Rethinking the Welfare State: The prospects for ... - e-Library

Post-secondary education 179
Qualified consumers
One of the first design issues that policy-makers would have to confront in establishing
this voucher-based model of university education is the scope of student eligibility. As
we have discussed above, under the current system of publicly funded university
education, each student who enrolls in a publicly funded university attracts a nontransparent
state subsidy which is unrelated to the student’s underlying characteristics
(e.g. socio-economic status). Again, it is this feature of the current system of public
education which renders it vulnerable to criticism on distributional grounds. One option
therefore in designing a new system is to make income-contingent loans available only to
those students demonstrating financial disadvantage. The case in favour of this approach
is clear: given the propensity of students from more advantaged backgrounds to enroll in
university and to be able to secure the funds from family sources to support their
enrollment, relatively scarce public funds should be concentrated on students from lowerincome
backgrounds who not only have less access to family resources, but who are also
less likely to enroll in university in the first place.
However, means-tested income-contingent vouchers in the post-secondary education
context suffer from several defects. In contrast to other policy contexts where meanstesting
of benefits is necessary because of the substantial costs involved in program
delivery, there is now significant experience with income-contingent loans at the
university level that demonstrates that, if properly designed, the social costs of these
programs are not signiflcant. Specifically, the relatively low costs of these programs
reflects their loan-based nature and the significant cost savings that arise from state
administration. In respect of the latter, by relying on collection through the tax system,
the administrative costs of collecting on active and also defaulted loans would be reduced
(and would probably even reduce the incidence of defaults—given that the negative
repercussions of tax evasion are high). Evidence from the United States suggests that the
administrative costs of using the tax system for collecting on loans would be relatively
insignificant. In a 1982 experiment, the Internal Revenue Service withheld income tax
refunds from tax payers who had outstanding non-tax federal debt or who had defaulted
on spousal or child support payments. The marginal costs of collecting using this process
were less than one cent per dollar. 71 By contrast, the current collection system for
Canadian Student Loans that are in default results in marginal costs per dollar recovered
of between 19 and 28 cents. Thus, the fact that the state can ensure loan repayment by
relying on the income tax system constitutes a significant cost saving. The benefits of
state administration are further enhanced by the pooling benefits of enrolling a large
student population in the program.
The costs of designing and implementing a principled means-tested income-contingent
loan program for university students are not likely to be trivial. As in other policy
contexts, the state will be required to amass reliable information on family income and
assets bearing on the question of the degree of neediness. This is complicated enough in
situations where the only financial information required relates to the program applicant
or her young children, but much more complex when dealing with university-age
students. When is a student no longer dependent on his or her family for financial
support? Does this dependence exist only for the first university degree or for subsequent