Bending the Cost Curve of Higher Education

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Graeme Stewart, of the Ontario Confederation of University Faculty Associations, just wrote a a piece for The Mark on the recently released Browne Report on U.K. higher education (“Beware the Brown Report”). The Browne Report looks at ways to retool the way higher education is financed. It’s chief recommendation is deregulation of university tuition to promote competition, along with a loan to all students that would be repaid contingent on income. Students would pay no tuition upfront, and repay their loan in the amount of 9% of earnings over £21 000 (about $34 000).

Mr. Stuart argues that the Browne recommendations are primarily about reducing higher education costs to the government balance sheet. I completely agree with that, but I think the constant arguments over who should pay what share of higher education are distracting us from the bigger problem: higher education keeps getting more expensive.

That doesn’t seem like a big revelation, and it isn’t. The problem is that everyone focuses on how much more expensive higher education is getting for them. Student and faculty groups focus on how much higher education costs students. As long as tuition is low, everything is fine (on a small tangent, Mr Stuart complains that the Browne recommendation is regressive, which it can be, but so is subsidized tuition, since wealth is correlated with university attendance even when tuition is low or non-existent). Government focuses on how much higher education costs its balance sheet. As long as transfers to universities and colleges are low, everything is fine, subject to stakeholder reaction.

What we’re missing is that no matter who is paying for higher education, it’s getting more expensive faster than the economy can grow. Academic Transformation (full disclosure: one of the authors is on the advisory board of the Public Policy and Governance Review) states that long-term university cost inflation–the increase in costs to provide the same “unit” of education–is estimated at between 4-5% per year (pdf link). In comparison, the average real growth rate for the Ontario economy from 1982-2009 was 2.6%. If the government covers the difference, then higher education starts to crowd out other government spending, such as primary schools and healthcare. If the student and her family cover the difference, then higher education starts to crowd out other individual spending, such as retirement and mortgage payments. Neither of these situations are particularly appealing.

The big question is how we start to bend that cost curve down, bring growth in higher education inflation more in line with the growth of the economy, and ensure a sustainable public higher education system. There’s a few things that immediately come to mind: addressing, in some way, growth in compensation is going to be necessary. Universities probably need to do a better job of using existing capital rather than continuing to build. Every school spending an increasing amount of money on recruiting students is a bit of a zero-sum game. Student services would very likely be more efficient as a one-stop ServiceOntario-style organization. IT practices could be re-examined in light of the increasing quality of free and open source software relative to expensive proprietary software.

Whatever solutions you personally favour, it’s clear that we need to address this. As the province pushes towards its 70% post-secondary attainment goal, but requires program spending growth to be limited to 1.9% after 2012-13 in order to balance the budget, higher education costs are going to become an increasingly popular topic of conversation.

– By Brent Barron

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