On the day of the Ontario budget, I half-sarcastically lamented on twitter that since the budget adopted so many good ideas that I (among others) had pushed over the years that, what was there left to write about? But having now had a few days to think about it, it’s occurred to me that there is still a lot of room left to innovate in student aid. So, herewith, the policy agenda for the next decade or so:
1) Nine (well, eight-and-a-half) provinces to go
The federal liberals started this movement by agreeing to ditch some tax credits and re-invest them in up-front grants (we’ll see how that promise pans out in practice on March 22). Ontario went a step further by taking all its back-end subsidies (loan remission, tax credits) and putting them into up-front grants and setting up a system to tell students their net tuition at the time of acceptance. That’s fantastic, but what about the rest of the country? Sure, Quebec is part-way there (they’ve got rid of back-end subsidies but haven’t got round to doing the net-price thing yet), but everywhere else is still stuck in the old system. It’ll take 4-5 years to get everyone on board with the nex orthodoxy. That’s job one.
2) What about mature students?
In the recession of the early-mid 90s, governments were falling all over themselves – rhetorically at least – to help lifelong learners. You know, people in their 30s and 40s who are trying to improve their lot through education and need help. But it’s been years since any help went their way: instead, all the dough has been going to students 18-22 years old, in large part because these investments are blatantly framed as ways to buy their parents’ votes. But the pendulum has swung too far: barriers are substantially higher for older students than younger ones, and it’s time to redress that balance.
3) Fixing Interest Rates
Currently, Canada charges students zero interest (i.e. negative interest in real terms) while they are in school, and then charges 250 basis points above prime (or about 400 basis points over the government cost of borrowing) while in repayment. Think about who wins and loses in that scenario: people who repay quickly do very well, while people who take a long time to pay do badly. But there is a better solution: many European countries such as the Netherlands simply charge a single rate of interest equal to the government rate of borrowing (which is substantially below prime) throughout the life of the loan. Yes, it means students graduate with somewhat higher loan principals – but it also means those principals are significantly easier to service. We should do this.
4) Improving repayment
I’m pretty sure that eventually, we are going to end up with some kind of repayment through the tax system. It will be complicated because both tax and student aid policy are shared fed-prov, which will create the odd nightmare. And assuming that we want to keep positive interest rates for loans in repayments, there will be a lot of arguments about the extent to which repayment should be based on current mortgage-style amortization (which usually pays off the interest-bearing loan more quickly) and to what extent it should be a pure function of income, as it is in New Zealand, Australia and the UK (where income-contingent loan repayment may be insufficient to pay the interest on the loan, thus sometimes resulting in what is called “negative amortization”). But you know what? Who cares? At the end of the day, loan collection through the tax system is the only thing that will make all our attempts to help low-income borrowers in repayment actually work properly for all.
So, still lots of work to do after all. Keep those sleeves rolled up, good student financial aid people!