LAU: Ford government’s tuition freeze doubles down on failed policies

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Ontario’s university sector is in crisis.

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In January, Steve Orsini, president and CEO of the Council of Ontario Universities, told the Ford government it should “urgently address the financial sustainability of the university sector” as universities are now at a “breaking point.” This week, the Ford government announced its plan to help colleges and universities with their financial troubles.

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Alas, the government’s proposed solution is to double down on the failed policies that got the sector into trouble in the first place. The government announced $1.3 billion in new funding for colleges and universities over three years, plans for regulatory initiatives such as mandated health and wellness policies, and an extension for three years of its tuition freeze first imposed five years ago.

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This plan amounts to increased bureaucratic control and a more severe government distortion of supply and demand. By freezing tuition and increasing subsidies, the government increases the disconnect between the actual cost of providing education and what students pay. But prices that reflect actual costs, which are set by supply and demand, are essential to a well-functioning market. It’s no wonder Ontario’s university sector is in such a financial mess.

So what’s the solution?

If the Ford government really wants to fix the university sector’s financial crisis, it first should end the tuition freeze. As the costs of providing education rise, whether due to inflation or other reasons, they must be reflected in tuition fees and university revenues. The predictable outcome of rising costs, which are not allowed to be matched by rising prices, are financial crises and reductions in service or quality — exactly what’s happened in recent years.

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Next, the government should reduce spending on universities and colleges. As the government withdraws funding, it can reduce the operating costs of post-secondary institutions by simultaneously withdrawing regulatory and administrative burdens. But the main reason for withdrawing funding is that there’s no economic justification for the subsidies in the first place.

Undoubtedly, many students who want to attend university and for whom such education would be beneficial do not have the money to pay for it up front. But they’re in the exact same boat as thousands of entrepreneurs in Canada who have great business ideas and the ability to pull them off, but not enough money in their own bank accounts to get started.

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Whether it’s students who want to invest in university degrees or entrepreneurs who want to invest in new businesses or products, if they can show their investments to be worthwhile, they will be able to borrow or raise the necessary funds. It doesn’t make sense for the Ontario government to give handouts to businesses for factories or equipment; and it doesn’t make sense for government to subsidize students’ university degrees, either.

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Finally, economists have argued that if the public at large, and not just the students themselves, enjoy net benefits from people attending university, then the public should pay some of the cost through taxes. But it’s not clear that any such net benefits exist today — at least not any more than the public at large might benefit from an entrepreneur creating a new business. But again, if corporate welfare isn’t a good idea, then neither are university subsidies.

At bottom, a healthy sector relies on market prices set by supply and demand, with buyers (students) and sellers (universities) free to act as they please. Expanding bureaucratic control and further distorting supply and demand will only cause more problems for Ontario’s university sector — and the province’s taxpayers.

— Matthew Lau is an adjunct scholar with the Fraser Institute.

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