Inflation and tuition

Is Tuition fair?

Is tuition fair: the case of Quebec? (by M. Hilke, April 23, 2012)

Let’s have a look at the facts. Currently, the tuition is $2,167.80/year for 30 credits, which is the typical student load. In the nineties it was about a thousand dollars a year, which represents a roughly 100% increase over a 20 year period. Out of province students pay higher tuition rates with the exception of students from some French speaking countries. In addition, students need to pay $1 622.62/year for various other fees (McGill sources). These fees include insurance, registration, student services and others and vary from university to university. We will not consider these additional fees since they vary strongly across universities. In terms of tuition, the Quebec government is now proposing to increase the tuition by $1625 over a five year period (a 75% increase). Is this fair?

The numbers: the enrollment at Canadian universities had the following income distribution profile (Statistics Canada 2007) as shown in the enrollment graph. The average enrollment increases from about 30% for the low income group to a little over 50% for the higher earners. The dependence of enrollment on income level affects the cost of studies for a given income group, since only a fraction of the group would pay the tuition. It is therefore important to take the enrollment distribution into account when discussing the true cost of tuition.

The most important contribution to the universities comes from the Quebec government, which represents 7.8% of its total budget. In 2011, the part of Quebec’s revenue, that stems from individuals was composed of 29% from individual income taxes and 23% from the Quebec consumption tax (TVQ). Therefore, each individual who pays these taxes contributes to the budget of the universities. It is reasonable to assume that about half of the income before taxes is spent on consumables, taxed at 10% through the TVQ in addition to the income tax, whose tax depends on the income level. For individuals, the Quebec income tax rates are 16%, 20% (above 40k$) and 24% (above 80k$) with a personal amount of 10k$. For example, for someone earning 60k$/year, the annual contribution to universities (without tuition) would be about 530$/year. These numbers apply to everyone, regardless to whether they went or not to university.

On top of the taxes, each individual who goes or went to university pays the tuition over typically 3 years once in a lifetime but corrected by the ratio of individuals who attended university for a given income group. For the income group earning 60k$ this leads to a 29.5k$ lifetime contribution to the university as shown in the enrollment graph. We can compare this number to the total university budget per student, which is about 30k$/year in Quebec. However, this number doesn’t reflect the true cost per student since universities do more than just teach students. Indeed, Quebec universities play an important role in scientific research, technological innovation, health sciences, government consulting and in the arts. The true cost of educating undergraduate students is therefore probably closer to 10k$/year (or 30k$ assuming 3 years of university studies), which is about the amount an individual earning 60k$/year would contribute to the university over his or her lifetime.

How will this picture be affected by the proposed tuition increase? In the university contribution graph we show the amount individuals spend on universities, prorated by income, and for different levels of tuition. The red boxes correspond to the current level of tuition, where we see that the rate is slightly higher for the lowest income group, but then increases the higher the income (a progressive distribution). For the proposed tuition level (blue boxes) the rate is significantly higher for the lowest income group and then almost flat for the 20% to 100% income group (a flat rate situation). This illustrates the importance of providing scholarships to low income groups in order to compensate for the higher relative cost. When assuming an even higher tuition, such as the one in Ontario ($6600/year), the distribution becomes regressive (the higher the income the lower the rate). On the other extreme, if Quebec were to reduce the tuition to $1000/year, the distribution becomes progressive for all income levels.

In conclusion, a tuition increase will always burden the lowest income group the most. Hence, without providing any additional assistance to this income group even a small tuition is always unfair. For the rest, the situation is quite different. Indeed, with the current level of tuition in Quebec, the cost of a university education closely follows the Quebec income tax rate progression, since the rate on university expense progresses from 0.7% to 1% versus 16% to 24% for the income tax rate, with increasing income level. If the income tax rate can be called fair so would the current level of tuition. The situation, however, changes for the proposed tuition increase, where the rate on university expense would almost be constant at 1% and independent of income (neglecting the low income group who would be hurt most). Is this still fair? Not sure, but it’s not unfair. Hence, assuming enough scholarships for the low income group, the tuition would go from fair to not unfair in five years.