Yes, there will be shrinkage

Whether you think that’s a good thing or a bad thing or simply a largely logical and expected thing (I vote for number 3), the OSFI study assumes that what has happened at times in the past and is happening in Alberta–labour shortages and low unemployment levels leading to a somewhat diminished post-secondary participation rate—is what is likely to happen in a future where there are more old people and fewer working-age people. There’s no guarantee that this is what the future will hold, but it is a very plausible outcome. It’s the high percentage shot.

And it calls into question the assumption that the university system needs to be expanded to accommodate huge growth in student numbers over the next generation. That’s just not likely to be the case.

Some other interesting wrinkles in the OSFI actuarial report? OSFI projects that tuition will increase by 3% more than inflation over the coming generation. Given the historical record—education is one area where the product has not become cheaper over time; unlike, say, computers, television sets and cell phone service—that’s a reasonable and maybe even conservative assumption. And it means that tuition is projected to hit a whopping $19,000 in 2031. However, that projected tuition increase isn’t as large as it seems, because it doesn’t take inflation into account. So what happens when you take inflation into account? If you factor in an inflation level of 2% from now until 2011 and 2.5% from 2011 to 2031 (CSLP assumes 2% until 2011 rising gradually to 2.5% by 2015), then multiply that by what OSFI says is the current approximate average tuition level ($6,000), you discover that $6,000 in tuition today is equivalent to $10,433 in inflated, 2031 dollars. The gap closes further when you consider that the average wage—which has historically grown a bit faster than inflation—is likely by 2031 to be something in the neighbourhood of double or more what it is today. So, assuming no new government tuition-reduction schemes, university tuition will be relatively more expensive and less affordable than it is today. But only somewhat so, not massively so.

What does OSFI expect higher tuition to mean for Canada Student Loans? More borrowers, borrowing more money.

The number of students receiving a CSLP loan is expected to increase from 345,000 to 430,000
over the projection period. This represents an increase in the loan uptake of students in
post-secondary institutions from 36% to 52%. Such an increase in participation in the Program
is mainly a result of rising student need. This need is affected by the projection of tuition fees
and other expenses, which increase at a faster rate than resources. Contrary to the past two
decades, the number of students enrolled in post-secondary institutions is not a contributing
factor to the increase in the cost of the Program, as fewer students are expected to enroll in
post-secondary institutions over the projection period. Instead, it is rising student need that
mostly contributes to increasing Program costs.

But here’s the big surprise: more student borrowers, each borrowing more money, won’t make the CSL program less affordable to the federal government. In fact, the existing program will be far more affordable and relatively less costly to the taxpayer. Why?

The total net cost of the Government’s involvement in the CSLP, which is the difference
between expenses and revenue, is expected to grow from $0.7 billion to $1.2 billion over the
projection period. This represents an average annual increase in the cost to the Government of
2.3%.