Funding higher education

Water bed economics or how entitlements can have perverse effects

What is good news for Ontario students from low income families may not be good news for the education which they hope to receive. One reporter wrote that university administrations, faculty associations and student groups all hailed the changes.

What they wish for is greater affordability for low income students. But what will they get?  Ontario universities will have one source of revenue reduced. How may they respond? The alternatives are to raise fees for students with family incomes above $50,000 a year, to ask the Ontario government to make up the difference, or to cut costs. The first will not be welcomed by the affected families; the second will be resisted by a government already running a deficit; and the third can result in lower quality education and the migration of students to universities outside Ontario leading to a further loss of fee revenue.

This is not to argue against aiding low income families sending their children to post secondary institutions, but alternatives need to be considered. Australia provides one example. Students are able to borrow in order to attend university. Repayment is not required until the student has graduated and is employed, and the terms vary with the earning power of the student. The details are more complex but the aim is to make education available to all qualified persons regardless of income.

Granting an entitlement without explaining the likely consequences may be a good way to buy votes, but can result in unfortunate costs. This is a case of water bed economics. Exert pressure in one place and it will cause a bulge elsewhere.

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