variant of the “n of one” reaction: “I pay attention, I have debt; therefore, it is not be possible that, across the whole, non-repayable aid had doubled, or that this country spends as much on non-repayable aid as it collects in tuition”.

This is what I call Solipsistic Social Science (SSS): when confronted with evidence that conflicts with previous beliefs, the reaction is not curiosity (e.g. “how is that possible”? Or, “why might that be”? Rather, it provokes outright denial: “if it’s not happening to me, it can’t be happening at all”.  Understandable? Maybe.  But it’s a bit sad coming from people with post-secondary education, though. Were I in a cattier mood, I’d suggest it’s a kind of disgraceful that PSE graduates might suffer from it, and it reflects badly on institutions themselves.

The more interesting reaction, though, came from “official” PSE groups, where the “but whaddabout” reaction reigned supreme.  Aid dispensed as high as tuition collected?  But whaddabout living expenses?  Large numbers of students receiving more in aid than they pay in tuition?  But whaddabout “lived experiences of struggling students”?

Now, some of those points are valid (and indeed I raised some of these myself back here).  But the utter inability of everyone to even acknowledge the data existence was kind of incredible.  OCUFA’s dismissed Margaret Wente’s article as being “tone-deaf”.  You see, it doesn’t actually matter whether everything she said was factual or not, the problem was “tone”.  And the only acceptable tone, apparently, is CRISIS.  The fact that government aid has risen significantly in real dollars over the past 15 years, or that rises in student aid since 1999 have more than kept pace with real increases in tuition, or that since 1999, student debt has been flat, and student debt burdens (that is, the percentage of average after-tax income used to repay educational debt) have fallen by a third?  That’s all “ideological”.

Well, you know what?  The sector needs to grow the hell up.  The reliance on perpetual crises isn’t just childish – it’s dishonest.  A decade worth of good policy-making on student aid means that higher tuition – which has helped institutional finances immeasurably – haven’t had many negative consequences.  That’s something to celebrate, but instead Canadian PSE groups try to pretend it never happened because they prefer the crisis narrative.

I get that people think that political traction is hard to obtain in the absence of a crisis.  But no matter  how worthy the cause, it’s not alright to pretend to knowingly ignore the truth in the attempt to drum up support.  Especially in higher education.  Our sector is supposed to be about truth, honesty, and rigour.  Ignoring those rules in the hunt for more money is unconscionable, and in the long run does more damage than good.

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:

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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.

 

February 24

The Best Argument for Free Tuition

As you’ve all probably noticed over the years, I have little patience for most arguments for free or reduced tuition.  There’s not much evidence it improves access.  Sure, it reduces costs for poorer students, but there are cheaper and more progressive ways to do that than to simply provide aid to all, regardless of ability to pay.

The argument in favour of charging fees is threefold.  One is about fairness: people who gain a personal advantage from using a service (and private returns to education are still excellent, no matter what the “hell-in-a-handbasket” crowd says) should contribute towards its upkeep; the “positive-externality-of-education” argument is correct, and leads to the conclusion that there should be some public support of higher education, but not that it should be exclusively supported that way.  The second argument is about equity: this is a service used disproportionately by the wealthier elements of society, and so using public money for it is always problematic (unless, that is, you adopt the ludicrous arguments espoused by Hugh McKenzie, and the Canadian Centre for Policy Alternatives, that it’s still progressive to give more services to rich people on the grounds that they pay more taxes).  The third argument is simply pragmatic: there are masses of people who are affluent and willing to pay for higher education.  Why would you punt that?

The zero-tuition folks really only have one semi-effective rejoinder to this, which is that most of this is also true of secondary education.  Why free education for one and not the other?  The answer, of course, is that secondary education is compulsory and post-secondary is not.  But this answer is getting less obvious all the time.  A large majority of young people now do get some kind of post-secondary education, and we’re getting closer to universality all the time. If higher education is becoming universal, would it not make sense for at least some of it to be free?  Not all of it, mind you: the fairness and equity rules above would still apply.  But if it were introduced for higher education programs where the students aren’t disproportionately drawn from upper SES groups, and where the returns to education are fairly low, free tuition wouldn’t violate those rules.

An interesting movement is developing along these lines in the United States, with calls from both the left and the right to make two years of community college free.  In fact, the Governor of Tennessee (long a low-tuition state, like much of the South and West – it’s a legacy of 1890s populism) has put such a proposal in his State of the State address. Since US associates degrees tend to draw lower-income students, and lead to less well-paying jobs, it meets the fairness and equity tests.

Something similar wouldn’t make quite as much sense in Canada because more of our college credentials are longer, more specialized, and have high private rates of return; you wouldn’t want to do this with Sheridan’s animation programs, or SAIT’s pipeline technology programs, for instance.  But college ECE or pre-apprenticeship programs?  Free tuition there would be significantly more progressive than, say, grants to university students from families making $160,000.

Worth a conversation at least.

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