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«Policy Matters Ross Finnie, Alex Usher and Hans Vossensteyn Meeting the Need: A New Architecture for Canada’s Student Financial Aid System August ...»

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Policy Matters

Ross Finnie,

Alex Usher and

Hans Vossensteyn

Meeting the Need:

A New Architecture

for Canada’s Student

Financial Aid System

August 2004

Vol. 5, no. 7

Enjeux publics

Policy Matters

ISSN 1492-7004

Biographical Notes

Ross Finnie is a research fellow and adjunct professor at the School of Policy

Studies at Queen’s University and a visiting fellow at Statistics Canada; Alex

Usher is vice-president of the Educational Policy Institute; and Hans Vossensteyn is a research associate at the Center for Higher Education Policy Studies (CHEPS) of the University of Twente in the Netherlands.

2 Enjeux publics Août 2004 Vol. 5, no 7 Meeting the Need: A New Architecture for Canada’s Student Financial Aid System Summary

The Canadian student financial aid system should have a relatively simple goal:

to ensure that every qualified Canadian has the financial means to pursue postsecondary studies without suffering undue hardship. Yet, while the current system has many strengths and provides assistance to many who are in need, it is very complex and does not do the job as well as it could, despite changes introduced by the federal government in its February 2004 budget. In this paper, Ross Finnie, Alex Usher and Hans Vossensteyn make the case for reforming the system and propose a “new architecture” of student financial assistance to replace the current hotchpotch of programs with a single system that would effectively and efficiently deliver support to those who need it without squandering scarce dollars on those who don’t.

The authors review the existing system — which includes the Canada Student Loans Program and its provincial counterparts; myriad federal and provincial grant and scholarship programs (including those provided by the Canada Millennium Scholarship Foundation); education tax credits, education savings grants and registered education savings plans; and debt remission, interest relief and debt reduction in repayment — and point to its major flaws. They suggest that tax credits represent too large a share of student aid and are poorly targeted; that the “independent” students category is too easily accessed; that assistance limits are inadequate; that the expectations of parental contributions are in many cases wrong and children of nonpaying parents are penalized; and that loan remission is an inefficient way to help students. According to their analysis, the Canadian system — which stands out even at the international level in terms of its complexity and the untargeted nature of much of the support — does not get enough money to many who need it, while providing support to many who do not.

The authors survey the different ways in which governments around the world provide financial assistance to students, pointing out that the various approaches result in substantial differences in how groups of students are assisted. The precise combination of programs depends on many factors, including a country’s conception of who should be primarily responsible for the costs of an individual’s schooling — the student, parents, government or a combination of these. They show that the Canadian system for the most part falls in the “studentcentred model” but also has certain aspects of the “parent-centred model” and has lately been moving increasingly in this direction with increased spending on tax credits and savings grants from which parents benefit.

The architecture the authors propose is in many ways similar to the loan and grant programs currently in place, thus avoiding the need to build a new sysPolicy Matters August 2004 Vol. 5, no. 7 Ross Finnie, Alex Usher and Hans Vossensteyn tem from the ground up and the disruptions that this would entail. But their proposed system does include a number of key changes in the current structure, as well as some important differences in its detailed workings. First — as now — a student’s schooling-related costs, including tuition fees, equipment, supplies and living expenses, would be calculated using easily understood and standardized formulas. Second, the student’s contribution would be determined using simple but fair formulas based principally on employment earnings and support from parents (or spouses). The assistance package would then completely bridge the gap between the student’s costs and available resources. This contrasts with the current system, where student loan and grant programs have arbitrary caps that frequently fall short of students’ needs — even when those needs are calculated by the loans and grant system itself.

The authors propose that the first $5,000 in assistance be provided annually as a loan and the rest given as a grant. Loans would thus be capped at reasonable levels, and grants — a much more expensive form of aid — would be concentrated on those with higher overall costs and/or lower family income.

They also propose a supplementary loan system to help students whose parents did not make the expected contributions or students who cannot meet their own share of expenses.

Under this system additional assistance would be offered to those who faced unreasonable debt burdens in the post-schooling period based on their debt-to-income ratio (assistance that currently exists but that needs to be expanded and improved). Alternatively, the authors suggest that an “income contingent repayment” system could be adopted, whereby payments are automatically adjusted to the individual’s ability to pay on an annual basis.

Finally, they argue that their proposed system can be paid for by reducing or eliminating existing programs. They point to the current education-related tax credits (37 percent of all student aid spending), and various education savings programs that go to rich and poor alike, with a bias towards the better off.

Further savings would come from eliminating existing debt-remission programs.

Finally, they would tighten the eligibility rules for independent students, removing those from high-income families who manage to work the existing system to their advantage in this way.

4 Enjeux publics Août 2004 Vol. 5, no 7 Meeting the Need: A New Architecture for Canada’s Student Financial Aid System Résumé Le système canadien d’aide financière aux étudiants devrait faire en sorte que tout Canadien possédant les aptitudes requises dispose des ressources nécessaires pour pouvoir poursuivre des études post-secondaires sans que cela n’entraîne des difficultés indues. Or, bien que le système actuel présente de nombreux avantages et vienne en aide à de nombreux étudiants, il est néanmoins très complexe et n’accomplit pas son objectif aussi bien qu’il le pourrait et ce, en dépit des changements annoncés par le gouvernement fédéral en février 2004. Dans cette étude, Ross Finnie, Alex Usher et Hans Vossensteyn recommandent une réforme du système et proposent une nouvelle « architecture » de l’aide financière aux étudiants. En lieu et place de la pléthore de programmes présentement offerts aux étudiants, ils proposent un programme unique qui accorderait l’aide à ceux qui en ont besoin sans gaspiller les fonds publics sur ceux qui n’en ont pas besoin.

Dans la première partie, les auteurs présentent le système actuel, qui comprend le Programme canadien de prêts aux étudiants et des programmes similaires établis dans les provinces, ainsi que de nombreux programmes de subventions et de bourses d’études (dont ceux qui sont administrées par la Fondation canadienne des bourses d’études du millénaire), de crédits d’impôt pour études, de subventions à l’épargneétude, de régimes enregistrés d’épargne-étude, de remises de dettes, d’exemptions d’intérêts et de réductions de dettes en cours de remboursement. Ils en soulignent les principales défaillances, relevant notamment les aspects suivants : les crédits d’impôt pour études représentent une part excessive de l’aide aux étudiants et sont mal ciblés; il est trop facile d’être admis dans la catégorie des étudiants « indépendants » ; les plafonds de l’aide sont inadéquats; les attentes relatives à la contribution financière des parents sont souvent erronées et les enfants de parents qui ne contribuent pas sont pénalisés;

et enfin, la remise de dettes n’est pas un moyen efficace de venir en aide aux étudiants.

Selon les auteurs, le système canadien — qui, même à l’échelle internationale, se distingue par sa complexité et son absence de ciblage d’une bonne partie de l’aide accordée — ne fournit pas assez d’argent aux étudiants qui en ont besoin tandis qu’il en subventionne d’autres qui pourraient se passer de cette aide.

Dans la deuxième partie, les auteurs passent en revue les différents régimes mis en place à l’étranger et constatent que l’aide que reçoivent différentes catégories d’étudiants varie sensiblement suivant le régime adopté. Le dosage des programmes dans chaque pays dépend de plusieurs facteurs, et notamment des choix de chacun pour ce qui est de déterminer à qui incombe au premier chef la responsabilité de défrayer le coût des études : l’étudiant, les parents ou l’État, ou encore une combinaison des trois. Ils montrent que le régime canadien est présentement principalement centré sur l’étudiant mais qu’il comprend aussi certains traits du modèle « parental », une caractéristique qui Policy Matters August 2004 Vol. 5, no. 7 Ross Finnie, Alex Usher and Hans Vossensteyn s’est accentuée depuis quelques années, avec l’augmentation des dépenses liées aux crédits d’impôt et aux subventions à l’épargne.

Les auteurs procèdent ensuite à un exposé détaillé de la nouvelle architecture suggérée. Celle-ci ressemblerait en plusieurs points au système déjà en place, mais comporterait plusieurs changements-clé ainsi que de nouvelles façons de procéder.

Le coût des études — frais de scolarité et autres, équipement et fournitures, frais de subsistance — serait calculé au moyen de formules standardisées et faciles à comprendre, comme cela se fait à l’heure actuelle. Ensuite, des formules tout aussi simples et équitables seraient mises au point pour déterminer quelle devrait être la contribution de l’étudiant, en fonction principalement de ses gains d’emploi et de l’aide reçue des parents ou du conjoint. L ’écart entre le coût des études et les ressources disponibles serait alors entièrement comblé par l’aide financière. À ce chapitre, le système suggéré se distingue du régime actuel dans lequel les prêts et bourses sont assujettis à des plafonds arbitraires qui s’avèrent souvent inférieurs aux besoins des étudiants, même lorsque ces besoins sont calculés par le programme lui-même.

Les auteurs suggèrent qu’une tranche initiale de 5 000 dollars par année soit accordée sous forme de prêt et le reste sous forme de bourse. Cela aiderait à maintenir l’endettement à des niveaux raisonnables, et les bourses, une forme d’aide beaucoup plus coûteuse, seraient données aux étudiants aux prises avec des frais plus élevés ou qui sont issus de familles moins aisées. En outre, ils recommandent de mettre en place un mécanisme supplémentaire pour venir en aide aux étudiants dont les parents n’auraient pas fait la contribution attendue ou qui seraient incapables d’assumer leur propre part des frais.

Enfin, une aide supplémentaire serait offerte à ceux qui font face à un fardeau d’endettement excessif après avoir terminé leur scolarité, aide qui serait établie en fonction de leur rapport dette/revenu, une forme d’aide qui existe déjà mais qui gagnerait à être améliorée et bonifiée. Comme solution alternative, on pourrait mettre en place un mécanisme de remboursement lié au revenu, suivant lequel les versements seraient fonction de la capacité de remboursement de l’individu.

On pourrait financer un tel système, disent les auteurs, en réduisant ou éliminant certains programmes actuels. Ils citent en tout premier lieu le programme de crédits d’impôt pour études (qui représente 37 p. 100 des dépenses totales en aide aux étudiants) et divers programmes d’épargne-étude qui s’adressent aussi bien aux étudiants fortunés — et ont même plutôt tendance à les favoriser — qu’à ceux qui sont sans ressources. On pourrait également réaliser des économies supplémentaires en éliminant les programmes de remise de dettes. Enfin, les auteurs proposent que soient renforcées les règles qui régissent l’admission à la catégorie d’étudiant « indépendant » de façon à en soustraire ceux qui sont issus de familles à revenu élevé et qui réussissent à tirer avantage du système par ce moyen.

6 Enjeux publics Août 2004 Vol. 5, no 7 Meeting the Need: A New Architecture for Canada’s Student Financial Aid System

–  –  –

Introduction: The Case for Reform of the Student Financial Aid System Canada’s student financial aid system should have a relatively simple primary function: to ensure that every qualified individual has the financial means to pursue post-secondary studies without suffering undue hardship. In other words, cost should not be a barrier to going to college or university.

Beyond this broad objective, more specific aspects of the definition of

access arise. We choose to view the concept as including the following aspects:

individuals are able to enrol in their programs of choice (provided, of course, that they qualify); they have the opportunity to attend the institutions they prefer, even — importantly — if that means moving to another town (again assuming they meet the relevant entry standards); they need not work at outside jobs during the school year to the degree that it adversely affects their studies; and paying for the schooling does not put unreasonable demands on family resources or lead to the accumulation of excessive debt burdens in the post-schooling period.

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