Saturday, September 02, 2006

Rising Tuition Rates: Such a Bad Thing?

There was much talk today of the rising tuition rates. Not future tuition hikes, but the fact that tuition has been rising. Now, I'll leave out the point that, when adjusted to real terms, the rise in tuition is insignificant. I'll leave out the point that, at current levels, even a 5% increase in tuition really only amounts to $200 per year--only half a week at minimum wage job.

Instead of squabbling over nuances, I'll address the core issue: are tuition increases a good thing or a bad thing?

The facile analysis is that tuition increases, ceteris paribus, both increase the quality of education and make it available to fewer people. The pursuit of excellence would seem to dictate that we increase tuition. A sense of social justice and fairness would seem to dictate that we freeze it or lower it. What are we to do?

I tend to think of myself as a progressive Liberal with a sense of social justice who also sees the value of the market. So my answer is this: raise tuition.

Now, that doesn't sound like something coming from the mouth of someone with a sense of social justice. It is. Because I also believe that, hand in hand with rising tuition, there must be greater resources available in the form of financial aid--primarily interest free loans, but also bursaries. Why?

Fact 1: The private rate of return to an undergraduate education is about 11-12%. It depends on what you're studying, and, having crunched the numbers myself, it ranges between 6 and 15%. The 11-12% is a more mainstream figure, computed in a report a few years ago by Stats Canada. That rate of return represents the ultimate additional income value of a) paying for your education and b) the lost working time due to educational studies.

So clearly, there's a massive benefit to receiving an undergraduate education. Given that the majority of that return is private, I think it's quite fair to expect the individuals who benefit from it, not society at large, to pay for it. The caveat here is that in cases where the social return is large and enough people are not entering the field in question, it may make sense to lower tuition--thereby increasing their private rate of return, drawing more people into the field--and thus capture the social return. This would be the case, for example, if not enough qualified people were choosing to enter certain professions (e.g. medecine, nursing, teaching, etc.).

In any event, insofar as individuals are the ones who capture most of the return of their education, they should be the ones primarily paying for it. Society may find it in its interest to subsidize their education somewhat, but unless this represents an increase in the actual number of students receiving that education--which it effectively can't, given the limited number of university spaces at the moment--it is money poorly spent. That money would certainly be better spent funding additional research, something which has a much higher social return.

But what about my sense of justice and equity? Won't this stratify education along class lines? It probably would, if the system of financial aid were kept as it is. Which is why, any increase in tuition must be accompanied by a corresponding increase in financial aid. I cannot in good conscience support the former without latter. With the latter, however, I am completely in favour of the former.

An increase in financial aid--primarily interest-free loans, but also bursaries--will make education accessible. Although bursaries are a better form of aid for students, interest-free loans will stretch much further. At current interest rates and tuition, $100,000 could either pay the full tuition of 20 people, or it could service the interest on the student loans of 400 people. In practice, a combination of both will be best.

Moreover, the increase of tuition combined with increases in financial aid is actually socially progressive. How? Assume for the moment that all the money raised from a tuition increase goes into financial aid, which is then dispersed according to individual's needs. This sytem will actually give more money to the poorest, while making the richest and most capable pay more.

Under the status quo, everyone attending university receives a subsidy, as an undergraduate education costs much more than $5,000 annually. If, however, a rich student were not given this subsidy, it could give a poorer student a much larger one.

Then, even if not all of the increase were devoted to financial aid--suppose only half was--it might still be possible that education is more accessible. The total amount paid by students would increase, but those students least able to pay would see their tuitions be frozen or even fall. This would be the best way of both increasing the quality of education and research in our universities while ensuring that it becomes increasingly meritocratic, i.e. that the best and the brightest are able to attend.

Only lack of marks, not lack of money, should be an impediment to attending unversity--and those universities should be providing better educations than they are today.


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