All Posts Tagged With: "loans"
It’s time to rethink student loans
No Money Down tuition proposals make sense
Cassandra Lopes reads in Hart House Library at the University of Toronto (Jessica Darmanin)
Sometime in the mid-1990s, when I was a doctoral student at the University of Waterloo, I ended up chatting with a couple of very energetic student advocates who stopped by my office. Waterloo was at that time going through some kind of vote regarding their student union and earnest activists were everywhere.
Then, as now, the topic of how to deal with rising tuition fees was in the air, and I noted that I had been intrigued by what was then commonly called “income-contingent” loan repayment. The basic idea was that you could borrow what you needed through the regular venues of student loans, but then when it came time to repay the loans, the rate at which you had to repay would depend on how much money you were making at the time.
Is the U.S. tuition system more progressive?
Why Canadian students graduate with more debt, not less
Too much debt? Photo by Zach Klein on Flickr.
Canadians are graduating with more debt than their American counterparts—despite the well-known higher sticker prices south of the border.
In the U.S., average debt at graduation rose to $25,250 in 2010, according to a Nov. 3 report by the Project on Student Debt. Here in Canada, students were graduating with an average debt of $26,680 according to a 2009 report released by the Millennium Scholarship Foundation. If anything, the Canadian average is higher now.
The numbers seem almost impossible: isn’t tuition ridiculously high in the U.S.?
Continue reading Is the U.S. tuition system more progressive?
Students targeted in five provincial elections
Candidates promise tuition freezes, bursaries and grants
Photo courtesy of a.drian on Flickr
Newfoundland and Labrador’s provincial NDP Leader Lorraine Michael says her party would phase-in needs-based grants to replace student loans in its first year of government.
It’s the latest — and arguably the boldest — election promise made to students by a party leader in the last two weeks. With five provincial elections this fall, leaders are busy courting student voters.
Under Michael’s plan, 8,000 students would have their tuition subsidized entirely. The program would cost $4.7-million in year one, they say.
But the NDP isn’t likely to win on Oct. 11. Corporate Research Associates (CRA), a polling firm, puts the Newfoundland Progressive Conservatives under premier Kathy Dunderdale at 54 per cent support, with the NDP a distant second at 24 per cent and the Liberals in third at 22 per cent.
The province already has the lowest university tuition fees in Canada — $2,624 in 2010-11, compared to $6,307 in Ontario. And tuition fees are a perennial issue in provincial campaigns.
In Ontario, where the Liberal party under Premier Dalton McGuinty is facing a serious challenge from the Progressive Conservatives under Tim Hudak, the Liberals are promising tuition grants to reduce the cost of post-secondary by 30 per cent. Hudak is promising more access to student loans for students from middle class families. Ontarians will vote on Oct. 6.
In Manitoba, where there is a two-way race between the Progressive Conservatives led by Hugh McFadyen and the New Democrats under Premier Greg Selinger, the NDP promises more funding for universities and to maintain a tuition freeze. Voters there cast ballots on Oct. 4.
In Prince Edward Island, where voters go to the polls Oct. 3, Liberal leader Robert Ghiz has proposed elimination of the interest from the provincial portion of student loans, plus a boost to bursaries. Ghiz leads Progressive Conservative Olive Crane 59 to 31 per cent, says a CRA poll.
Students in Saskatchewan can expect election promises there soon. That election is on Nov. 7.
Is student debt the next financial bubble?
Moody’s warns that student loan lending is unsustainable
Photo courtesy of Duckie Monster on Flickr
Moody’s credit rating agency warns that “fears of a bubble in education spending are not without merit.”
Their new report uses entirely U.S. figures, but considering that the average amount of student loans owed by university students in Canada is similar to the amount owed by U.S. students upon graduation, ($27,000 versus $23,000), Canadians may worry too.
Moody’s argues that student loan lenders didn’t tighten their rules during the recession, unlike lenders in all other sectors. In fact, the growth rate in the total amount loaned to students continued to grow by 10 per cent per year. That’s despite the fact that the number of delinquent loans continues to grow too, while job prospects remain low. How will students be able to pay back all that money if they can’t find work?
Student loans: I swear I’m me
Using ID to get a piece of paper to get more ID, to get a loan
A couple days ago I made an appointment to get my student loan for this semester. I needed a piece of photo ID, but apparently my health card expired three weeks ago so I couldn’t use it as proof that I’m, well, me.
And I wasn’t allowed to use my student card, supposedly because it would be easier to forge than government-issued photo ID.
So instead I used my student card to renew my health card, and then used the piece of paper they issued me at the OHIP which proves I’ve applied for a new card, to get my student loan for this semester.
Seriously.
When reality bites
Recessions hit young people hardest—even long after they’re over
During his final year at the University of Ottawa, Justin Cantin had one goal for his first job after graduation: not to wear a uniform. Ideally, he hoped to put his undergraduate degree in history to work in a museum or doing research. But after graduating last December, in the aftermath of the most severe recession in decades, reality hit. With $45,000 in loans, the 23-year-old moved back in with his mom in Mississauga, Ont., and started sending out resumés. He soon broadened his search to include part-time jobs, factory positions—“whatever would give me a paycheque,” he says. Last week, he landed a warehouse gig in Waterloo, Ont. Though relocating for a manual labour job is not something he ever imagined he’d do, he says, “It’s better than nothing.”
As Cantin struggles to adjust his expectations, he can take comfort, however cold, in the knowledge that many of his peers are doing the same. Though it’s been months since Canada’s economy returned to growth, recessions have a way of bearing down hard on youth, even long after they’re officially over. Predominantly employed in industries like retail and food service, which depend on consumer demand, or in unions where seniority rules, youth tend to be first on the chopping block when the economy goes south. This time was no different: since October 2008, more than 190,000 jobs for young people have disappeared; unemployment among 15- to 24-year-olds rose to 16.3 per cent in August 2009, almost double the overall rate.
Although jobs are slowly coming back—as of February, youth unemployment had dropped to 15.2 per cent—what’s on offer is hardly the stuff from which middle-class careers are made. Thanks to the disappearance of manufacturing jobs, hiring freezes and the delayed retirement of workers, for many the reality is a spell of unemployment or a low-paying gig—both of which can have lasting consequences, derailing careers for years to come. While it’s impossible to know how much their future will be shaped by the Great Recession, one thing is clear: the generation raised to believe in the limitlessness of their own potential has just been dealt a very unlucky blow.
Strictly in terms of unemployment, this recession has not been as cruel to youth as other downturns. In August 1992, unemployment for those aged 15 to 24 shot up to 18.4 per cent; in the early ’80s, it reached 20.6 per cent. But according to Armine Yalnizyan, an economist at the Canadian Centre for Policy Alternatives, it’s the kind of jobs that were lost that’s cause for concern. Whereas the recession in the early ’80s replaced full-time jobs with part-time jobs, and the one in the ’90s replaced traditional employment with self-employment, this downturn “seems to be replacing permanent jobs with temporary jobs,” she says. “Where is the next generation of middle-class jobs going to come from?” she asks. “There’s just nothing coming up on the menu.”
The best way for youth to survive the hostile job market, say experts, is to wait it out by investing in school or volunteer positions. The trouble is that with median family incomes slipping, indebtedness at record highs and boomer parents struggling, many youth can’t afford to delay working. To make matters worse, says David Green, an economist at the University of British Columbia, the social safety net is not what it once was. While 83 per cent of those who were unemployed at the beginning of the recession in the early ’90s qualified for jobless benefits, this time only 43 per cent qualified. And incomes aren’t what they used to be either: though new workers began to gain ground again in the mid-’90s, at the start of the recent recession, says Green, they were still facing real wages below those of their counterparts in the early ’80s.
For youth who are unable, or unwilling, to prolong their entry into the job market, breaking in during a downturn is an uphill battle. When Amanda, who asked that Maclean’s not use her last name, got her undergraduate degree in math last June, she wanted to get a job as an analyst. But after four months of unemployment, she took an entry-level position at a Toronto IT firm. While her friends who graduated with similar credentials just a few years earlier started out making about $40,000, she’s earning $30,000.
In fact, most young people entering the job market now are making less than peers who found jobs two or three years ago. “And that lasts for quite a while,” says Paul Beaudry, Canada Research Chair in Macroeconomics at UBC. A study of Canadian men who graduated with B.A.s over almost 20 years found that, on average, those who begin their careers in down times tend to do so at smaller firms that pay less, suffering an eight to nine per cent income hit. And it takes 10 years to catch up to those who graduated in boom times. Worse still, for those who graduated from less prestigious universities with degrees in lower-paying fields, the scarring effect on their earning potential “sort of remains permanent,” says Phil Oreopoulos, a University of Toronto economics professor who co-authored the study.
The prospects are bleaker for those without post-secondary education. “Employers out there, they’re asking for everything—the moon and the stars,” says Joan Gardener, project administrator at the Mississauga, Ont.-based Youth Community Connections, a government-funded program that serves out-of-work young people. For those who do manage to secure employment, the erosion of high-paying, middle-class manufacturing jobs means it’s tougher to get ahead. “Think about it as a career ladder with the rings in the middle all being missing,” says Morley Gunderson, an economics professor at U of T. “You don’t have a way to start at the bottom and move up anymore.”
The dog ate my student loan payment form
If you’re staggering under student debt, bankruptcy might not be the best way out
According to a recent article in the The Toronto Star, the federal government’s Bankruptcy and Insolvency act makes it pretty difficult to dodge student loans through bankruptcy.
If you really want to declare bankruptcy, business writer James Daw says you’d better have a good excuse for not paying, “even after the five to seven years… that the legislation allows for such debts to be wiped clear.” Students must allow show that they tried in “good faith” to repay the loans and are now absolutely unable to pay.
After one 29-year-old medical student suffered a traumatic brain injury while cycling in Vietnam after graduation, she still owed Royal Bank $134,000, which was partially to cover her student loans. She was granted a discharge of those debts, and is now living on social assistance.
But, according to The Star, not everyone who asks for bankruptcy will qualify.
One Mississauga woman raised a 16-year-old son on her own until he decided to move in with his father. Although she currently makes about $53,000 a year, she declared bankruptcy in 2000 when she owed student loans totalling $21,000.
According to the bankruptcy registar, the woman made a few questionable decisions, which included selling her 12-year-old car and leasing a new Volkswagen to commute from Mississauga to her downtown Toronto job and to visit her son in Ottawa. She also provided her son with a cellphone.
Most Canadians would find it troubling that she wanted to be free of loans for the education that helped her find her job and qualify for a public sector pension, said the registrar. “There is no good reason why repayment of the loans for those studies ought not be made, over a lengthy period of time, perhaps even… her working life.”
More Canadian students will get smaller cheques
Revamped student loan and grant program is unveiled to mixed reviews
The federal government’s launch of the new Canada Student Loans and Grants Program is getting mixed reviews in today’s Globe and Mail.
Although the Canadian Federation of Students and the Canadian Alliance of Student Associations appear to like the new program, which both groups say are badly needed due to the recession and grim job prospects of high school grads, not all responses have been as enthusiastic.
The Education Policy Institute’s Alex Usher told the Globe that the overhauled loan and grant program hasn’t been given any additional funds, and is rather an attempt to distribute those same funds differently.
The restructuring of the loan and grant program was announced more than a year ago in the 2008 budget and has been a work-in-progress ever since. This will be the first summer students can apply under the new grant program, designed to replace the Millennium Scholarship Foundation created by the former Liberal government.
The new program will allow about 245,000 college and university students to qualify for grants that do not need to be repaid. Although the awards for eight months of study up to $2,000, will be lower, that means an additional 100,000 students will be eligible to receive the cash.
Usher says he isn’t sure whether this change will encouraging more students to enroll in college or university. “I suspect that it will not have the effect on access that they think it will, but spreading money around more is likely to be politically popular,” he says.
The CFS’s chairperson, Katherine Giroux-Bougard, says she is pleased the program will being administered through the federal Human Resources and Skills Development department and not as a stand-alone foundation. In past years, Canada’s auditor general has expressed concern that arms-length foundations such as the now-defunct Millenium Scholarship Foundation are not sufficiently accountable.
Religious university head defends student aid program
N.B. program would limit student debt at graduation, even for private institutions
The CBC is reporting that the president of one of the New Brunswick’s three religious universities is defending the province’s decision to include the school’s students in a new debt-limiting program, despite the fact that the institution is private.
Critics argue that private universities shouldn’t be getting financial help while public universities are starved for cash.
The provincial government announced the Timely Completion Benefit in May. In the program, all post-secondary students who qualifies for the benefit will not have to pay back more than $26,000 in federal and provincial student loans as long as they graduate within the program’s set timeframe.
David Medders, the president of Bethany Bible College in Sussex, told the CBC that the the debt-cap program benefits students and not the school’s operating budget. He said it’s absurd to say the religious school shouldn’t be eligible for any government programs just because it’s private.
“If you took that [argument to its] logical conclusions, we shouldn’t receive city water because part of the taxpayers money in Sussex supports a town water system,” says Medders. “So you have to have some common sense, somewhere along the line in this. And I think where the government has struck that line — we call it a pluralistic society, and it’s mutual respect.”
Miriam Jones, a professor at the University of New Brunswick in Saint John, told the CBC that the decision to allow these religious school to have access to the student debt-cap policy is a bad idea. She says the colleges are allowed to have Christian-only hiring policies because they’re private and that status should extend to funding.
“They shouldn’t get any public money unless they’re part of the public system and willing to subscribe to the standards and meet the criteria that the rest of us have to meet,” she says.
For more on this story, click here.
California considers cutting financial assistance
Under Schwarzenegger’s new plan, 77,000 grants totalling $180 million would be cut
The L.A. Times is reporting that California’s financial assistance program, which gives cash grants to low and middle-income university students, could be on the chopping block as the state faces a skyrocketing deficit.
The plan emerged in testimony by the state’s administration at a hearing today following Gov. Arnold Schwarzenegger’s turnaround on a week-old plan to borrow $5.5 billion to help balance the state’s budget. One nonpartisan analyst estimates the deficit at around $24 billion (USD).
Under the new proposal, 77,000 new grants costing $180 each year would be cut, but savings would eventually grow as high as $900 million as students graduate and the grants are phased out entirely.
Other programs at risk include the state’s main welfare program and health insurance for low-income families.
Post-secondary education pays: StatsCan
Largest difference in earnings was between bachelor’s and master’s degrees
A new study suggests it pays to go to school.
The Statistics Canada survey found that more than 80 per cent of college and university students who graduated in 2005 and did not pursue further studies had found full-time employment by 2007, while earnings generally increased by level of study.
A higher proportion of graduates with a master’s degree were working full time than college graduates or those with a bachelor’s degree or a doctorate.
The pool of graduates with a master’s was higher in 2005 than it was in 2000 for both men and women.
However, the employment rate among master’s graduates remained stable for men at 94 per cent, while it rose for women, to 92 per cent in 2007 from 89 per cent in 2002.
Findings also showed differences in earnings from one level of education to another, with the largest earnings gap existing between the bachelor’s and master’s levels.
The agency says the earnings gap between a master’s and doctorate suggests that the monetary gain from employment two years after graduation for doctorate students is marginal.
About half the 2005 graduates who did not pursue further education financed their post-secondary studies without taking on any education-related loans. Nearly half (46 per cent) of all 2005 bachelor’s graduates completed their studies debt-free, as did 56 per cent of doctorates, 55 per cent of college grads and 54 per cent of those with a master’s.
While relatively similar proportions of college, bachelor’s, master’s and doctorate graduates were able to find work two years after graduation, there were differences in terms of their earnings.
The median annual earnings among those working full time in 2007 was lowest for college graduates at $35,000. This increased to $45,000 for bachelor’s graduates, $60,000 for master’s graduates and $65,000 for doctorate graduates.
- The Canadian Press
British students paying and borrowing more
Tuition hikes increased first-year student spending by 12 per cent over three years
From the BBC:
Students are spending more money and receiving more support than ever before, suggests a survey of student finance in England.
The Student Income and Expenditure Survey shows that higher tuition fees have increased first year student spending by 12% in three years.
Driving this was the introduction of higher tuition fees, which were implemented in the 2006-07 academic year. The accompanying grants, bursaries and loans also pushed up the income of students.
Report author, Claire Johnson, a principal research fellow at the Institute for Employment, said student income had risen overall, although most of the increase was driven by income from tuition fee loans.
Adult students: How to get back into “the system”
Don’t let fear of debt keep you from upgrading your education
Some mail I received recently:
I’m turning 25 this year and am considering more and more what to do with my life and how to get there. I never finished high school, then years later got my GED certificate. Since I was 18 I’ve been working unfulfilling dead-end jobs, and it’s wearing on my soul. I’ve been considering college and university seriously for the last year and a half, but I feel lost. I don’t know where to start. I don’t know how I can pay for school and I also don’t know which programs to enroll in. I’m not sure what I really want to do in life. I always feel weighted to choose between smarter more practical choices, or really pursue my desires. I’m ready to work for my dreams, but I just need clear objectives, and some paths I can take. Thanks.
There’s a heck of a lot to that letter. And it reads like something I could have written myself about eight years ago. So I’ll start with a little biography.
I did graduate from high school (with uninspiring grades) but then I declined to continue my education. I didn’t begin to look seriously at a return to school until I was twenty-six. At that time, I didn’t have very distinct ideas of where I wanted to end up, but I did have a general sense that I wanted to do something more with my life. I decided to pursue an English degree not because it seemed at all practical (surprise!) but rather because it’s the only thing I really cared much about. My idea then, and I can at least attest that it’s worked for me, is that you do what you care about and things have a way of working out.
Now I don’t know much about how a GED is received by universities but I can promise I wasn’t a very strong applicant when I applied. I had to fight my way back into the system for even a chance to prove I could handle university. So you may find you have to jump through a few hoops to make it happen. Or you may not. They may simply admit you directly. But either way, at the undergraduate level, you should find the chance is there to get back on the inside if you’re willing to do what it takes to get there.
One of the hardest things about approaching education as an adult student is knowing where to start. The path from high school to university and college is so well traveled that you can’t possibly miss it. Guidance counselors are just waiting in their offices for you to ask. Presentations are made in class. All your friends are talking about it. But when you’re on your own, and removed from these networks, it’s a lot harder. You’ve got to make someone care about your situation.
What I did, once I knew I wanted to attend U of T, was simply pick up the phone and call admissions. It’s been a long time, so I can’t remember exactly how things went from there, but after talking to several people I eventually got someone from Woodsworth College on the phone. That’s U of T’s part-time college. And I admit, I was having a hard time sorting out my options and the systems I would have to deal with. So I made an appointment to see her personally. Once I was in her office, things just came together much more easily. University bureaucracies are made to deal with typical students. When that isn’t you, you’ve got to force the issue and make someone see you as an individual. Get a name. Make an appointment. If nothing else, make sure that the next time you call you can deal with the same person, who knows something about your situation.
Student alliance asks Ottawa to ease debt in downturn
Graduates with limited job prospects need help dealing with debt, says CASA
The Canadian Alliance of Student Associations is calling on Ottawa to ease the debt burden for people who are graduating in tough economic times with limited job prospects.
National director Zach Churchill says the government can do some simple things to help recent grads who will, on average, complete a four-year undergraduate degree more than $24,000 in debt.
The alliance argues the student financial-aid system should be more accessible and that tariffs on imported books need to be eliminated.
The comments come after meetings this week with government officials.
The Canadian Federation of Students recently called on Ottawa to increase transfer payments to the provinces in an effort to reduce skyrocketing tuition fees.
- The Canadian Press
Student loan debt: it’s still a good thing
Is education a right or an investment? The debate continues here
Firstly, I apologize for not getting involved in the comments last time around. Blog posting involves a responsibility to engage in the resultant debate, but jumping into the pond would have been much too haphazard, particularly given that I wasn’t expecting that volume of response and got to it late. So I’m going to try and address some of the points I feel aren’t being fully understood while trying to cover a lot of ground with respect to how economists typically think about educational issues. There are responses to some of the previous comments at the end of this post.
The decision to attend any postsecondary institution revolves around a basic choice: preferences over potential lifetime income streams. The idea, for most, is that by sacrificing a bunch of weekends and the chance to earn a salary for a few years to read textbooks and write exams, we can emerge from university with expanded labour market opportunities. There are very, very few people who can be credibly told that regardless of whether they attend university or not, they’ll never earn more than minimum wage – and who still choose university. Similarly, there are not many people who’d pay the full costs of university simply for the pleasure of it.
Since different people have different abilities and different feelings toward being stuck in lecture halls for years on end, not everyone makes the same decision to attend university or not. It’s entirely possible the story could end there. The oldest university still operating today was founded as a private charitable religious endeavor. Yet in most countries throughout the world, government has decided to intervene and distort the incentives facing those people making the choice whether to invest in PSE.
Why? Most economists (if they had no idea what university education consisted of) would first ask whether PSE is a public good, i.e. something that can only be realistically provided by government. The leading example is national defense – it’s very hard to imagine all Canadians teaming up to collect the money and fund a military force without some sort of a central body to oversee things. Public goods are characterized by being (a) unexcludable and (b) nonrivalrous. If I’m scared of the Americans invading and I buy a military to defend the country, I can’t decide to not provide military protection to my neighbour; I cannot exclude him. It is nonrival because we can both consume it simultaneously, unlike a hamburger.
However, education is certainly excludable – the professor can close the door – and at least somewhat rival. Lecture seats cannot be filled by an infinite number of people. Instructors do not have infinite time. Lab space in the hard sciences. The straightforward case is therefore very weak for direct public provision of educational services, so it’s incumbent on us to start being cautious about whether the government has a legitimate role.
Let me throw out some reasons from economics textbooks why governments might get involved. Democratic values rely upon an educated populace. Citizens could be boundedly rational or misinformed about the impact of education. Private markets could be flawed and unwilling to extend loans to those wanting to borrow against their future high income to attend university – this is the consumption smoothing argument I advanced the other day. People who earn more will remit more taxes. (For the record, each year of PSE confers about a 5% annual wage premia and an 8% total return, though that’s only one estimate, there remains much uncertainty about the true numbers; there are some tricky statistical issues.) Providing a home for academics to work might result in favourable conditions for other enterprises – this happens a lot in biosciences. Etc.
Since most of us can probably agree these are good things, not as many people will attend university as is socially optimal without government intervention. For example, suppose the benefits to me of getting a degree are $150,000, with an additional $25,000 in benefits to society, for some combination of the reasons listed above. (Just because these numbers are in dollars doesn’t mean they only include monetary benefits. If the student receives pleasure from learning, it’s included in the benefits. This way, I don’t have to introduce utils. Any cost-benefit study will monetize nonmonetary benefits in this way.) If the degree costs me $160,000 (including things like the income I choose to forego by working less), then I won’t attend. But if the government gave me $15,000 to attend university, then I would be better off by $5,000, and society would be better off by $10,000. Actually, more like $8,000 – raising $1.00 in taxes costs about $1.20 in wealth – at least, that’s the figure I used in cost-benefit class – in what is called the marginal excess burden of taxation. But the important point is that there’s scope for win-win here.
The problem arises in that the government is not all-knowing. If I value the degree at $200,000, then the $15,000 from government is free money in my pocket and a waste of resources in generating the funds and transferring them to me. Bigger problems arise as the subsidy increases, say with the same costs and societal benefits as before, but with the government subsidizing the cost down to $50,000. Then someone who only values the education at $60,000 could enroll, be personally better off by $10,000, but cost everyone else collectively $65,000 (or $87,000, counting that 20%)! But clearly it’s impossible to get everyone (anyone?) to accurately state their valuation of the degree before they even start classes. It’s equally impossible to accurately measure the benefits to society from one more person having letters after their name.
This brings us to student loans. Since large subsidies have the potential to generate these losses, which economists would term “deadweight losses,” other methods of reaping the ‘positive externalities’ of education might be worthwhile. Credit markets are imperfect, as illustrated over the last year. If the majority of the benefits of education accrue to the individual, rather than society, then student loans become a very effective tool for achieving the win-win described above: if I value my degree at $300,000, it costs $150,000, but I cannot raise the money as an 18-year-old, the government can step in with a loan to cover the discrepancy, enhance my welfare by the $150,000 and grant society the $25,000 in externalities. Even better, by placing the choice of whether to accept the loan or not on the student, the government implicitly learns the worth they place on their education, thereby significantly reducing the chance of spending a lot of money on someone who doesn’t value the service.
Intentionally or not, the combination of subsidies and student loans both serve different purposes: to tip people over the edge and rake in the social benefits, and to fix credit markets, respectively. Whether you think subsidies should be larger or smaller depends on your assessment of the magnitude of the externalities, but the dominance of student loans over grants/subsidies/etc. makes much more sense from an efficiency criterion. Both, yes, but loans should be first. Given that many Canadians have willingly – willingly! – shouldered billions in student debt, I cannot say that the government offering this choice has proved anything but a benefit to most (obviously, university provides no future earnings guarantees, some do lose out on this lottery, see my response to Joey below). If student debt was such a horrible thing, people would avoid it accordingly. Conclusion, as before: student loan debt is a good thing.
I’m not saying students are better off because they have to pay tuition. But if we decided to implement free tuition, that would basically be making a large transfer of funds from society to (a) students and (b) an incinerator – unless you think that someone else attending university is worth hundreds of thousands of dollars to the rest of society, above and beyond what the individual earns from their degree. I don’t think the numbers add up that high and cannot find any references that would support such a magnitude of externalities.
Beyond this framework, most points raised about how much the individual should be expected to pay are not economics but religion. “Social justice”, “equality of opportunity”, and so forth are termed normative statements. These arguments are ultimately subjective judgments about how an individual believes society should operate, and as such are removed from the microscope of scientific analysis, which is only equipped to discuss how society does operate. Some people may be willing to sacrifice large amounts of resources to ensure that tuition is free to all comers, which is fine in the context of one’s moral viewpoint. All economics can do is compute the likely effects. Now, I’ll try to address some of the specific points raised in the comments.
Joey: I agree in that nobody – or at least very few people – want(s) to default. Maybe, maybe there are one or two people who attend university and plan a personal bankruptcy the week they get out the door. Student loan debt is difficult to erase from the books, harms the credit rating and so on. I agree. There is a fine line between being too harsh on those who didn’t realize dreams through university – particularly since the government subsidies prodded them into taking the risk in the first place – and being too generous and opening the door to large-scale losses. Without the numbers, it’s difficult to judge. As Bob Whitney points out two comments down, there’s no guarantees here, but there’s no coercion, either. University is a risk that people take willingly.
Dale: I’m not presenting a single argument that cannot be found in an introductory microeconomics textbook anywhere in the country. I have probably moderated my points here a little bit relative to last time, but I don’t think anything fundamental has changed. It is ideological only in the sense that evolution is ideological: what I’ve said above enjoys virtually as strong a consensus among economists as evolution does among biologists, except none of us are sure of the numbers and thus have accordingly different responses. As I said, an individual may have moral judgments as to what policies should be pursued – economists like to maximize net benefits – but if one does not accept that social goal, then we enter a philosophical sphere. With respect to your first citation, it is misleading. Here is chapter 7 of the first reference, for example. Every nonmonetary benefit they quote accrues to the individual, not society, so free tuition is not justified no matter how large the nonmonetary benefit is. In fact, if the benefits were only monetary and nonmonetary – but both reaped by the individual – there would be zero case for government. The only way to justify free tuition is the belief that benefits accruing to the rest of society, not the individual, are larger than the costs of education, which I find very difficult to argue and cannot find any evidence to support. I seriously doubt you’ve read any part of either book.
Jeff: I do believe that people who are paying $10,000 to sneak across from Mexico to the U.S. illegally are doing it because it’s a good deal. For them. It may not be good in our eyes – anyone reading this article probably has better options than cramped factory hours at sub-minimum wage, but they wouldn’t do it if they had better options. Or do they just like to torture themselves? Similarly, sweatshops are a dream in some places. Certainly, the career and lifestyle that many Canadians desire are probably only obtainable from university education, barring exceptional cases. But we can’t promise everyone a good job just because they want it. I would still like an explanation for why people shoulder student loan debt if it’s against their best interests. Are they simply stupid? No. They’re taking a calculated risk to improve their lives. They expect that they will be better off with the loan and the degree than without either. On average, thanks to the student loan, they become better off. The government does not force anyone into student loans. As I said previously, how can “no university” be better than the choice between “no university” and “university plus loan”?
jessica: I agree entirely, you’re right, that’s a problem. Assuming that all parents are willing to fork out for their kids education is inaccurate. The education is an investment for the individual, not their parents, and should be calibrated as such. The intent of such legislation is to prevent rich families from using the student loan money – which comes at low, low interest rates – to buy a summer home or play the stock market with, but that doesn’t mean it’s blameless. Once anyone can vote, they should be free to conduct any financial arrangement without the status of their parents being factored in.
Chris: In my eyes, there is a difference. A graduated income tax has nothing to do with education. It is purely an issue of income equality. I think a progressive income tax is a good thing. But it’s got nothing to do with education. Why is paying back a student debt after graduation worse than paying an equivalent amount of higher taxes after graduation? The only difference I see is the former reflects how the individual gets most of the benefits of education and takes responsibility for that, while the tax and transfer invokes all sorts of bad incentives that I’ve talked about at length.
Josh: I cannot find “poverty” in my article, so I can’t respond there. But unequivocally, raising taxes reduces the incentive to work. Repudiating that is equivalent to a book-burning of every economics text on the planet. Like I said, education isn’t free, someone has to pay for it. Again, consider the extreme case: 100% tax rate. Why would anyone bother working? Number of professors = number of universities = 0.
patrick: ‘Default’ does not mean that the student still owes money. I am unsure where you got that impression, but you have it completely wrong. To quote, page three, last paragraph: “default (loans that are deemed uncollectible and lost)”.
Finally, I think it’s also important to note that anyone reading this, by virtue of visiting the oncampus site, is considerably more tied up in academic life than most. Whether a professor or a debt-ridden student, priors on these issues, mine included, are probably biased from the national mean, which is why I think it’s necessary to be objective, rather than advance policies that ‘would be nice’ or ‘sound good’.
Addendum: Fiscal policy, since it’s a hot topic. Whether you believe fiscal policy is effective or not is not the point. The idea is that the government can spend today in order to raise the aggregate demand for goods and services in the economy, which requires employment to produce those goods, etc. From first principles, direct spending is more effective than tax cuts: the idea is to get more money into the economy, so spending a dollar certainly does more than handing someone a dollar (say through tax cuts) and letting them decide how much to save and spend. Conversely, forgiving student loan debt is starting off by dedicating all the money to savings, so you have to count on the second-order effect of the individual to spend out of the payments they would have otherwise made on their debt, so it gets the least money moving of all per dollar of government spending. I won’t make claims about consensus here, because right not the profession doesn’t have any real consensus about whether fiscal policy is a sound idea; though probably the majority are in favour, there is certainly not a hint of agreement on what the proper spending targets could be.
Anyway, there. Way too much text, but I wanted to be as clear as possible. I’ll respond to comments in the morning and at least a few times after that, between bouts of tackling a problem set.
Canada Student Loan debt tops $13 billion
Figure doesn’t include about $5 billion in provincial or personal debt
Federation of Students news release:
Canada Student Loan debt will surpass the $13 billion mark today for the first time in the nation’s history. Total student loans owed to the Government of Canada increases by $1.2 million a day. The $13 billion figure does not include approximately $5 billion in provincial student loan debt or personal debt such as credit cards, lines of credits, bank loans, and family loans. This school year alone, almost 360,000 students required loans from the federal government.
Student aversion to borrowing
Choice to go debt-free can limit enrollment options and hurt chances of graduation
The Washington-based Institute for Higher Education Policy and Excelencia in Education have released a new report that examines the characteristics of students who are less likely to borrow for post-secondary education.
According to the report, Student Aversion to Borrowing: Who Borrows and Who Doesn’t, students who are adverse to borrowing to finance their education include older, financially independent students who have delayed their enrollment, part-time students, and members of certain ethnic or immigrant groups.
While it might appear advantageous for these students not to borrow and accumulate student loan debt, there is a downside too. In some cases, aversion to borrowing may limit students’ post-secondary enrollment choices and/or negatively impact their chances of successfully completing a program.
The top 3 suggested reasons why students may choose not to borrow for education, even if they have substantial unmet financial need, are as follows:
- Students may attend lower cost institutions or change their attendance pattern so that they face fewer expenses in a given semester and do not need to borrow.
- Students may use other financial resources to pay college expenses and not have to borrow.
- Students from certain racial/ethnic or immigrant groups may have a cultural or familial perspective on debt that encourages them not to borrow.
Dear Benefactor…
How I put myself through school by writing to two of the richest men in Canada
In September 2005, I left Toronto for grad school in Berkeley. In my bags, along with a copy of Joan Didion’s Slouching Towards Bethlehem and several pairs of regulation California flip-flops, I had two cheques totalling $26,000. The cheques were from Canadian millionaires I’d never met. They’d promised to send me money to pay for grad school, provided I write to them once a month. They also asked me to keep the arrangement confidential.
I kept half of my promise.
What follows is the story of how one girl (me) put herself through school by writing to two of the richest men in Canada.
April 2005. I was at my friend Rachel’s house, sitting at her kitchen table with Shuah, her lovely bespectacled friend. It was a spring day in Toronto.
I needed money. Not for an abortion or a car or anything ghastly like that. I’d just applied to one of America’s most expensive graduate schools and had gotten in. They were offering me $5,000 in scholarships, which would cover the cost of coffee and sunscreen for a few months. I needed more, and I needed it fast.
“Who has money?” I asked, into the air.
Rachel and Shuah looked at me. “Rich people have money,” Rachel said.
We didn’t have any money, that was for sure. Rachel was dating a soft-hearted grad student from a poor town in the Maritimes and Shuah was law-school-thousands-of-dollars-in-debt-poor. Me, I was still paying off student loans from my undergrad years at McGill.
My mother worked a government job at an arts agency, and though she would have given me her last cent even if it meant she’d have to live in a tent across the street, she couldn’t spare much. I needed $40,000 at least. My dad was a full-time writer. He’s also pretty successful, but he’d just gotten married and bought a house and I knew every cent was headed in that direction. I needed to widen my contacts. I needed rich people.
“Okay, so how do I get money from them,” I said.
We mulled it over.
“I suppose you could just ask them,” said Rachel.
A scheme started to take shape. I knew I could write a funny letter if I needed to. I also knew from reading magazine profiles of millionaires and from watching Annie that rich people were often eccentric. I did some creative visualization, Shakti Gawain style: I pictured a big man sitting in a chair, reading my letter, and reaching for his chequebook. I pictured him calling out to his secretary: “Put this in the mail, Gladys. This girl’s got spunk.”
B.C. Premier grilled on gutted grant system
Non-repayable grants have plummeted from 27 to 12 percent since 2004
After being grilled by a group of students last week, B.C. Premier Gordon Campbell is dismissing questions regarding the relatively low proportion of non-repayable grants to student loans in the province.
The questions were asked two days after a report by the Canadian Millennium Scholarship Foundation showed that the proportion of grants, money that students aren’t required to pay back, is rising in other provinces.
The foundation revealed that non-repayable grants now make up just 12 percent of British Columbia’s aid, down from 27 percent in 2004 and the lowest proportion in the country. In Manitoba, 48 per cent of student aid is non-repayable.
Nationwide, the proportion of loans to grants has more than doubled in the past 15 years, now making up 30 per cent of total aid. A big portion of that increase came from Ontario, where the McGuinty Liberals began offering up to $3,000 per year to students from low-income families in 2005.
That was the same year that Campbell’s Liberals nixed grants for students from low-income homes in B.C. The grants were replaced by a program designed to help graduates reduce their debt load; this costs the taxpayers less than half as much as the grants did.
But Campbell emphasized that money is being invested in building universities instead.
“Everyone would like a grant,” said Campbell during a press conference at the UBC School of Journalism. “But the fact of the matter is, [the province] is paying somewhere between 75 percent and 80 percent of the costs.”
According to Campbell, building and expanding university infrastructure gets “the best value for students,” and increases access to education. He pointed to new campuses in Kamloops, Kelowna, Nanaimo and the Fraser Valley that have each received hundreds of millions of dollars in provincial funding. Building new schools also reduces transportation costs for students, said Campbell.
B.C.’s recent approach to post-secondary education spending echoes Ontario’s approach in the late 1990s. The Mike Harris government spent billions on lecture halls and science labs through the SuperBuild Fund while shying away from individual student grants.
Meanwhile, B.C.’s opposition New Democrats are campaigning on restoring some of the money that had been dished out to students from low-income households up until 2005. The NDP platform includes $250 million in new grant spending and a 50 percent cut to the interest rate paid on the province’s portion of student loans.
BC voters head to the polls May 12.
