How Should We Pay For Education?

In light of the ongoing protests against tuition hikes in Quebec at the moment, and with constant discussion about what is a fair burden to pay for post-secondary education and who ought to pay it, I figured I’d chime in with my thoughts on the matter.  Truth be told, I was thinking about writing about this topic before the protests broke out anyway, but since I expect this will end up being kind of lengthy I’d been putting it off in favour of watching playoff hockey.  But I figure now is as good a time as any to finally organise my thoughts and get them written down.

I’m going to organise this post all academic-like by first describing what the current problem is, then discussing some of the potential solutions being discussed that I think are insufficient, before finally moving into a discussion of my proposed solution.  I’m even going to make this more academic-like by having a clear thesis statement near the beginning of my screed.  Ready for it?  Here it is: the most simple, just, and effective way to pay for post-secondary education is to do it entirely through taxation.

The Problem Is . . . What?

At the moment post-secondary education is paid for through a combination of means.  Taxation pays for a large part of the cost and tuition pays for a smaller portion; tuition comes from a number of sources: students’ own income and savings, money provided to them by their family, student loans, and scholarships being the most common of these.  This means that the actual burden of paying for post-secondary education varies hugely depending on the circumstances of the person in question.  Some people come from families which have enough money to cover most or all of the cost of a degree, others come from backgrounds with virtually no money and fund their education primarily through loans, and all sorts of people fall somewhere in the middle.

This means that people from some backgrounds, particularly (but not exclusively) working class backgrounds, have a lot of difficulty paying for school and wind up tens of thousands of dollars in debt when they graduate.  Those people come out of school significantly behind their more affluent peers.  Because so much of their earnings (typically hundreds of dollars a month) are going toward debt repayment, their real earnings are hundreds of dollars less per month than those peers, causing trouble both in the short and long-term.  This makes it difficult if not impossible to save any money, meaning that even with a relatively decent job those people can wind up living paycheque-to-paycheque, a pretty stressful and precarious position.  It also means that even once their financial situation stabilises somewhat (often years after graduation) they’re unable to save for things like a mortgage or retirement, so even once they pay off their student loans they’re still going to be significantly behind their peers who graduated debt free.  Regardless of political stripe, surely we can all agree that you shouldn’t still be behind economically into your 50s, 60s, and beyond just because you were born into a less affluent family several decades earlier, right?  Isn’t this supposedly one of the hallmarks of our society – that if you’re talented and hard-working you’ll be able to get ahead?  The current distribution of tuition makes that extremely difficult to achieve.  And so far I’ve only discussed those who graduate with loans, not those who never go or drop out because they can’t afford to continue.

So that’s the problem in a nutshell, though you could easily write much more about the topics I’ve touched on so far.  But this piece was intended to be largely about the solution, not the problem, so hopefully I’ve laid things out clearly enough that everyone understands where I’m coming from.  I’m now going to address two potential solutions to this problem that I’ve heard discussed recently.  The first is the most common, the idea that raising tuition is a good idea and that it should be paired with a system of targeted grants to ensure that students from low income backgrounds are still able to attend.  The second is that tuition should be funded primarily through loans and that these loans should be paid back as a percentage of students’ income rather than a set amount of money subject to interest.  I’ll start with increased tuition + grants.

Increased Tuition and Targeted Grants

The most frequent suggestion that I’ve seen is that universities/government ought to raise tuition but pair that with grants targeted to students who come from low-income backgrounds to ensure that no one is prevented from attending university on account of their background.  Among those advocating this view is University of Laval professor of economics Stephen Gordon, as he does in this post (moreso in the comments than in the post itself) and University of Western Ontario economist Mike Moffatt, as seen here.  You can read the posts for a bit more detail, but I’ll summarise that position.  The thought behind such a view is that more affluent families can afford to fully fund their childrens’ education, so lowering tuition is effectively providing a “tuition subsidy” to those people (ie. transfering wealth to the wealthy); instead of devoting limited resources to making education less expensive for people for whom there is no significant cost issue, we should be directing those resources toward students for whom cost is an issue.  This may help reduce the burden of student debts by essentially giving money to students who need it.  I think there are a number of fairly significant problems with this route, however.

The first is determining whose parents, exactly, can afford to send them to school.  I don’t think this is as simple as calculating the most recent yearly income.  I could be wrong about this, but I don’t think very many peoples’ education is paid for by their parents on a yearly basis out of that year’s income; it’s paid for mostly out of savings accrued over a longer term.  Those could be savings dedicated specifically to education (an RESP, for example) or they could be general long-term savings.  So such a program would need to be based on something more long-term.  In that case, what do we use?  Past 5 years’ income?  Income since the student turned a certain age?  Do we ignore income entirely and use net worth?  Some combination of the two?  And what about children who are adopted, students with step-parents or absentee parents, etc.?

This gets at another problem, which is that such a policy would be extremely difficult to plan effectively under.  If you’re not Ilya Kovalchuk odds are that you don’t have much idea how much money you’re going to make over the next 10 years or what your net worth will look like at that time.  So you don’t know whether or not you’re going to be required to pay for your child’s education or if it will be covered by the government.  Yes, the smart thing to do would be to save what you can regardless, but I don’t think it’s unreasonable for people to want to have a pretty good idea whether or not their children will have sufficient access to the education that they’re interested in.  It also makes it exceptionally difficult for students themselves to plan.  I’m going to guess that most adolescents don’t have access to information about things like their parents’ net worth, so students won’t even know until they get around to starting school if they’re actually going to be able to stay there.  A big part of what we should be trying to do is ensure that students from all backgrounds know that they’ll be able to get any education they’re interested in and qualified for; if they don’t even know if or how their tuition will be paid until after they’ve started school that’s a significant barrier to entry.  This will drive people from working class backgrounds away because you’re not going to apply for university if you might be covered by grants and might not and have no real way of knowing until the last minute.

Another issue is that just because a formula says that someone’s parents can afford to pay for their education doesn’t mean those peoples’ parents actually will pay for their education.  I don’t think this is a small concern; this is only anecdotal evidence of course, but I personally know people for whom it was the case back when we were in undergrad.  If the goal is, as I believe it should be, to ensure that no one winds up missing out on university or has to become hugely indebted in order to go, then this problem makes parents’-means-tested tuition a non-starter.  It’s also, I think, a problem with how we conceive of relationships in society.  It’s common to believe that parents are largely responsible for their children – that raising and paying for the cost of raising children is a burden that should fall on the shoulders of people who procreate, and also that through moral inculcation parents bear some responsibility for how their children turn out.  But making tuition dependent on the income of a student’s parents flips this around in a way that strikes me as patently unethical – it says that children are responsible for their parents.  Of all the criticisms that I have of this avenue of funding university, this is the one that I think is most compelling (or problematic, if you prefer).  Gating access to education (and to a large extent, consequently gating access to income and quality of life) on the basis of a factor that students literally can not affect in any way strikes me as the height of injustice.

Those are the logistical and moral issues, but I think there is a very important political issue that has to be taken into account as well and that’s that grants and bursaries are really easy to cancel without much of anyone taking notice.  Cuts to grants and bursaries fly under the radar in a way that cuts to, say, health care or primary school funding do not.  Once that happens, we’re right back where we started – school is too expensive and access is starkly unequal.  Sure, there’s a degree to which we have to trust politicians to make good decisions and all programs are to varying degrees open to adjustment or outright elimination in the future, but funding some students’ education largely through grants makes for a pretty precarious policy.  On an issue as vital as ensuring equal opportunity to people of varying backgrounds it’s just not acceptable to rely on a policy that is so easy to quickly eliminate.

There’s also the issue of perception, and I think this is a policy that just doesn’t play very well.  The way this program will sound to many of the people whose children aren’t eligible for grants is this: I paid for my child’s education by working hard and saving wisely, and in addition to that I have to pay taxes to cover other peoples’ kids too?  It’s true that funding education through taxation does essentially the same thing, but what’s literally true and what sounds acceptable to voters is often not the same thing.  This policy comes across as “I’m paying twice” whereas taxation, even if people don’t like it, comes across as only paying once.  And I think this “I’m paying twice” issue could become a serious problem.  It just seems too likely to stoke class antagonisms.   This already happens pretty frequently with people with First Nations backgrounds; people of the First Nations are often accused of being lazy bums who have free education and just leech off the rest of society.  Dividing tuition into “people who pay” and “people who don’t” is likely to cause similar resentment toward working class families.

Paying A Percentage Of Lifetime Earnings

Andrew Coyne recently wrote a column with a bit of a different suggestion.  He recognised some of the things I’ve talked about so far and something important that I’ll discuss in more detail when I get to defending my own favoured solution; the additional important point that Coyne makes is that people who acquire university educations may not have a lot of money when they start university, but they typically do once they’re out of school.  So the timing of payment can be shifted while still asking students to pay the costs in the end.  Coyne’s proposed solution is that students be “staked all or most of the money up front” and then rather than paying back the amount of tuition they paid, they would pay a set percentage of their income on top of their regular tax burden.  Something like this is already in place in Britain.

I think this gets a lot closer to a good solution than the policy I discussed above.  It ensures fairly simply that no one is kept out of university on account of financial constraints, which is one of the primary goals that I think we ought to be aiming for.  It also ensures that students who find themselves in some financial difficulty after graduating (a fairly common experience) don’t wind up with debt payments they can’t manage.  But while I find Coyne’s idea much more palatable than the one favoured by Gordon and Moffatt, I think it still has some problems that make it less ideal than using general taxation revenue.

One thing that’s unclear from Coyne’s article is whether these loans would be required for all students or if they would simply be available for those who wanted to take advantage of them.  If they’re optional, and some students were still paying the costs up front, then we’re right back at the initial problem, which is that you’re putting some students behind financially on account of the families they come from.  In fact, I think this policy could even be worse in that regard; under the current system having a student debt load slows down your economic situation but you can eventually get out from under it, while under Coyne’s system we would essentially be imposing a life tax on people from low income backgrounds.

There’s another problem, which is true regardless of whether these loans are required or optional, and that’s that the money for these programs is still ultimately going to be coming from general revenues, which means they could be funded only through spending cuts or tax raises (or possibly economic growth, but that’s more nebulous).  That is to say that this program would be an awful lot like what I propose except that it would be a lot more complicated.

It also leaves open the question of what happens if a future government decides to begin funding education in a different manner.  Do the adults who obtained these “loans” as students continue to pay their increased rate of taxation, thus creating age-dependent rather than income-dependent tax brackets?  Is the government going to essentially forego reclaiming the cost of this program?  I think putting off paying for social spending into the future is poor planning and should generally be avoided except in extreme situations (like borrowing during recessions and paying off that debt during better times).

We Should Pay For Post-Secondary Education Through Taxation

There’s an exceptionally simple way to solve all of these problems, and that’s to raise taxes on middle and upper income earners in order to cut the up-front cost of education for students to zero.  I’m open to the prospect of finding some of the money through savings elsewhere in the budget, but the bulk of the spending for this policy would need to come from increased taxation.  I think ideally in campaigning and execution these tax raises ought to be paired clearly and specifically with eliminating tuition, and this ought to be done over a reasonably long period of time (maybe 5-7 years) with taxes being increased and tuition being decreased gradually along the way.  Someone much more knowledgeable than I am about government finances can do the exact math, but over a long period of time the tax increases should be perfectly manageable for middle and upper income earners.  And lest you think I’m just trying to offload this cost onto people other than me, I include myself in the group of people whose taxes should be raised for this purpose.  Having paid my way through university largely with student loans which I’m still paying off I would fall into a group simultaneously paying for their own education and the current generation’s education, but I think that’s a necessary cost to achieve long-term progress.  If that doesn’t seem quite fair we could implement tax breaks for people currently paying off student loans so that they find the costs more manageable.

But shouldn’t people who go to university be the ones to pay for it, you may be asking?  Well, under my plan they would.  Having a university degree drastically increases earnings by a very large margin.  Further, people with university degrees are significantly less likely to be classified as low income or become unemployed, and they tend to have much better pensions, so they require less social spending once they’ve begun to take advantage of the increased earning potential that their degree provides.  This means that the money they pay into the tax system stays in the system and doesn’t need to be returned to them through things like unemployment insurance or the Guaranteed Income Supplement.  Thus people with university degrees already do pay their way by generating increased tax revenue and requiring lower social spending.

Because university graduates (in general) make more money, a tax raise on middle and upper income earners would in essence be a tax increase on university graduates.  Under my proposal each generation of university graduates would be paying for the next generation to have the same opportunities.  This is one significant advantage that this policy has over the one Andrew Coyne suggests, which is that the program would always be funded at precisely the time it was being used.  Obviously not all of the people who pay the increased taxes would be university graduates, but I think it’s perfectly fair in a system of progressive taxation to ask them to chip in to help ensure that the country (or province) has a well educated populace where opportunity isn’t dependent on your background.

It has one other significant advantage, and that’s that it would be pretty difficult to change once it had been implemented.  Unlike a system of grants to low income students or income-based loan repayment, once university has become free it would require a fairly major policy push to reimplement tuition fees.  Deciding to move to a system where everyone is able to attend university at no immediate cost is a pretty big policy decision.  Deciding to end that would, I imagine, be pretty unpopular.  Imagine if, for a comparison, the government of Ontario announced today that you were going to have to pay half the cost of visiting your family doctor; that wouldn’t go over well at all, and trying to reinstitute tuition would likely be similar.  Eliminating tuition is therefore an ideal policy option because it’s a long-term decision that would help ensure the benefits are available to a larger number of people over a broader stretch of time.

So that’s why I think tuition can and should be eliminated.  It’s a simple and effective solution to the primary problems I identified with our current model – unequal access and heavy indebtedness.  It provides equal opportunity to all, at the same cost to all, in a way that’s easy to manage and implement, and funded in a manner that meets basic standards of social justice and fiscal responsibility.  It’s the best option we’ve got, and it’s the one we ought to pursue.