Despite rising tuition fees at most universities in Canada, students still pay less than half the cost of their own education. Canadian taxpayers, most of whom will never see the inside of a university, continue to pay the lion's share of a university education.

In the 1960s, governments dramatically increased their funding of post secondary institutions largely to promote accessibility and to maximize the "social benefits" that flow from a more educated population. Since then, there has been an implicit understanding between the state and the students. The deal is that students get most of their education paid for by the state; they then tap into a much higher earnings stream because of their advanced education, and they pay higher taxes while working. These higher taxes help pay the costs of newer cohorts of students. But this "deal" omits the majority of the population that do not attend post secondary institutions. As taxpayers, they also pay for higher education but receive none of the direct benefits. All they are left with are the purported social benefits. To be blunt, the deal is unfair and regressive. Ordinary working Canadians are being required to help fund an essentially elitist activity in return for the assurance that that activity benefits all of society.

The gains from a university education are very substantial, but flow, mainly, to the individual receiving the education. The financial benefits alone are impressive. University graduates earn far higher lifetime incomes (net of costs and debt) and have a far lower risk of unemployment than those without a university education. As an investment, a university education has one of the highest rates of return. As well, the non-financial benefits (knowledge for its own sake, critical thinking, and the improved ability to articulate ideas, for example) are highly regarded though less tangible rewards. These gains should be sufficient incentive for any bright and motivated person to pursue a university education.

The case for state funding of universities is weak and self serving. University students should be paying their own way and can do so by making a deal with themselves rather than the state. A student loan is a way of transferring money from the future (when their earnings will be high) to the present (when they need money to finance their education). This is a self-financing mechanism which need not involve subsidies from less well off people.

The undergraduate tuition fee at Canadian universities is now approximately $3,000 per year, depending on the province. Even if fees rose to $5,000 per year, at or close to the full cost of a typical arts program, this would still amount to less than half the direct cost of financing a year at an out-of-town university. It would add about $8,000 to the prevailing estimate of $48,000 (direct cost) for a four year program.

But, critics argue, average student debt loads in Canada are now in the $20,000 to $25,000 range, having tripled in the past decade. In their view, this debt burden is outrageous and unfair. They want tuition fees frozen, or reduced, and government grants to universities increased. The question that needs to be asked here is: Is it fair to compel people who do not enjoy the very substantial direct benefits—monetary and non-monetary—of a university education to nevertheless help pay the costs?

Let's look at the financial benefits of a university education. According to the latest Statistics Canada income microdata, in 1995, the average annual earnings of household heads with a university degree was $43,690, compared to $25,322 for those without a university degree. If we use the age-earnings profile of household heads from ages 18 to 65 as a proxy for the expected lifetime earnings pattern, the present value, at age 18, of the earnings of university graduates is almost $280,000 greater than that of non-graduates, using a 3 percent discount rate. This value swamps any direct and opportunity cost of acquiring a university education, as well as any debt burden. And again, these calculations omit any non-monetary benefits derived by the graduate.

The real concern about escalating tuition fee levels is accessibility. Ideally, the lack of current financial resources should not prevent any able and motivated scholar from acquiring a university education. As state funding declines, several initiatives—some of which are already in place in some manner—would ensure continued access to university by all.

First, there needs to be a good loan program for students that allows them to transfer future income to the present. Students should be able to borrow as much as they need, but be obligated to pay back the loan and accumulated interest in full over a period of time once they begin earning money. Income Contingent Repayment Loan schemes are helpful in some cases because of their flexible repayment arrangements. However, they do not give the student any free ride. Stretching payments over a longer period simply means more interest costs over the life of the loan.

Next, more parents of prospective university students need to begin savings plans for their children early. Even putting aside $50 per month starting after birth will generate a fund sufficient to cover the anticipated costs of tuition for the first three years of university. As well, more summer jobs for students would promote a greater sense of responsibility, provide some work experience, and help defray essential costs of higher education. Along these lines, businesses of all sizes and some institutions might consider sponsoring a student, agreeing to help finance the costs of their education in return for a period of employment at an agreed upon wage. Finally, universities themselves can beef up their scholarship and bursary programs to the point where all students maintaining a B+ average would receive a half-tuition grant. Some universities are already there.