Responding to Nick Falvo on tuition fees

Recently, on my daily blog, I wrote an analysis (link to: http://higheredstrategy.com/whos-progressive/) of distributional effects of tuition reductions versus those of targeted grant programs and concluded that the latter were far more progressive in their impact than the former.  Grants can be designed to be as targeted as one wishes (entirely to the bottom quartile, half to the bottom and half the second, etc), whereas tuition reductions deliver vastly more aid to wealthier families than poor ones.  Partly due to differences in usage patterns and due to interactions with the student aid system, for every dollar in tuition reduction helps a student from the lowest income-quartile, three dollars goes to a student from the top income quartile.

In response, Nick Falvo wrote a piece here in Academic Matters (link to: http://www.academicmatters.ca/2014/05/alex-usher-is-wrong-on-tuition-fees/) saying that I was “wrong about tuition”.  It is not immediately clear upon reading Falvo’s piece how I was wrong.  At no point in the rebuttal is there any attempt at all to show that reducing tuition is not the most regressive policy option available for improving affordability; apparently this is a point he is happy to concede.  Rather, what Falvo does is to make a series of arguments about why tuition reduction is preferable to targeted grants despite their regressiveness.  While I appreciate the implied acknowledgement of my argument, I think most of Falvo’s rationalizations for a regressive policy are still flawed and deserve a rebuttal.

Falvo makes five separate arguments about the superiority of a free-tuition arrangement over a tuition plus-grant arrangement.  Two of these are scarcely credible.  The first is the idea that free tuition is more “efficient” than grants because the administration costs are lower.  This is of course true, but using the savings of a few tens of millions dollars (SFA admin costs in Canada run about five cents on the dollar)  as a rationale for spending billions of dollars elsewhere is the kind of argument which wins an “F” in public policy 101.  Another of Falvo’s arguments – that grants are worse than tuition reductions because some jurisdictions who prefer grants (dubiously, he uses Ontario as an example) increase the value of grants less quickly than the increase in the value of tuition – is similarly obtuse.  If that is in fact a problem, it’s not obvious why spending a large amount of money to reduce tuition for all, rather than putting a small amount of additional money into grants is the correct policy prescription.

However, Falvo does present three arguments which are well worth discussing.  These are, briefly, that targeted incentives can contribute to a “welfare wall”, that free tuition is a much easier policy to communicate than fees plus aid, and that it is politically easier to sustain a coalition for a universal subsidy than for a targeted one.

The first of these concerns – that targeted aid creating disincentives to work – is certainly well-grounded in empirical literature.  Especially where phase-out rates of income-support programs are quite high, they can create situations where it no longer pays to work.  However, this concern would seem to me somewhat overblown in this case.  Where grants are given out based on students’ own incomes, it’s irrelevant: they won’t create disincentives to work because students don’t want to work, they want to study.  The whole point of grants is to give students a chance to avoid working.  Where they are given out based on family income, the disincentive to work is less clear, since the person receiving the grant isn’t the one gaining the income, and the evidence for welfare walls operating on a cross-generational level is fairly thin.

The second point – that free tuition policies are easier to understand than a fees plus aid strategy – is hard to deny.  Canada does not do a very good job of communicating its subsidies for post-secondary education very well – but even if we did, sticker prices are simpler to understand than net prices.  The question really is how much that actually matters.  How much damage does poor communication actually do to access?  Is it sufficiently bad that we should spend an extra couple of billion on it?  For that to be the case, one would need to prove not simply that some people are deterred by financial barriers (undoubtedly true), but that they are deterred in large numbers because of their misunderstanding of extant financial incentives. It’s an empirical question – if this could be proven it would be a very strong argument in favour of universal fee subsidies.  But no such data exists.

The final point is what I consider the most depressing of Falvo’s arguments: that broader voting coalitions are easier to conjure up for universal programs than for targeted ones.  Even if that’s true (likelier than not it is, but it’s not a fully settled question), it is an appalling argument.  Stephen Harper certainly found it easier to sell the National Childcare Benefit than Paul Martin did to fund an expansion of daycare spaces (which in practice would have delivered a much larger benefit to a smaller group of parents), but that doesn’t make it good public policy.

At base, this final argument says that the best way to obtain money for the poorest students is to buy off the ones from richer families with huge windfall subsidies.  It rationalizes huge regressive subsidies in the name of necessity.  But honestly, what’s the point of having an interventionist state if it’s going to rig the game still further in the direction of the wealthy?

For me, the electoral argument is far too cynical.  We don’t have to settle for a system where it costs us three dollars in pay-offs to top-quartile families for every dollar that goes to low-income ones.  Real progressives should want to do better than that.  It’s a bit of a tragedy that they seem so intent on not doing so.