Paid in full

Who pays for university education in BC?
October 29, 1998

Who pays for BC's universities? The usual answer is the taxpayer since tuition fees amount to only one third of university teaching costs. This answer, however, is incomplete since it ignores a second way that students pay, namely, through higher taxes after they graduate. When those tax payments are taken into account, university students pay more than the full cost of their educations.

There are many reasons why people attend university, and one of them is to make more money. On the whole, they succeed. University graduates have lower unemployment rates and higher salaries than people with less education. According to the 1991 census, British Columbia women in their thirties working full time earned $34 thousand if they had a bachelor degree, $29 thousand with a college diploma, and $26 thousand with high school graduation. For men, the corresponding figures were $47 thousand, $42 thousand, and $38 thousand.

Since university graduates earn more money, they pay more taxes. The present value of the extra taxes paid by male university graduates is $62,896. Female graduates pay an extra $49,586 in taxes. Including tuition fees, men pay $74,376 on average for their degrees, while women pay $61,066.

These payments exceed the operating and capital costs of the degrees: both men and women repaid the treasury more than twice the cost of their degrees. University education is a good investment for Canadian governments.

University education is also a good investment for students. For them, the gain is the increase in their after tax incomes, while the cost includes lost earnings while studying, tuition fees, and the books and supplies required by their programs. For the average male graduate, the benefit is 2.69 times the cost, while for the average women, the payback ratio is 3.08.

Since university education is profitable for both the student and the treasury, it is generating more economic growth than it costs.

The benefits of university education extend even to the people who do not attend universities. In the last twenty years, inequality has increased dramatically in the United States. An important reason is that the earnings of university graduates have risen, while those of high school graduates have fallen. These income changes reflect the shift in labour demand toward people with advanced education in the new world economy.

In Canada, inequality has increased less than in America because post-secondary education has expanded more rapidly. The greater supply of university graduates has checked the rise in their salaries. At the same time, the number of people without post-secondary credentials has been cut back in pace with the fall in demand for their labour, so their wages have been maintained. The expansion of post-secondary education in Canada has limited the growth in inequality and preserved the incomes of the less educated.

An important reason why Canadian post-secondary education has been more responsive than the American system to changes in the economy is that Canadian colleges and universities are publicly owned. With a more privatized university system, it is up to American students and their parents to pay for university expansion, and many lack the resources to finance it.

Proposals to reform university finance by raising fees and introducing contingent repayment loans are misplaced and unnecessary. The tax system already acts like a contingent repayment plan, and students already pay for their educations. Raising fees will reduce access, retard economic growth, and increase inequality along American lines.

In the United States, many universities derive a substantial share of their income from the contributions of successful alumni. In Canada, voluntary contributions are not nearly as important. Instead, we have a system in which alumni contributions are compulsory--they are collected through the tax system. University graduates who complain about high taxes should realize that they are paying for their educations.

While the B.C. government has been wise to freeze tuition in the province's colleges and universities, the federal and provincial governments have been derelict in other respects.

The problem is that the "alumni contributions" of their graduates are not being passed back to the post-secondary system. The federal government has cut transfer payments to the provinces and is using the taxes collected from university graduates to pay down the national debt. The provincial government has been forcing the universities to accept more students without--in most recent years--giving them more money.

Robert Allen is a research associate with the Canadian Centre for Policy Alternatives BC Office and an economics professor at UBC. His findings were published in a study released by the Centre: "Paid in Full: Who Pays for University Education in BC?"