Why free tuition helps all the wrong students

Posted by: privatefinancetips in BLOG, Mortgage Loans Mar 27, 2016

In early February, the Canadian Federation of scholars (CFS) released a research document. It determined, towards the surprise of nobody, that it’s within the public’s interest for the authorities at hand students billions of dollars more each year. One demand is a doubling in funding for that Youth Employment Strategy, which would cost $330 million per year. (When the CFS’s provincial campaigns to increase minimum wages to $15 are successful, private employers will surely hire fewer students. But governments as a rule are happy to overpay, hence the request another $330 million.)

Then comes balance larger demand: The CFS wants an end to undergraduate tuition fees in Canada. The ask comes despite the fact that only about one-quarter of universities’ revenues come from tuition fees, and the federal Liberals already promised up to $750 million of additional annual funding throughout the campaign. However the CFS is unsatisfied with $750 million; it wants more.

Marginal enrollment from eliminating tuition fees will likely come from unmotivated, lower-ability students

Within just a couple weeks, the CFS was suddenly a great deal nearer to getting what it really wanted, a minimum of in a single province – also it didn’t even have to wait for a federal budget. The federal government of Ontario Premier Kathleen Wynne, Justin Trudeau’s ideological soulmate at Queen’s Park, announced a change of the student grant system. Under the Ontario Student Grant, “average college and university tuition is going to be free for college students with financial need from families with incomes of $50,000 or less, and tuition will be made more affordable for middle-income families,” based on the Ministry of Finance. The “free” tuition is going to be included in re-directing funds from current student grant programs and eliminating tuition tax credits.

There will be more grants and more interest-free loans. The Ministry of Finance boasts that more than half of students “from families with incomes of $83,000 or less will receive non-repayable grants which will exceed average university or college tuition” and that “all students will be the same or better off as under the Ontario Tuition Grant.”

What happens when costly services like university education are supplied for free or in a steep discount? Invariably, there will be overconsumption. Actually, there already is, as seen in the relative unattractiveness of university graduates for employers, who’re evidently more hungry for workers with non-university skills: For each year since 1998, Canadian youth were more likely to be employed if they had got a new post-secondary diploma or certificate after high school instead of a university degree.

Making university education cheaper will fuel more overconsumption. It gets a whole lot worse when you consider where the marginal enrollment will require place, and among what kinds of students. High-ability students who enroll in mathematics, business, or science programs are already in university, because they believe the elevated future incomes will provide a sufficient return on their investments in education.

Marginal enrollment from eliminating tuition fees will likely originate from unmotivated, lower-ability students, as well as in less practical programs like theatre history or equity studies. These are students for whom university education is definitely an unprofitable investment unless taxpayers are footing most or all the tuition bill. Meanwhile, the structure of Ontario’s new funding arrangement actually can lure would-be students to less expensive programs like arts, in which the province covers nearly all of the tuition with its $6,000 a year average grant, rather than a $11,000-a-year architecture degree or a $13,000-a-year engineering degree, in which the province covers only area of the cost.

Eliminating tuition fees will also have the perverse effect of discouraging students from graduating on time. Students are less motivated to avoid failing courses when they don’t have to purchase additional semesters.

So cheapening or eliminating tuition fees likely won’t mean better computer scientists and more engineers; it’ll mean more party students, more 25-year-old social justice warriors in their seventh year of undergraduate human rights studies, and more campus climate activists. But then, Wynne and Trudeau surely wouldn’t mind using a much more of those.

Matthew Lau is a finance and economics student at the University of Toronto.