Students are silhouetted while waiting for a convocation ceremony to begin at Simon Fraser University, in Burnaby, B.C., on June 12.DARRYL DYCK/The Canadian Press
Claude Lavoie is a contributing columnist for The Globe and Mail. He was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023.
In response to concerns about declining university affordability, many provinces have limited tuition fee increases to below-inflation levels over the past few years, while Ontario has frozen them. This has forced universities to depend more on government funding and foreign student enrolments.
But with public financing increasing by less than universities’ operating costs and the recent federal cap on the number of foreign students, many universities are facing financial difficulties.
Are further increases in public financing the solution? Or wouldn’t it be better to increase domestic tuition fees and make universities less dependent on taxpayer money?
The benefits of university education do accrue somewhat to society. Good engineers and doctors improve the productivity of other workers, and scientists innovate and develop ideas that benefit everybody. But unlike primary and secondary education, which provide much larger societal benefits, most of the benefits of university education accrue to the students themselves.
Why should workers earning $50,000 a year pay taxes to finance the education of future investment bankers who will make several times their salaries?
Low tuition fees are partly subsidies paid by those without a university degree to those who are privileged. Not all university graduates make a lot of money, but they still tend to earn more, on average, than those without regardless of the field of study. Public financing of universities is also a form of regressive taxation since students from lower-income families are less likely to attend university.
Low tuition fees make postsecondary education seem less valuable and worsen the credential inflation problem, where there are increasing educational requirements for occupations that do not require them. Capping tuition fees limits universities’ financial resources and affects the quality of education, reduces incentives for students to demand quality education and encourages marginal students to pursue university education over other options.
Marginal students often enroll in programs with low labour-market value just to signal they have a university education. This leads to a credential arms race where employers prioritize candidates with a university education even when the position does not require it. This is a waste of public resources and close to 30 per cent of Canadians hold a qualification that is higher than what is required in their job.
Higher tuition fees will not deter strong students from attending university. Research shows high tuition is not a significant barrier in students accessing university. The value students (or their parents) attribute to university education – and their academic abilities – will largely determine whether they graduate from university or not, whatever the cost. Canadian studies suggest factors such as culture, family environment and support, and academic ability account for the bulk of barriers to university education, with financial constraints at less than 20 per cent.
However, a part of the reason why financial constraints are not that important is that Canada has a decent financial aid system, and increases in tuition fees could be accompanied by an increase in the generosity of this support. The maximum amount that a student can borrow under Canada’s Student Financial Assistance program could be augmented and the parental income eligibility criteria could be eliminated. Not all parents, regardless of how wealthy they are, support their children’s choices. The goal is to provide opportunities for those with the desire and ability to pursue a university education.
Raising tuition does mean that students will graduate with more debt, which might be a significant deterrent. However, higher costs can be managed by making loan repayment income-contingent and allowing repayments to be spread over someone’s career. A portion of the loan could also be forgiven for students who achieve some set criteria.
All of this would obviously have implications for the government’s budget requirements and the details of such a support program would need to be thoughtfully developed. But in the long run, raising tuition fees would be less costly for taxpayers and financially better for universities and a fairer approach to higher education.
The potentially significant government fiscal savings could be redirected to help the neediest, through measures such as investing in supports that enable students from underrepresented groups to enroll and complete their education. Targeted and tailored investments in at-risk youth at an early age may be a more effective way to encourage lower-income students to attend university than low tuition.
By no means should Canada adopt a system like that in the United States, with tuition fees as high as $50,000. But the current level of tuition fees for most Canadian university students is probably too low.
Higher tuition fees and lower public subsidies, accompanied with a more generous loan program and supports, would make university education financing more efficient and equitable. It would also reduce the hunt for foreign students.