Over the past two decades, tuition rises in Canada have been relatively low: on average, we consistently see rises of about 1-2% above inflation, with almost no sudden upwards jags (though there was one sudden decrease when the Ford government cut tuition by 10% in Ontario in 2019).  This is quite different from the 1990s, when rises of inflation plus 5-6% was the norm and instances of tuition doubling (Quebec, 1990 to 1992) or increasing by over 50% (British Columbia, 2001-2003) were not unknown.  

We’re not about to go back to those days, but we are starting to see some pretty sharp rises in Alberta (double-digit rises increases in some specialized, mainly second-entry programs), and there is a very real prospect of a very significant rise in tuition in Newfoundland and Labrador, once the Independent Review Panel on post-secondary submits its final report (that is, if it reports…it’s been twenty-five months and three sessions of the Assembly since it started, which has to be some kind of record).  In any event, people are actively discussing what happens when tuition rises sharply.  Doesn’t tuition reduce accessibility?

The answer, fairly clearly, is that in the context of jurisdictions with relatively generous student aid, the answer is no, or at least not automatically so.  It depends to some extent how the money gets used.  Take the case of British Columbia in 2001-2003: though it was by far the biggest increase in tuition this century in Canada, there was no drop in access: in fact, enrolments rose by about 40% in the five years following the tuition increase, because institutions were able to take that money and invest it in new spaces (the provincial government also started re-investing heavily towards the end of this period).  And as for participation by income, as I pointed out back here, over the period 2001-2014, the two provinces where participation gaps fell the most (i.e. where participation rates across incomes became more equal) were Ontario and Newfoundland, the provinces with respectively the highest and lowest tuition fees in the country for most of that period.

Just in the past couple of months, we have some new evidence from abroad showing again that tuition does not really have the decisive effect people assume it does.  Let’s start in Ecuador, where a recent article in the Journal of Public Economics by a pair of economists from the University of Hawaii-Manoa examines the experience of that country in removing tuition back in 2008.  Prior to that year, public institutions set modest fees ranging from $250 to $1500, with most students paying at the lower end of this range; after it, fees fell to zero.  Both before and after, access to the system was conditioned by a series of academic entrance exams which in theory are equal for all, but since not all students have access to a school with a curriculum designed to lead to university entrance (the bachillerato) in practice access had a pronounced skew to students from wealthier families.  

Using Ecuador’s quarterly national Employment Survey, the researchers were able to look at young Ecuadorians and determine whether they had attended or graduated from a university.  Since the survey also asks questions about indigenous language knowledge and about county of origin, the researchers were able to attach some imperfect but still usable markers of ethnicity and socio-economic status at birth.  Using a difference-in-differences approach, they were able not only to look at the enrolment impact of the fee change (an overall boost of about 9%), but also the background of the additional students.  As it turns out, the elimination of fees had absolutely no effect on participation rates of individuals who speak indigenous languages, nor did it have an effect on the participation rates of individuals from counties with below-median average income.  In other words, the entirety of the increase in participation came from the already-privileged strata of Ecuadorian society, which is presumably not what Ecuador’s Chavez-wannabe President Rafael Correa had intended.

What’s the explanation here?  The authors offer two plausible explanations.  First is that in many places poor students already benefited from institutional fee discounts for poor students, so the relative change in price would have been much stronger for wealthier students than poor ones (this would be 100% true of any move to make tuition free in Canada).  The second is that in a system where university access is still selective based on entrance examinations, the binding constraint on lower-income students is less about money than it is access to a secondary education able to get them through these exams.

Now over to Australia, where if you’ll recall the Liberal (i.e. conservative) government made a huge change to fee policy last year.  The upshot of the changes was that most disciplines saw a drop in tuition of about $1700, except for Agriculture and Education where it was larger, and Management and Humanities/Social Sciences, where fees were increased by about $3,000 and $8,000, respectively.  In theory, this was about creating more “job-ready graduates”, meeting demand in STEM disciplines, blah blah, but mostly it was about a culture-warrior government sticking it to the “woke” disciplines.

(Institutions have no freedom on setting undergraduate fees for domestic students in Australia: prices are set centrally on a per-discipline basis by the government. Also, technically these are contributions rather than “prices” – fees are not payable up front, but instead individuals contribute between 0-10% of their income, based on their income level until a) the total amount is repaid or b) death.  In practice, only about 80% of total “fees” are paid to government.)

Anyways, with all these different changes in fees, what happened to student demand?  Let’s look at the relationship between tuition changes and change in first-year enrolments (I realise this is not quite the same as “demand”, but bear with me).

Figure 1: Change in first-year enrolments vs. change in annual tuition, Australia, 2021

Overall, new enrolments in Australia for 2021 are up by about 7% (a very odd year, but then COVID was at play), and on the whole it was up by a lot more in disciplines where tuition fell than where it rose.  But contrary to the views of some, the $8,000 increase in annual fees in social sciences and humanities did not lead to a collapse in demand in those fields.  In fact, enrolments in that field rose by nearly 6%.  

This didn’t come as news to everyone.  Bruce Chapman, the designer of Australia’s Higher Education Contribution System, was pretty clear about this last fall when he said that the HECS – which is effectively a very long-term interest-free loan on generous terms which protect borrowers in periods of low-income – was designed in precisely such a way as to shield students from price signals.  And it would seem he has largely been proved right.

Neither of these stories should be interpreted as meaning that tuition has no effect at all on demand.  But they should both be understood as saying that the relationship between tuition and demand is not straightforward, is mediated by the nature of student loans and subsidies.  Further, where access is rationed on secondary school achievement or university entrance exams, fees may not be anything like the most important constraint on low-income students.  Keep all that in mind any time you hear claims about relatively small tuition rises being a major barrier to access, or about reductions in tuition being a sure-fire route to improving access.