The budget-neutral path to reforming Canada’s student aid

on December 3, 2015
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In the recent federal election, students rallied around a call for change. Voter turnout among young people aged 18 to 24 was up markedly from the previous election and 70,000 postsecondary students voted in advanced polls on their campuses – it’s clear the Liberal Party’s promises to tackle youth employment and postsecondary education resonated among this traditionally disenfranchised voting group.

While the new government has committed to making significant investments in a number of areas, not all change necessitates the investment of new public money. Investments in student financial aid can be done in a fiscally prudent and budget-neutral way, thus fulfilling the commitments made.

To do so, the government should focus on reallocating public money toward more effective programs in federal financial aid, such as the Canada Student Loan and Grant programs. While these programs continue to be the most effective programs within student financial aid, they are the least funded.

The federal government currently spends $4-billion on financial assistance, making it the single-largest source of funding for public financial aid for postsecondary students in Canada. Of this amount, $2.7-billion is invested toward programs that have a limited impact on accessibility, and disproportionately favour students from higher-income backgrounds. These programs include non-refundable tax credits such as the soon-to-be-abolished education and textbook tax credits and registered education savings plans.

Few low- and middle-income families actually benefit from tax credits, RESPs and other savings programs. Often, these programs – such as the Canada Learning Bond and Canada Education Savings Grant (CESG) – add needless complexities to Canada’s tax system. Further, CESG payments end up disproportionally in high-income households. These savings programs do nothing to improve access to higher education for Canadians from disadvantaged backgrounds.

We know that public spending on education returns profit at a rate between 9 per cent and 12 per cent. And during an era when economic growth rates are ranging between 2 per cent and 3 per cent, education is not just a positive social program; it is a good investment toward Canada’s economic future.

By simply reallocating public money away from non-progressive policies toward a mix of more generous loans and grants, annual disbursements could be increased from $5.9-billion to approximately $7.4-billion, before any amount of increase to the current level of spending on postsecondary education.

The federal government can do this by shifting the funds from tax credits and RESP-Canada Education Savings Grants into the loan and grant systems, by expanding the Repayment Assistance Program, and reducing interest rates on outstanding loans. It can also encourage families to save for their children’s educations by creating a system of automatic enrolment into the Canada Learning Bond using the tax filing system, which currently reaches just one in three youths who qualify.

For students and their families, real change means a federal financial-aid system that ceases to disproportionately reward those from higher-income backgrounds. It entails a system in which debt can be mitigated through increased levels of support for those who need it most.

It is up to this newly elected government to continue to choose sensible and fiscally prudent policies that make postsecondary education more affordable and accessible.

This historic election was driven by the surging participation of students and young people – it’s time for the new government to make history again by building a more inclusive postsecondary education system.

Source: the Globe and Mail

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The budget-neutral path to reforming Canada’s student aid