Alex Usher is Wrong on Tuition Fees

One of Canada’s best-known post-secondary education pundits, Alex Usher, recently wrote a blog post suggesting that Canada’s status quo system of high tuition fees (and means-tested financial aid for students) is in fact progressive.  Specifically, he argued that lowering tuition fees would reward higher-income earners rather than lower-income earners.  Ergo:  no government that wants to help lower-income households should seriously consider trying to reduce tuition fees.

Here are five reasons why I think Mr. Usher is wrong:

1. Administrative Costs.   When complicated regulations and policies govern a means-tested benefit (such as a student grant and loan system) a considerable amount of staffing is required to determine eligibility—and such staffing is far from free.  Universal programs (think ‘free tuition for all’) require less money to administer than do means-tested programs (such as student grant and loan programs).  As an illustration, consider health care:  Canada currently spends less on health care expenditure (i.e. total public and private health care combined) per person than does the United States.  In 2010, US$4,445 per person was spent on health care in Canada, while US$8,233 per person was spent on health care in the United States.  Measured differently, Canada’s health care spending as a percentage of GDP in 2011 was 10.4%, while in the United States, it was 16.0%.  As my colleague Toby Sanger argues: ““Yes, it’s true that higher income individuals and families may pay an implicitly higher amount for [universal] public services through progressive taxes (when they pay them) but overall costs are much lower, so we all or at least 90% of us are much better off.”

2. Marginal Tax Rates.  As pointed out by Nicholas Rowe and Frances Woolley in an article about Canadian social policy, a higher marginal tax rate can discourage individuals from participating in the labour force.  Put differently, when people know they ‘get more’ of a social benefit (i.e. means-tested student aid) for earning less in the labour market, this can discourage them (and their parents) from taking on paid employment.  This makes for perverse incentives when governments try to target aid to lower-income households.  By contrast, one advantage of making tuition fees lower (or non-existent) is that everyone who enrolls gets the intended benefit, no matter their income.  Ergo: no disincentive to take on additional paid work.

3. Lack of Perfect Information.  As recently noted by Christine Neill in a C.D. Howe commentary piece on Canada’s current system of tax-based student aid, “students, and particularly those from relatively disadvantaged families and neighbourhoods, probably know little about tax credits when making decisions on whether to attend college or university.” I would argue that this lack of information creates further inequity.  By contrast, if tuition were simply lowered (or eliminated altogether) at the front end, this could not possibly be overlooked by a student who enrolls.  The price tag is right there in front of them!

4. Smoke and Mirrors.  Targeting aid at lower-income households can disingenuously shield a government against criticism that it is creating affordability barriers.  Take the case of post-secondary education in Ontario.  As I pointed out four years ago, the McGuinty government restored Ontario’s student grant system (which had been cut roughly one decade previously). This move by the McGuinty government provided a portion of student loans as up-front grants to Ontario’s lowest-income students, and made the McGuinty government appear concerned about student financial aid.  However, for every $1 in new money invested by the province in grant funding, $1.30 was clawed back via tuition fee increases to all students.  In other words, the McGuinty government gave $1 with one hand, and took back $1.30 with another.  Meanwhile, McGuinty continues to be regarded by many as being the “education premier.” The Toronto Star, which prides itself on being guided by social justice principles,  ran an editorial when McGuinty stepped down as premier arguing that his education policies “are the kind of forward-looking policies that Ontario needs.”

5. Coalition Formation.  Mr. Usher argues that it is “common sense” to “concentrate resources among those with the fewest means.”  While that argument may be intuitive for many readers, I find it under-appreciates some of the key advantages of universality, especially over the long term.   As was noted in a classic 1998 article by Walter Korpi and Joakim Palme, universal social programs “encourage coalition formation between the working class and the middle class in support for continued welfare state policies. The poor need not stand alone.”  Korpi and Palme further note that “in the countries with encompassing institutions, surveys have shown that universal and encompassing programs receive considerably more support among citizens than do means-tested or income-tested programs.”  In other words, when a government wants to cut program spending, means-tested programs (i.e. student aid in Ontario) are often the most vulnerable.  (Think social assistance and social housing under Mike Harris.)  By contrast, though universal programs (such as public education and Medicare) often face cutbacks, they are generally not as vulnerable to deep cuts.