HESA

Higher Education Strategy Associates

Tag Archives: Need-Based Aid

September 22

Twenty Years Ago Sunday

Five years ago I wrote the following blog, under the headline “fifteen years ago today”.  I think it’s worth running again (with a couple of minor alterations).

On September 24th, 1997, Jean Chrétien rose in the House of Commons to present his reply to the Speech from the Throne. About half-way in, he noted casually that there would likely be a financial surplus that year (a miracle, considering where we’d been in 1995). And he was planning to blow it on something called “Millennium Scholarships.”

Until that exact moment, his caucus had been in the dark about the idea. Indeed, cabinet had been in the dark until the day before. So, too, had the Privy Council Office – Chrétien had deliberately kept them out of the loop because he knew they’d hate it on section 93 grounds and try to top him.

The way the project was pursued in the run-up to the 1998 budget didn’t do the Foundation any favours. There were two basic problems. The first was that it wasn’t clear for months whether these were going to be merit scholarships or need-based grants (in French, the word “bourse” covers both). The public servants at HRDC and Paul Martin wanted it to be about need because they saw the political hay people were making about increasing student debt (note: unlike today, this was a time when debt actually was increasing quite rapidly); Pierre Pettigrew and the Finance mandarins wanted it to be about merit, but for different reasons. Pettigrew has his eye on Quebec and its not unreasonable complaint that the feds were duplicating a provincial program and thought a more merit-based program would take the edge off that argument.  Finance, I think, wanted merit because the top folks there wanted a culture shift in Canada to promote merit (they were also pretty much all Queen’s grads, as far as I could tell, which may or may not explain the fixation).

In the end, 95% was distributed “primarily” on the basis of need, while 5% went to merit. This mix was about right; broad fears of rising tuition and debt required a policy response that emphasized need. Conversely, had more been allocated to merit, the Excellence Awards the Foundation eventually developed would have been devalued – part of what made them special was the fact that they weren’t available to the tens of thousands of students originally envisaged.

The second problem was that no one in Ottawa – including HRDC – really understood how student aid worked. The result was a commitment to give the Foundation’s need-based aid to students with “the highest need” – that is, to exactly the students who already received grants from the provinces. The result was that Millennium awards ended up saving provincial aid programs a bucket-load of money. The Foundation did its best to get provinces to re-invest that money in things that would benefit students. Apart from in Nova Scotia it was reasonably successful though it didn’t always seem that way to the students who were bursary recipients. With some justification, those students were sometimes disappointed; Eddie Goldenberg, the Prime Minister’s Senior Political Advisor whose views on fed-prov relations were…well, let’s just say they lacked subtlety…was apoplectic.

This isn’t the place to recount the Foundation’s history (for that, I recommend Silver Donald Cameron’s book A Million Futures). All you really need to know is that for ten years, the Foundation ran a national social program that wasn’t based in Ottawa and wasn’t one-size fits all. It ran a merit program that was much more than just money-for-marks, and was rigorous about using empirical research to improve our understanding of how to improve access to higher education. It was just a different way of doing student aid.

Now, I’m biased, of course.  I worked at the Foundation.  I met my wife there.  Had Chrietien not risen in the House that day, my daughter literally would not exist and the world would be deprived of its smartest and most beautiful 8 year-old ballet dancer/sumo enthusiast.  But even if none of that were true, I’d still stand by my final comment from five years ago:

The Foundation was created on the back of a cocktail napkin, and suffered from a profoundly goofy governance structure. But within the boundaries of that cocktail napkin, a lot of neat stuff happened. And even though some of what was best about the Foundation has been taken up by the federal government since its demise, the country’s still worse off now that the Foundation’s gone.

October 23

Expected Parental Contributions

Just a quick note: next week, I’ll be on that all-too-common transportation route, Toronto-Milwaukee-Shanghai, en route to attend (and deliver a paper at) the 6th International Conference on World-Class Universities, and the blog will be on hiatus while I’m away. Anyways, to business.

Everyone knows that for dependent students – that is, students less than four years out of secondary school, or who have not spent two consecutive years in the labour market full-time – the amount of student assistance available depends on parental income.  And that’s mostly true.  But there are some catches.

Back to first principles for a moment.  Student assistance is based on something called “assessed need”, which is simply “assessed costs” (tuition and fees, plus an estimate for books/materials costs, plus an allowance based on place of residence) minus “assessed resources”.  If you’re a dependent student, one of your assessed resources is something called “expected parental contribution”.  This amount has nothing to do with what your parents actually contribute: it has to do with what the government assumes they can contribute based on their income.

On what do governments base these assumptions?  First, governments assume that parents need a minimum amount of money on which to live – this is known as the “minimum standard of living” or MSOL. This figure is meant to buy the same basket of goods across the country (meaning that MSOL is higher in high-cost provinces) and is equivalized for household size (meaning that larger households have higher MSOLs).  Parents are not expected to make contributions on MSOL, but they are expected to make contributions above it at an escalating rate.

But MSOL is based on taxable income, meaning it’s not just total parental income that matters, but also the income split between family members.  A two-parent family where the two parents earn $45,000 and $55,000 pays less tax than one in which a single wage-earner brings in $100,000, and hence have higher post-tax income.  A student from the two-income family in this example will therefore have a higher “expected contribution” and, ceteris paribus, lower student aid than a student from a one-income family.  Figure 1 shows how much aid students from one- and two-earner families get at different levels of family income (the figures are accurate for Manitoba, but roughly the same relationship holds across all provinces).  Basically, beyond about $90,000 in family income, the expected contribution of the one-income family is $2,000 less than that of the two income family – and hence their child will be eligible for a similarly greater amount of student aid.

Figure 1: Expected Parental Contribution by Parental Income, Single- and Dual-Income Families

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What is more interesting, perhaps, is to look at how the rules differ across provinces.  Figure 2 shows expected parental contributions by province, by family income (assuming a two-parent, one-child, two-income family, with an income-split as outlined in the previous paragraph).  What it shows is that parental income affects student aid eligibility in very different ways in different parts of the country.

Figure 2: Expected Parental Contribution by Family Income, Selected Provinces

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It is well-known that expected parental contributions in Quebec are much higher than they are in the rest of the country.  The province’s reputation for having a generous student aid program is only true for independent students; high expected parental contributions actually make aid very difficult to obtain for dependent students, especially in CEGEP (which may go some way to explaining that group’s notorious radicalism).  Compared to British Colombia, the MSOL threshold is $26,000 lower ($41,000 vs. $67,000); not only that, but also the rate at which contributions are expected to increase is faster in Quebec.  At $90,000 of family income, a BC family would only be expected to contribute $2,150; in Quebec, the expected contribution would be almost $12,000 (which, in effect, would disqualify a student from aid altogether).

BC and New Brunswick have similar-shaped curves in Figure 2, and the curves of all but two other provinces resemble them closely.  The first is Ontario, which uses a different and more restrictive parental contribution formula than the rest of the country.  In fact, in many respects, Ontario is like Quebec in that it has a very generous system of grants, but restricts access to them by having higher expected parental contributions.  At $90,000 in family income, an Ontario family would be expected to contribute almost $9,000 per year to their kids’ education (again, compared to just $2,150 in British Columbia).

The other exception is Alberta, which recently decided that parental contributions are a complication it could do without, and so abolished them a couple of years ago.  Sounds great, right?  Of course the reason Alberta could make such a decision is that it doesn’t cost them very much since, for most students, its system is all loan and no grant. Take the cons with the pros.

There. You now know more about this than I do (on this subject, my brain is officially subcontracted to Jacqueline Lambert, who created these awesome graphs); use the knowledge wisely.  See you all when I return.

November 13

Henry David Thoreau on Need Assessment

Our life is frittered away by detail. Simplify, simplify, simplify! I say, let your affairs be as two or three, and not a hundred or a thousand; instead of a million count half a dozen, and keep your accounts on your thumb-nail.

Canada’s system of student aid need assessment is much too complicated. Not only do we have a ludicrous number of different tax rates, but we have all sorts of weird little measures to engineer micro-equity between students. The result is a complicated system that can’t be explained to students.

How bad is it? Bad enough that some provinces don’t even bother explaining to students on their notices of assessment how they come up with the final figure. It’s not difficult: there’s a cost number, a resource number and a need number which is equal to the costs minus resources. But some governments got weary of explaining how they came to these figures (or why aid didn’t equal need if the latter was above the weekly-maximum).

This is awful for a couple of reasons. The first is that it’s a terrible lesson in civics. At least with tax forms, filling them in gives you an understand of why you have to pay as much as you do. Student loans are just a big black box: governments ask for personal financial information and then spit out an aid number without explaining how they got there. Student aid is the first contact most young people have with a government program and all the opacity doesn’t do the cause of active government any favours.

But the more important reason is that the lack of clarity makes it difficult for students to understand their eligibility for aid (the fact that they aren’t allowed to apply until after they’ve already made their choice of institution is an additional bad idea). Given how much we hector students about financial literacy and preparation, governments’ inability to reciprocate by providing more clarity around potential aid is a bit problematic.

These problems are extremely easily solved. Just reduce student aid to two factors: family income (parents plus kids), and tuition. That way, you could just give students a simple grid; income on one axis, tuition on the other, and voila! Need assessment so simple it would fit on a postcard. For completeness, you’d probably want one such grid for each student category (dependent at home, independent away from home, etc), but the outcome is the same – no-fuss, easy-to-communicate student aid.

Some students would undoubtedly get less under this system (some might also get more)– but what we’d lose from rough justice, we’d gain in program transparency and clarity. That’s a good deal, though: simplifying student aid will make it more understandable to precisely those on-the-margin students we most want to help.

March 02

Shifting Away from Need-Based Aid in Alberta

Last month, the Government of Alberta announced some fairly radical changes to its student financial aid program, to wit:

– The province will no longer count student income, RRSPs and, crucially, parental income in the calculation of revenue. Instead, all students will be expected to make a $1,500 contribution to their education, except for single parents, who will be exempt.

– The province is introducing completion grants, as the Herald explains: “$1,000 for a technical certificate, $1,500 for a diploma and $2,000 for an undergraduate or graduate degree.”

– It’s introducing a $1,000 retention grant for students who graduate and work in high-demand occupations, including nurses, doctors and social workers.

– To pay for all this, the province is ditching its loan remission program, an annual savings of $69 million.

Some of these ideas may seem familiar to student aid nerds. A few years ago, New Brunswick introduced a completion grant and also ditched parental contributions from the student aid calculation, only to reintroduce them this year. Hardcore nerds may also remember a Nova Scotia deputy minister arguing for the elimination of student income clawbacks at a CASFAA conference in 2008. Alberta’s Education Minister Greg Weadick argues – correctly – that these changes will help simplify the complex student aid process. And while that’s a good thing, the trade-off presents significant challenges for accessibility.

The bottom line is straightforward – it’s a shift away from need-based aid, much like the one HESA’s Alex Usher and Sean Junor anticipated five years ago. The province will issue more loans to students whose need was hitherto low or nonexistent, and a lot of small grants that are essentially need-blind.  And as a result it will also provide many fewer large grants to students with high need.

What explains this trade-off, beyond the desire for a simpler student aid system? Perhaps the fact that demand for student aid in Alberta is way up in the last few years. According to the Canada Student Loans Program, the number of borrowers in Alberta increased by 19% between 2008-09 and 2009-10 (data for 2010-11 are not yet available, but it is reasonable to assume demand for loans continued to increase).  More loans means more remission, and that means that the government may have felt that under the status quo, costs were about to rise  very quickly.

Student loans may be cheaper than grants or remission, especially with interest rates as low as they are. But a significant increase in borrowers can really stretch a budget, especially when remission programs kick in automatically. “Simplification” may be the selling point on these changes, but the true motivating force is even simpler: dollars and cents.