Before you dismiss free universities, you should crunch the numbers

Germany recently reversed a 2005 decision to start charging tuition at its universities and is once again offering free higher education to all. In The Varsity last week, Jeffrey Schulman argued that Canada should not choose the same path. Schulman’s argument, however, is largely founded on anecdotal and often baseless claims.

By considering empirical social benefits, costs and incentive effects of free higher education, I will argue that this is actually a worthy goal to pursue even if it requires some innovative implementation.

Schulman plainly dismisses the idea of full state funding for higher education as unreasonable. This conclusion is perhaps too hastily reached without first considering the possibility that the state will get its money back in full.

Indeed, according to a study by Statistics Canada, an average Canadian male with a bachelor degree earns $732,000 more over a 20-year period than one with only a high school diploma. At the lowest income tax rate of 15 per cent, this amounts to $109,800 of additional tax revenue. Given our university’s tuition of $6040 per year, the government is getting a hefty 454 per cent return over 20 years on investing in Canada’s youth.

This is obviously an oversimplification. Students themselves make similar calculations before choosing to attend universities. If they expect some $732,000 in extra earning from attending, they will choose to attend with or without tuition. As such, the extra college students brought in by dropping tuition fees will be mostly those who don’t expect a big wage boost from attending, and the additional tax revenue won’t be as big.

However, universities are also more than just future tax generators. According to an OECD (Organization for Economic Cooperation and Development) study on the social benefits of education, university graduates live longer, happier lives, commit fewer crimes, and vote more. It’s hard to factor these in to any cost benefit analysis numerically, but in any case, contrary to what Schulman claims, higher education actually produces a lot of measurable and obvious benefits that may outweigh its funding costs even in monetary terms.

In light of these benefits, free higher education definitely seems like a worthy goal. However, a straightforward implementation is also not the best way forward. As mentioned by Schulman, funding cuts is a concern.

However, instead of relying on anecdotal evidence, one can turn to OECD’s Education at a glance 2013 report for some hard numbers.

In terms of percentage of GDP spent on tertiary education — combining both public funding and private costs — countries that offer free, or very low cost, tertiary education, such as Czech Republic (1.2 per cent), Finland (1.9 per cent), France (1.5 percent), or Germany (1.1 per cent), indeed spend a lot less compared to others such as Canada (2.7 per cent) or the US (2.8 per cent). It is however worth mentioning that the OECD average is 1.6 per cent and the European average 1.4 per cent: we may be overspending.

Worse still, free higher education gives perverse incentives to prospective students. For all of its great benefits, undergraduate study is not for everyone: 1 in 6 first year students in Canada enrolled in university drop out.

As bad as this seems, the drop out rate at free Massive Open Online Courses (MOOCs) is much higher, fluctuating between 91 and 93 per cent. Indeed, dropping tuition will be akin to allowing a free trial at undergraduate education: the number people who try it and then drop it will explode. This is detrimental to both our universities and the dropouts themselves as college dropouts earn even lower wages than plain high school graduates and such an influx of dropouts will unnecessarily overflow first-year classes.

In short, higher education is an investment that pays really well. However, simply offering it for free is not the right way to do it. Innovative and bold policies, such as forgiving student debt upon degree completion, for example, may be better answers.

Li Pan is a third-year student at Trinity College studying financial economics and math.

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