Stop me if you’ve heard this one before:

Take two students.  One of them comes from a poor family and needs student aid, the other, by dint of having wealthier parents, is either ineligible for aid, or can manage somehow to get through school without it.  One therefore finishes school with debt and the other does not.  Because the debt carries interest, the poor student pays “more” than the better-off student.  And because the poorer student will start their career with debt and the other one will not, student aid and post-secondary education are fundamentally “regressive”.

So, let’s leave aside the fact most students in Canada who receive loans have, since at least 2010, also received grants worth significantly more than whatever interest costs their loans will bear and therefore the idea that aid is regressive is nonsense: the only way you can claim student aid is regressive is if you focus only on the loans and pretend the grants don’t exist.  But we’re not that blinkered, so we won’t do that.

Still, that leaves the argument that because some people end up with debt and others don’t, student aid (or more precisely student loans) are a cause of inequality.  How seriously should we take this?  I think the answer is we have to take it pretty seriously if the correct unit of analysis were individual students.  But it’s not completely obvious that is the way to look at.  Let’s shift lenses for a second, and take a look not at students, but at families.  How does student aid look now?

Well, take those same two students and describe them in terms of their families.  Say one of them has a million dollars more in assets than the other.  Say the richer one has to pay $50,000 for their child’s education.  Add to that whatever stream of future income that $50,000 might represent; if we say it’s another $20,000 or so, that works out to a total cost of $70,000.

And the poorer family?  Well, they pay nothing immediately because their kid gets student aid.  Say it is $50,000 worth, to even things out.  And let’s say that works out to $15,000 in grants and $35,000 in loans.  Those loans carry no interest while the student is in school (which, at 2% inflation means a $1,750 subsidy in real dollars), but does carry interest of about 6% thereafter.  Assuming the $35,000 gets paid back in 10 years, that’s about $8,000 in real interest (after inflation).  So, total “cost” is $35,000 – $1,750 + $8,000 = $41,250.

Got that?  The rich family pays $50,000 up front which turns into $70,000 because of foregone income from the loss of asset.  The poor family pays nothing up front, but upon completion has a “debt” of $35,000, which ultimately turns out to be $41,250 in real dollars.  This debt is what people are thinking of when they say the poor student with loans is worse off.  But, compared to the richer family, the poor family is comparatively better off to the tune of $28,750.

(You will of course come up with slight different numbers if you plug in different assumptions about interest rates, rates of return, etc. but the basic story remains the same)

To be clear: it’s not that framing student aid at the level of the family is right and framing at the level of the student is wrong.  I mean, I happen to think the family frame is more right, but that’s just me.  The point is, there are two frames to consider, that point to two very different equity implications.  When talking about student assistance, it’s worthwhile to remember both.