The 2004 budget contained two major sets of policy announcements relating to access to education. These two proposals " the first a set of improvements to the Canada Student Loans Program (CSLP), and the second a new savings initiative for low-income parents whose centre-piece is the Canada Learning Bonds initiative " amount to the largest reform of Canada’s system of student support since the multi- billion dollar Canadian Opportunities Strategy of 1998. Though stakeholder reaction to the education sections of the budget has been tepid, the 2004 education package is one of the most progressive and innovative social policy steps the Government of Canada has ever taken.
Before evaluating the impact of the budget measures, it is worth examining what existing policy research has to say about access to post-secondary education. Canada " like every other country in the world " has problems in ensur- ing equality of access to post-secondary education. While it has an enviable record in ensuring equality of access to community college programs, its record is less than spectac- ular when it comes to universities (see figure 1).
What accounts for the difference between college and university access rates? Some critics have been quick to jump on tuition fees as the culprit. Nationally, tuition fees at community colleges are about half what they are at universities (less if Quebec’s free CEGEP system is includ- ed in the total). This is surely signifi- cant, but if cost is a barrier then tuition is only the least of the prob- lems. Colleges are more numerous and hence more convenient to attend than universities; college students, on average, have lower living costs than university students. Also, college pro- grams last half as long as university programs, thus reducing total costs and " more importantly " total fore- gone income. So while it is plausible that cost differences account for poor Canadians’ preference for colleges over universities, singling out tuition as a barrier makes very little sense. Yet cost is not the only factor that distinguishes colleges from uni- versities. Crucially, the latter are selective in their admissions policies while the former " a few niche pro- grams aside " are not. Secondary school results therefore become a critical ”œsorting” mechanism for determining what kind of post-sec- ondary education, if any, a student will receive (table 1).
The results in table 1 would be irrelevant to access rates of rich and poor if secondary school achieve- ment was completely independent of parental socio-economic status. Yet, as numerous studies have shown, there is in fact a very strong link between the two not just in Canada but in all OECD countries. As UNB sociologist Doug Wilms recently noted when looking at the results of Canada’s 15 year-olds in the OECD’s Programme for International Student Assessment (PISA), the difference in average literacy scores in Canada between ”œrich” students (95th socio- economic percentile) and ”œpoor” stu- dents (5th socio-economic percentile) is equivalent to nearly an entire year’s worth of schooling. This in turn is a reflection of lower levels of cultural and social capital (in the Coleman-Bourdieu sense) among lower-income families.
A final piece of the puzzle is the effect of parental expectations on chil- dren’s own views of their educational future. Evidence suggests that chil- dren’s expectations of their own edu- cational future are highly correlated with their parents’ aspirations for them (even if, on average, children’s expectations on average lag slightly behind parental expectations). Therefore, the lower the parents’ aspirations, the lower the children’s expec- tations. At birth, parental aspirations for children are uniformly high across all income groups. As time goes on, parental aspirations diminish and, moreover, this drop is correlated nega- tively with income. The best explana- tion is that over the long term, as parents start to assess their children’s performance in school and " to a less- er extent " their own financial situa- tion, they begin to mentally ”œmap” their child’s educational future and encourage their children accordingly. High-income families, who have more money and whose children tend to have higher grades, are more likely to condition their children to go to university; lower-income families, who have less money and whose children tend to have lower grades, begin to condition their children to go to college or trades " if they finish high school at all.
Of course, just because people want to go to post-secondary education and are accepted by the institution of their choice, doesn’t mean they can actually afford to go. That’s why student assistance programs exist, providing loans and grants to people who face a cash constraint in the pursuit of their studies. For the most part, these programs seem to be achieving their goals. While there are young people who cite ”œfinancial barriers” as the main reason for not attending PSE, they account for only about one-fifth of the 30 percent of young Canadians who have never attended a post-secondary institution. This is not a perfect record, but neither should it be considered a policy failure.
Nevertheless, concerns have been raised recently about student financial assistance programs, primarily in a series of research publications and presentations by the Canada Millennium Scholarship Foundation. This research suggests that student assistance limits " presently at $275 per week " are too low; that expected parental contributions (which in many cases can amount to $10,000 for a family earning $80,000 annually) are too high; and that a considerable amount (nearly half) of all ”œneed-based” assistance ends up in the hands of children above-median income families.
Against this backdrop we can look at the following important budgetary measures designed to increase access to post-secondary education:
Changes to expected parental contribution levels in the Canada Student Loans Program in order to ease the burden on middle-income families. Starting in September 2005, this is expected to primarily benefit approximately 40,000 families in the $60-$100,000 income bracket whose children currently have great difficulty receiving assistance because the contribution formula assumes that their parents are providing a much larger share of costs than is actually the case. The details remain sketchy on the scope of the changes, although the estimated cost of this measure " $10 million/year " suggests that the adjustments will for the most part be quite modest.
An increase of $45 in the weekly loan limit for full-time student borrowers from September 2005. This key measure is the first major increase in money available to students since 1994. After ten years of inflation and tuition hikes eating away at the purchasing power of student loans, this will be welcome news to many students. It will also, however, create friction with several provinces and may become a flashpoint in federal-provincial relations over the next year (see below). The new combined fed- eral/provincial assistance limit for single students without dependents will in most instances rise from $9350/year to $10880/year. Should provinces also increase their loan limit to follow the nominal 60/40 split in assistance (by no means assured in all provinces), assistance limits could move as high as $11,900. The total cost of this measure is esti- mated to be $74 million/year.
The introduction of a grant for first-year low- income students from September 2005. Another welcome measure specifi- cally targeted at students accessing post-secondary education for the first time, this program is intended to provide first year students with one-half of the cost of their tuition up to a maximum of $3,000. It is estimat- ed that 20,000 dependent stu- dents will receive the new grant each year, at a cost of $30 million.
The creation of a Canada Learning Bonds (CLB) program. This new program will provide every child born into a low- income family (defined accord- ing to National Child Benefit guidelines as families with incomes under $35,000) with a $500 ”œbond,” cashable for post- secondary education once the child turns 18. Subsequently, these children will qualify for $100 CLB instalments until age 15, in each year their family is entitled to the NCB supplement. Children born after 2003 who are not eligible for the CLB at birth but subsequently become entitled to it will qualify at that later time for a $500 CLB and thereafter become eligible for the annual $100 CLB instalments. A child in a low-income family could therefore receive CLB payments totalling up to $2,000. It is estimated that in 2004 the CLB will benefit over 120,000 newborns, at a cost of $85 million.
Expansion of the Canada Education Savings Grants (CESGs). In addition to the learn- ing bonds, enhancements to the CESGs were announced in order to make educational savings more attractive to low-income parents. The 2004 budget proposes that, beginning in 2005, this 20 per- cent matching savings rate be doubled to 40 percent for families with incomes up to $35,000. It also proposes increasing the rate to 30 percent for families with incomes between $35,000 and $70,000. These enhanced CESG rates will apply only to the first $500 contributed in a year to a child’s RESP. This is expected to cost $80 million annually.
The changes to the Canada Student Loans Program will not affect access to post- secondary education in any sig- nificant way, as most of the decisions regarding PSE are made long before anyone applies for student assistance. They will, however, make the existing system fairer by providing slightly more money to lower-income students, lowering con- tribution requirements on middle- class families and providing all students with higher borrowing limits so that they need not be so reliant on private sources of debt such as lines of credit and credit cards.
On budget night itself, very little praise was heard from student groups on the budget measures. Long ensnared in the rhetoric of student debt, both of the national student groups chose to ignore the positive aspects of the new grant program and the improved parental contribution tables and instead levelled heavy crit- icism at the higher loan limits. They oppose these on the grounds that the new limits would result in higher stu- dent debt, which in turn would deter lower income students from attend- ing PSE. Indeed, the Canadian Federation of Students went on record to say that an increase in loan limits (and hence in increase in stu- dent debt) is tantamount to a rise in tuition fees.
This concern about higher debt is justified, but only to a point. First, while increased student debt loads are demon- strably a bad thing for recent graduates who often struggle with difficult loan payments, they are not a major deterrent to access. Recent data from Statistics Canada shows that only about 6 percent of young Canadians who choose not to attend PSE cite debt as the reason for their decision. In fact, of those Canadians aged 20-24 declaring that they would not under any circumstance take out a student loan, over 80 percent were actually enrolled in PSE at the time!
Second, while there are risks to increasing loan limits, there are also risks to not increasing them. Since 1994, the after-tuition purchasing- power of the maximum student loan for single students has decreased from about $7,500 to under $5,000. The first duty of any student assis- tance program should be to make sure that students have enough money to keep body and soul togeth- er, and present loan limits make that extremely difficult.
Third, it is by no means certain that the increase in loan limits will actually translate into an increase in borrowing. The reason for this is that provincial grant and loan remission programs are designed to reduce debt to fixed levels. To the extent that federal initiatives (e.g. the Canada Millennium Scholarship Foundation) reduce student debt, provin- cial governments end up as winners because there is less debt left over for them to reduce. To the extent that federal initiatives (e.g. the current proposal) increase debt, provincial governments end up as losers because the amount of debt they must reduce increases. Either way, the student sees very little change in his or her overall package
If provinces leave their existing programs unchanged " a big ”œif” considering the financial implications for cash-strapped provinces " the main effect of higher fed- eral loan limits will be to increase the size of the provincial grant programs, not to increase stu- dent debt. The present loan limit increase will have cost implications of between $100 and $200 million for remission and grant programs in Alberta, Saskatchewan, Ontario, Newfoundland and Manitoba com- bined. Cutbacks in their provincial grant and remission programs may become a real possibility if govern- ments cannot meet these increased program costs.
The new Canada Learning Bonds are modeled on a program in the United Kingdom recently announced by the Blair government called the Child Trust Fund. The central idea behind the program " that a $500 endowment at birth plus annual $100 top-ups will change low-income parents’ long-term views about post- secondary education " may have a ring of flakiness to it, but the idea is rooted in some very sensible and innovative policy thinking. The notion of using assets in addition to income as a long-term move to reduce poverty was first introduced by Michael Sherraden in his 1991 book Assets and the Poor: A New American Welfare Policy. The basic thinking behind providing the poor with assets rather than income is that it helps them to overcome the ”œshort- termism” that often accompanies poverty. Providing assets lengthens the planning horizon and promotes stability, investment in human capi- tal, and reduces the risk-aversion of poor families. The OECD recently reviewed a number of asset-based poverty-reduction projects and gave them a favourable " albeit tentative " review, although the UK’s Institute for Fiscal Studies has been more criti- cal of them, particularly as means to improve access to education.
If this program were solely about making sure low-income children have money to go to school, there would be plenty to lampoon. For instance, why give money to people over eighteen years when one could give it to them in one lump sum at the age of eighteen? By providing aid at the time of entrance to PSE, once could eliminate any targeting issues by ensuring that money went to stu- dents who were poor at the time they needed the money as opposed to giving to anyone who even passes through poverty at some point during their childhood. Providing money in advance also raises the spectre of mil- lions of dollars in interest being taken up by management fees in the hands of financial institutions, which is hardly an efficient way for govern- ment to provide money to low- income Canadians (assuming 5 percent returns and a 1.5 percent management fee, roughly 40 percent of the total growth in the funds over 18 years will be taken by management fees, which equates to about $40 mil- lion per cohort).
This analysis would, however, be wrong. The effect of Learning Bond money on the student price response is negligible and, political rhetoric aside, the Government of Canada knows this. This program is not primarily meant to increase affordability; it is primarily meant to change parents’ perceptions and aspi- rations about post-secondary educa- tion. As we saw earlier, parental aspirations are a key factor in deter- mining children’s eventual post-sec- ondary education outcomes. Sending families money at birth and then annually thereafter is a way for the Government of Canada to continual- ly encourage low-income families to strive for post-secondary education. Many years ago, HRDC and its prede- cessors tried to do this with general- ized ”œstay-in-school” programs. The Learning Bond is effectively the same thing, only more income-targeted and with cheques attached.
One challenge that certainly must be met early on is the possible negative interaction between the Learning Bonds and provincial welfare pro- grams. At present, many provinces’ social assistance systems prohibit the accumulation of savings. Once savings reach a certain level, welfare recipients are required to cash them in " effec- tively liquidating their assets " or face penalties in the form of reduced wel- fare cheques. If this situation is not changed, many of the people who could potentially benefit the most from this program will find themselves penalized instead.
Will the learning bonds affect access? It is difficult to tell at present. Asset-building policies for education are promising but unproven. The government chose not to wait for the results of several early-intervention demonstration projects (such as the Learn$ave project currently being run by the Social and Enterprise Development Innovations (SEDI) and a low-income finan- cial incentive experiment being run by the Canada Millennium Scholarship Foundation) before leap- ing into this program. But that’s poli- tics. If the program succeeds in changing parental aspirations in a sig- nificant way, then the millions spent on the program, and the millions in management fees paid to financial institutions to manage the program, will seem well spent. If it fails, it fails " but at least it will be a cheap fail- ure. At an initial outlay of $85 mil- lion/year, the Learning Bonds represent only a fraction of the $1.2 billion currently spent each year by the federal government, to no appar- ent purpose and with no apparent return on investment, on a variety of education tax credits. In comparison, the Learning Bonds, while unproven, are still a bargain.
The 2004 federal budget is an impressive step forward for the Government of Canada. The Learning Bonds represent a new and interesting " if untested " approach to lifelong learning. The changes to the Canada Student Loans Program represent a major improvement on the present system, assuming that difficulties with provincial governments can be overcome. The poorest students will get a new set of grants, a large group of middle-income students will be admitted into the program for the first time, and all will benefit from higher assistance limits, which will reduce the amount of ”œunmet need” in the system. While there are still challenges to be met in terms of implementation, March 23, 2004 " budget day " deserves to be remembered as a good day for students.