The cost of an education

What is the market value of a University of Calgary education? It’s not the full cost of providing it; in the hope that educating people is a good investment, post-secondary education is subsidized. Forty-eight per cent of the U of C’s 2009 revenue came from the Alberta government, 11 per cent from the federal government and 15 per cent from tuition, according to the university’s financial report.

The Alberta government takes a different approach to measuring market value.

“The instruction we were provided with was to compare ourselves with comparable universities that we compete with for students,” Alan Harrison, U of C provost and vice-president academic said at the January 27 tuition consultation meeting. Harrison described the selection criterion the university used.

“When we look at the applications we receive . . . we also know which universities students which apply to Calgary apply to at the same time, and those are the schools we compete with for students.”

The approach has flaws. Firstly, some institutions get more applications than others. McGill gets way more than Lethbridge. So if U of C applicants made up, say, exactly one per cent of the total applications to each university in the country, you’d conclude that the universities with the highest number of applications were your primary competition.

Acceptance rates vary, too. If all U of C applicants also applied to the University of Waterloo, and all were turned down, Waterloo would still look like a major competitor. Good universities tend to be big and have low acceptance rates. So, using this method, the university will tend to overestimate its upmarketness.

A third-year engineering student, Aaron Hicks, noted the effect of this sampling bias when he spoke to the provost at the tuition consultation meeting.

“You said that the tuition increases would put us in line with other universities across Canada, but yet when I collected a list of [engineering] tuition off of university websites — I collected 17 universities, most of the major and medium-sized ones — the University of Calgary’s proposed tuition increase puts us a lot higher than most other universities.”

In reply, the provost listed six universities, the five most expensive in the country and the eighth most expensive. Hicks disputed the completeness of the list: “Okay, so what about all the other universities that are lower? Why aren’t those used?”

“Because those aren’t the universities that we compete with for our students. It’s very simple,” replied Harrison.

There is a second category of upward bias. For many degree programs, there are lots of universities charging mid-range tuition, a few charging a bit less and a few charging a lot more. A few really expensive places have a huge effect on the arithmetic average, so most universities will charge less than the mean. Taking a mean, or cherry-picking the most expensive universities, will give you a strong overestimate of usual tuition levels.

These two categories, sample bias and skew, correspond to the first two chapters of Darrell Huff’s classic book, How to Lie with Statistics. If all institutions used the U of C’s algorithm to set their tuition levels, tuition would rise across the country until everyone was charging the maximum rate.

Another method the university has used to determine market value is the expected earnings of graduates. The idea is that students should pay more for degrees that will let them earn more.

A first-year law student, Amanda Winters, objected to this, saying that law students who want to work on social issues, like human rights, earn much less.

“[There are] students who want to serve their community, but may not be able to as a result of the increase,” she said at the meeting.

Here too, the provost doesn’t think that the shape of the distribution is important.

“What we don’t do is look at what the minimum is earned by any student graduating in law, any more than we look at what’s the most earned by any student graduating in law. We look at averages.”

A student repays the public investment in their education partially through taxes and partly through the work they contribute. It’s hard to estimate the value of a human-rights lawyer. But if a Haskayne MBA increases a student’s annual income from $56,697 to $91,000 (2008 figures, from the university’s proposal), then Alberta’s 10 per cent flat tax means that a Haskayne grad returns about 12 per cent of their MBA tuition, in additional taxes, in the first year after graduation (seven per cent of their total post-secondary tuition). This percentage will presumably increase yearly, as the fresh grad gains experience and seniority. Even without raises, if the grad works until they’re 65, the Alberta government will get, in taxes, three times as much as they got in tuition fees (adjusted for inflation, too). The cost of delivering these degrees is kept secret, but it’s probably less than 400 per cent of tuition. You’d think the government would be after the university to churn out as many grads as the market would bear.

Indirect economic contributions are harder to quantify. A doctor’s taxable income is less impressive than an MBA’s, but Alberta’s doctor shortage likely means increased workforce absenteeism. A civil engineer builds infrastructure worth many times their taxes; ask the oil patch to put a value on its engineers. A good teacher is also worth a lot to Alberta, even if teachers don’t earn much. The value of a non-professional degree is even harder to quantify, but the government could attempt a published cost-benefit analysis.

Finally, the university ties market value to the full cost of providing the degree. Students whose degrees need expensive instructors or equipment, it is argued, should pay more. Differential tuition has increased sharply in past decades, as this idea has gained popularity.

The cost of providing degrees is not entirely under the university’s control. The document the university sent to the government spoke of “increased competition for the highest quality faculty, [and] the associated growth in faculty salaries” in the Haskayne School of Business. Discussing the medical faculty, the proposal said that “the cost[s] of operating a high-quality program are significant, and rising fast.” Differential tuition helps to cushion such changes. The Alberta government’s education funding is not tied to cost of provision (nor to inflation, nor to enrollment), so universities can get badly squeezed. The funding system also penalizes the creation of new student spaces, so such increases often have to be legislated.

It’s not really a level playing field, either. Some provinces fund their universities more than others; Alberta universities get double what Ontario universities get, in provincial funds per student (full-time-equivalent). Quebec schools get only 53 per cent of the provincial funding that Alberta does, but it regulates tuition; this year, tuition in any subject cost $1,968 per year. Quebec’s out-of-province fees (at 2.75 times the domestic rate) were comparable to fees in other provinces.

There are different ways to charge for a degree. Some universities run a straight fee-for-enrollment model, where all courses are open to all members of the university, but Canadian institutions mostly use a fee-per-course model. The university wanted to substantially increase annual fees. This may be partially regulation-dodging, but it would have affected part-time students. The university also proposed charging higher fees for courses offered by some faculties.

There are different ways to finance a degree. Most Canadian tuition is too high to allow a student to put themselves through university with a minimum-wage (or moderately well-paying) summer job. More-subsidized fees, bursaries and scholarships provide up-front help, while lower taxes, tax credits and loans help families with solid incomes. In Canada, the poorest and the richest students are generally better-funded, and the middle incomes are the first to feel the squeeze.

So how should students pay for their degree? What is the ideal type and level of tuition? Unfortunately, judging by the attention paid to the post-secondary funding flatline in the last budget, and the lack of public debate over tuition hikes planned for next year, few Albertans care.

Leave a comment

Your email address will not be published.