The Pearson Centre for Progressive Policy

Progressive Dialogue and Policy for a Better Canada

Reinvigorating the Ladder of Opportunity: A Progressive Vision for Post-Secondary Education

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August 11, 2015

Reinvigorating the Ladder of Opportunity: A Progressive Vision for Post-Secondary Education

By Roy Sengupta

The increasing cost of post secondary education over the past two decades has become an increasing source of concern for many inside and outside the field. Many students now fear that they will be saddled with unsustainable debt loads upon graduation. Moreover, it must be acknowledged that the standard of living for young people during their university education has declined substantially, such that a number of students are thrown into circumstances of significant and unfortunate deprivation. Increasing tuition has also raised serious questions about the accessibility of post-secondary degrees for students from economically marginal backgrounds. Problems of accessibility and cost are compounded by the complex nature of Canada’s student aid environment, as well as the lack of financial literacy skills which students possess regarding the financing of their education. Finally, fears of youth unemployment have raised new questions about how governments can connect youth with the jobs that our society and economy need.

​In this paper we will call upon the federal government and the provinces to engage in a historic collaboration to simplify the student aid system through an amalgamation of federal and provincial programs, with a view to creating new structures which are able to help the most needy in a progressive manner. We will propose that this amalgamated and simplified program be supplemented with a new dynamic grants scheme which will aim to funnel students into sectors of our economy which are experiencing the greatest labour shortages. Finally, this paper will call for a halt to the insidious trend of increasing tuition fees in universities, instead proposing that future increases to such fees be deferred into a new graduate tax program, which once again, will be designed to ensure that those most well off are asked to contribute the most. Through the combination of these proposals, we aim to create a system which will help to restore higher education as a key societal tool for social mobility and economic opportunity.

Merger of Financial Aid Programs

​Canada’s student financial aid regime, owing in part to the complicated nature of its federal structure, is remarkably complex and labyrinthine. Each province possesses its own system of loans and grants, each with different eligibility requirements, methods of distribution, assistance limits, and miscellaneous rules attached. On top of this, the federal government operates its own programs for scholarships, loans, and grants.

​The complex nature of the Canadian student aid system appears to be having an impact on the post-secondary financial literacy of Canadian families. According to the Canadian Council on Learning, parental expectations regarding student financial aid and the cost of post-secondary education often do not align with experienced reality. For example, while 29% of parents expected their child to receive a grant or bursary, only 15% of students went on to actually receive such assistance. Moreover, there is evidence to suggest that low income families face disproportionate informational barriers on topics of financial literacy, meaning that the complexity of Canada’s student financial aid system impacts poorer families the most. It is therefore imperative that we simplify Canada’s student aid system in order to allow poorer families to better access the resources offered by this system.

​In furtherance of this objective, we propose a federal-provincial conference which will have as its goal the merger of all Canadian student financial aid programs into a single unified system. This unified program will be funded in an even 50% split between the federal and provincial governments. Although provinces will maintain ultimate authority regarding eligibility requirements and regulations for the program as administered in each province, as per their constitutional prerogative, the conference would also aim to standardise financial aid regulations and requirements between provinces to the greatest extent possible.

​We also recommend that the provinces and federal government, in addition to creating this unified program for student aid, endeavour to jointly fund a nationwide campaign to encourage financial literacy regarding post-secondary education, with a particular emphasis on reaching lower income students in deprived areas.

Functioning of the Unified Student Aid Program: A Progressive System Supporting the Poorest

​Whilst unification of the student aid programs in the country would significantly help all families in accessing the assistance needed to fund their children’s post-secondary education, we firmly believe that student aid in Canada is in need of further reform in order to ensure its progressive nature. In particular, we believe that the balance of grants and loans in the system needs to be altered to take into account the different perceptions of rates of return between lower and upper income students.

​Much research has been done indicating that the pure cost of post-secondary education is experienced and perceived as a subjectively greater hardship by individuals from lower income backgrounds. Moreover, this perception begins early on in a student’s educational career, such that a poorer student in secondary school will subjectively perceive post-secondary education as a greater financial barrier than a wealthier student. Therefore, in order to effectively induce an otherwise capable low income student to attend an institution of post-secondary education, greater support in managing post-secondary education costs must be given to that student in order to mitigate the increased perception of these costs.

​Our proposed system will manage these effects through two means, first, students with families below the median income will have a larger proportion of their financial need financed through the unified student aid program. Secondly, students with families in the lowest income brackets will have this aid distributed solely as grants, as opposed to loans. Meanwhile, students with families in higher income brackets will have a lower percentage of their educational costs funded by the program, and this aid will take the form of loans rather than grants.

​In essence, the new unified student aid program would employ a scaled approach, whereby students with families in the lowest income bracket will have their entire educational cost covered in the form of an annual non repayable grant. This system would then scale according to income, such that a student whose family earned income at the national median would see around 75% of his educational costs subsidised by the program, and this subsidy would take the form of a 50% split between interest free loans and non-repayable grants. Finally, in keeping with the progressive nature of the system, students with families in the highest income brackets would see only a limited amount of their educational costs covered by the program, and this would take the form of interest payable loans (the interest of course, only beginning to be applied to the loan upon their graduation from their post-secondary institution of choice).

​By providing a greater portion of student aid in the form of grants to low income students, we will be able to effectively augment their perceived rate of return from post-secondary education. If low income students receive assurance that their income will not be impacted by student debt in the years after post-secondary education, these students will feel the financial benefits of attending an institution of post-secondary education to be greater than they otherwise may have.

​In addition, by asking students from high income families to pay interest on their post-secondary loans, our student aid system will be able to effectively manage its overall expenditure by recouping a certain amount of financing from upper income students. Through this system, we will be able to manage the expenses of the financial aid program without serving to disincentivise any students from obtaining a post-secondary education. This is because of the fact that, much as the subjective rate of return for a low-income student must be higher in order for that student to attend a post-secondary institution, so the inverse is also true, in the sense that a student from a wealthy background needs less incentives in order to be persuaded to participate in post-secondary education. The reason is that an individual from a wealthier background will view the expense of post-secondary education as less of a subjective hardship than a poorer student, in part because this student will be able to expect a greater degree of financial aid from parental sources. It is therefore possible for us to recoup some of the financial expenditure of the student aid program from wealthier students without serving to significantly disincentivise them from seeking further education.

​Of course, these judgements do assume parental contribution towards a student’s education. There may, however, be cases where students do not receive the anticipated support from their families that the system might expect. It is therefore important that we have a credit access guarantee built into the student financial aid system. This credit access guarantee means that every student will be assured that the full cost of their education may be accessed through interest payable loans should any projected source of familial income fail to materialise. This guarantee will ensure both that students in genuine need of further assistance are able to access it, and that the phenomenon of parents and families failing to contribute to a young person’s education is not incentivised through our system. The disincentive of course comes from the fact that, since the loans may have interest applied to them upon graduation, the student will end up having to pay more money back overall than if his parents made their projected contribution towards his education.

Combating Youth Unemployment Through a Dynamic Grants System

​For numerous university graduates, unemployment and underemployment are becoming significant and persistent fears. For too many, the promise which university used to afford of a better life and career is no longer being fulfilled. In particular, the market now faces an excess of graduates from Bachelor of Arts programs, making it harder for every arts graduate to receive gainful, meaningful employment which uses the skills they have learned. The most recent statistics indicate that Canadian youth now face a 12.9% unemployment rate. Moreover, a recent study by Quebec research organisation CIRANO found that 31% of humanities graduates are employed in jobs not at all related to their degree qualifications. There are also concerning indications that unemployed or underemployed arts graduates may increasingly be saturating the market for teaching college diplomas and PHDs, thus leading to deeper debt for students who take these paths with no real improvement in employment prospects.

​Nor is this problem limited to the Canadian context, with American statistics finding that arts majors face an 11.1% unemployment rate. It is incumbent upon us, therefore, to find ways to rebalance the proportion of students taking non-vocational and vocational degrees, in order to improve the job market for all young people.

​It is vital that we find ways to connect young people with the skill sets in demand by employers in our current economy. The solution that we propose to the problem of post-graduation unemployment may be entitled the ‘dynamic grant’. The dynamic grant is intended to be a program which induces youth to pick post-secondary programs which are in demand by employers, thereby improving employment outcomes for the youth in question, as well as economic outcomes for the businesses in question.

​This dynamic grant would take the form of a 50% tuition discount for students entering certain designated post-secondary programs. The programs to be covered by this grant would be designated by a tripartite body, including representatives from business, labour unions, and the Federal and Provincial governments. This body would allocate the grant to certain priority programs and maintain this grant for a four year cycle before reconfiguring it at the end of this cycle to a new set of programs.

​The dynamic grant would be integrated into the unified student aid program jointly run by the Federal government and the Provinces. Students selecting one of the designated programs would then have this grant applied to their tuition for the duration of their studies.

​Of course, the effectiveness of this grant in rebalancing attendance rates in vocational and non-vocational programs would depend upon effective advertising in order to ensure that all students entering post-secondary programs are aware of the discount being made available, and to which programs the discount would be applied to.

​The benefits of this program have the potential to be extremely significant in achieving the rebalancing of our labour force required to reduce persistently high youth unemployment rates. By inducing students to pick post-secondary programs which are economically in demand over those where the market is already saturated, post-graduation outcomes for all students, including those presently in arts and non-vocational programs, could be significantly improved. This in turn has the potential to benefit the entire economy over the short and long terms.

Moving Beyond Tuition Fees: A More Progressive Way of Financing Education

​It is nonetheless clear that tuition fees for all students in most of Canada have been rising at an unacceptably fast pace. According to the Canadian Centre for Policy Alternatives, tuition and other compulsory fees are anticipated to have tripled between 1990 and 2017. With the increasing burden of fees in the university environment, many progressive voices have called for government action to lower tuition fees, or indeed, to eliminate such fees altogether.

​It is important for us to acknowledge at this juncture, however, our belief that merely lowering or freezing tuition fees without any alternative method of payment is not a progressive policy option. This is because of the fact that there is clear evidence that since the preponderance of the university attending population comes from upper income brackets, simply reducing or freezing tuition may indeed be a regressive policy. By paying for lower tuition from general revenue, we risk in effect redistributing wealth from poorer families to wealthier ones by simply making it easier for wealthy families to cover the cost of a post-secondary education.

​If we are to freeze tuition rates, we must have in mind an effective, progressive alternative in order to ensure that accessibility is primarily increased for poorer students, whilst still ensuring that wealthier students pay their fair share towards their education. Our proposed student aid program goes some distance towards this objective. And yet there is a further policy option, the graduate tax, that has the potential to allow us to freeze and begin to reduce tuition rates in Canada, whilst at the same time ensuring that this decision has progressive results.

​A graduate tax is a tax that is payable by all graduates of post-secondary institutions in a region. One of the main advantages of such a tax is the possibility of exempting graduates with very low incomes from paying the tax rate until their incomes reach a certain point. For example, the government could legislate that the first $30,000 of a graduate’s income be exempted from the graduate tax, with income in excess of such an amount being taxed at a rate of, to take an example, 5%. This tax would also be ethical on a social contract basis because of its expectation that graduates who have drawn the benefit of a post-secondary education then contribute part of their income back to ensuring that others have the same opportunity at such an education. It also ensures that those who are earning the most post-graduation are also expected to contribute the most back into the system, thereby creating a progressive system that does not expect the lowest income graduates to contribute until they are reaching a certain income point.

​Moreover, through the implementation of such a tax, we can begin a process by which further tuition fee increases are defrayed through the revenue such a tax would generate. Because of the progressive nature of such a tax, and its potential to furnish enough revenue to begin to ease the burden of tuition increases upon students, we propose, with the consent of the provinces, that tuition fees in Canada be frozen, and a national graduate tax be levied on all graduates of post secondary institutions in Canada. Of this revenue, 50% will be returned to the provinces, whilst 50% will be maintained for federal government post-secondary funding.

Conclusion

​In this paper, we have proposed significant and achievable reforms to the Canadian post-secondary education system, with the goal of ensuring that post-secondary education remains a path of class mobility and economic opportunity for every student. Through the reforms put forward in this paper, we hope to create a simpler, fairer, more progressive, and more accessible system for all Canadian students. Moreover, we propose to create a more focused system of student aid, grants, and post-secondary financing in order to ensure that help is reaching families and students who are in genuine need of a helping hand.

​Through the dynamic grant program, we propose a program that has the potential to improve job outcomes for students graduating for post-secondary institutions by inducing students to choose programs that allow them the best chance of finding gainful employment after graduation. And through our graduate tax and simplified student aid programs, we intend to shift the burden of post-secondary financing onto those students and families most able to pay, in order to ensure that poorer students are able to access the system. Through these simple changes, we hope to revitalise post-secondary education in our country.

Roy Sengupta is a fourth year Bachelor of Humanities student at Carleton University. He has extensive experience with issues of post-secondary affordability owing to his three years of service in student government.

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