Let The Market Determine Tuition Fees

06/12/2017 03:08 EDT | Updated 06/12/2017 03:08 EDT
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Big piggybank with a graduation cap is standing next to an education chart showing a rising trend in Education costs

A few days ago, we learned some of the details of the Quebec government's plan to invigorate higher education in the province. The plan sprinkles roughly $90 million on different universities in Quebec for them to expand both their teaching and research programs. This plan is meant to address years of so-called underinvestment in Quebec universities.

However, investing more dollars in the current system is like filling your leaky gas tank. It may alleviate the problem for some time, but it does not solve the core underlying issue.

For Quebec's universities, that core problem is the current system of tuition fees. For many years now, the province has kept tuition fixed, with a few occasional bumps along the way meant to partially catch up with the cost of education. This cap on fees was accompanied by a policy of charging all students the same price regardless of the program of study, so that law students and French literature students pay similar fees.

Yet, the population of students has increased since then, and so has the cost of educating them. This means there was a financial shortfall that had to be addressed through government subsidies. This had two effects. The first was to hinder their capacity to properly finance teaching and research activities, while also constraining them because of the conditions attached to government funding. The second was to saddle all taxpayers with very expensive university studies through a greater tax burden than would have otherwise been the case.

Going forward, as education and specialized skills become increasingly valuable, the current funding model and tuition policies will become increasingly problematic. This is why Quebec should move away from the current system of capped tuition and allow universities to charge the fees they want.

In practice, this means that McGill University, for example, could charge its students different prices for different programs. Political science studies might cost less than Law. And Law at McGill might cost more than Law at Université de Montréal. Communications studies at UQAM might be more expensive than comparable programs elsewhere, since it is considered a top program.

Allowing universities to set their own rates will also send information into the marketplace. Prices are a source of information. They give a sense of the value and the reputation of specific products or services. They also provide information on the value of the brand. With such a system, universities in Quebec would do an even better job at creating an environment worth the investment in time and money.

Since education is an investment in higher future earnings, an inflow of funds from higher tuition fees will allow universities to improve the quality of their services and, consequently, increase the returns from education.

The liberalization of tuition fees in Quebec would also inject a healthy dose of competition. Free to set their own prices, universities would be able to customize their programs and practices in order to attract particular clienteles. With this flexibility, universities would also be incentivized to offer education that is better adapted to students' and employers' needs, to concentrate on the specialties in which they excel, and to innovate in their practices. A university that did not maintain its competitive position would be at risk of losing students, which would lead to a loss of revenues.

Such a reform would represent a sound policy course. Higher education in Quebec would improve, and incentives to compete would generate positive outcomes for the entire system. Some provinces are contemplating the possibility of following the course that Quebec has charted by capping their own tuition fees. It ought to be pointed out that if Quebec is distinct, on higher education, this distinction hurts both the system itself and the students.

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