A student's best investment

Announcing that Ontario would allow university and college tuition fees to rise by as much as 18% over four years, the province’s minister of education felt compelled, as politicians do, to speak in the language of comparative need: students may have needs, but universities’ needs are greater. “Nobody wants a price increase,” he said, but “the system needs more. It needs an additional contribution by students.”

Actually, it’s not clear the universities do need more. Institutions of higher learning are notoriously poorly managed -- ask anyone who works in one. Budget decisions are driven by equal parts hidebound tradition, union demands, and political infighting, but little in the way of serious comparison of costs and benefits.

In any event, the one does not depend on the other. Higher tuition fees are a virtue in their own right, regardless of whether they result in the universities having more money to spend. The point should not be to increase the overall proportion of society’s resources being devoted to higher education, but to shift the mix: more from students, less from governments. Or, if you prefer, more to students, less to universities. I’ll explain why in a minute.

Even after fees are increased, Ontario students will still be paying a fraction of the cost of their education, as they do in every province. The proportion varies widely, from less than one-fifth, on average, in Quebec to nearly one-half in Nova Scotia. Yet despite these differences, and for all the dire predictions of the inevitable toll the latest increases in tuition fees will have on accessibility in Ontario, it is impossible to find any correlation between the level of tuition fees and enrollments.

Tuition fees have been rising sharply across Canada in recent years, yet the proportion of the university-age population in school is at an all-time high. Participation rates in Quebec are if anything somewhat lower than in other provinces. Nor are they much higher in Canada than in the United States, though tuition fees here are a third or less of what they are there.

That’s not to say that the level of fees has no impact on the decision of whether to go to university: just that it is not the only factor. Much more significant appear to be sociological factors -- class, for want of a better word -- that shape a student’s expectations about himself and his place in society. To be sure, these are closely correlated with income: the richer your family, the likelier it is that you will be included to pursue a post-secondary degree.

But that only accentuates the unfairness of subsidizing the tuition fees of this comparatively privileged stratum of society. In effect, we are forcing the average taxpayer to pay for his boss’s kids to go to university. Moreover, in so doing he is helping to widen the advantage they enjoy over his own kids, since a university or college degree measurably increases lifetime incomes. The benefits, that is, are overwhelmingly private. Yet the costs, even today, are predominantly public.

Does that mean we should just leave students to fend for themselves? No: as a society, we have a strong interest in equalizing opportunities. But it does mean we should change the way we pay for higher education: not just in devoting more resources to students, and less to universities -- that the latter might in turn be persuaded to devote more resources to teaching, and otherwise compete more vigorously for students’ custom -- but in rethinking how we help students. The more of the burden we load onto their shoulders, the more urgent this becomes.

The present system of student loans assesses a student’s ability to pay at precisely the wrong time: when he is receiving the loan, rather than when it comes time to repay it. It is often difficult to know what resources students who have just left home really have at their disposal; it depends on family ties that may be obscure. On the other hand, the system is curiously indifferent to a student’s income after he graduates: rich or poor, the monthly payments are the same.

But that’s in the nature of a loan. Businesses just starting out could tell you the same story: either their prospects are too uncertain to qualify for a loan, or if they do land one, their fluctuating cash flow makes them wish they hadn’t. Which is why such firms will often turn to equity investors, if they can find them. The venture capitalist accepts a greater share of the risk, as well as the returns; the losses, as well as the profits.

That’s the philosophy behind the most common proposal for reform of student aid. They’re called “income-contingent loans,” but they’re not really loans at all. They’re more like equity: a venture capital fund for students. If you make a lot of money after graduation, you pay back a lot. If you make very little, your payments are reduced accordingly. By pooling the risk across the student population at large, the government minimizes its exposure.

Indeed, it’s not even aid, really, since “need,” as such, doesn’t enter into it. It’s an investment, a partnership between the student and the state. For the student, it’s probably the best investment he will ever make, one that will pay double-digit returns for the rest of his life. For the state, it’s an investment in equalizing life chances: equity, in every sense of the word.