Sub 2002 Finance

C a n a d i a n F e d e r a t i o n o f S t u d e n t s14

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C a n a d i a n F e d e r a t i o n o f S t u d e n t s

2002 submission to

THE HOUSE OF COMMONSSTANDING COMMITTEE ON FINANCE

2 0 0 2 S u b m i s s i o n t o t h e S t a n d i n g C o m m i t t e e o n F i n a n c e 1

Introduction

The growth of the Canadian economy over thepast year has created unique challenges andopportunities. The Canadian economycontinues to outperform the US economy andmost European economies. Canada’s GrossDomestic Product (GDP) continues to climband job growth remains strong. Despite thesepromising developments, Canada is alsogrowing in another less desirable area, whatJudith Maxwell referred to as a social deficit.This contention is backed by an array oftroubling data. Take, for example, that in 2001,the Canadian Centre for Policy Alternatives(CCPA) reported that between 1989 and 1998the average after tax income of the poorest 20%Canadians dropped by 5.2%, while thewealthiest 20% saw their incomes rise by 6.6%.The same study found also that in 1998 thewealthiest 20% earned 45.2% of all marketincome, against only 3.1% for the bottom 20%.These numbers confirm an earlier study by theCanadian Centre for Social Development’s(CCSD). According to the CCSD’s CanadianFact Book on Poverty there are 1.3 millionmore poor households in Canada than therewere 20 years ago. Between 1981 and 1997, therate of poverty among young families morethan doubled from 21.7 per cent and 46.1 percent.

In examining the growing gulf between theprosperous and the desperate in Canada, it isclear that one of the key dividing lines is accessto education. Throughout Canadian history, noother institution has been more successful inexpanding new opportunities to Canadians. Asthe Canadian workforce adjusts to the realitiesof the new economy this point becomes evenmore compelling. Human ResourcesDevelopment Canada (HRDC) reports that by2003 close to 75% of all new jobs will requirethree years of post-secondary education.

Despite these difficult challenges Canadiancolleges and universities have seen a dramaticdrop in public funding. As a portion of GDP,spending on post-secondary is education downby over 50% since the 1980s. Public spendingon higher education was cut drastically from1991/92 to 1997/98, and despite somerestoration of funding since 1998, real percapita funding remains at least 17% lower than

it was a decade ago. The Canadian Associationof University Teachers estimates that animmediate investment of $2 billion would berequired just to restore college and universityoperating funds to the level that they were atthe beginning of the 1990s.

In the following brief we will document thepolicy effects of these cuts. In addition, we willoffer a critical analysis of the largely patchworkpolicy initiatives for post-secondary educationthat the federal government has taken in recentbudgets. Though the past three budgets haveannounced a variety of new policy initiatives,we will argue in this brief that these measureshave, for the most part, been cosmetic. Inaddition, we will offer a critique of the federalgovernment’s recent policy of using the taxsystem as funding vehicle for post-secondaryeducation.

The brief will be divided in four sections. Thefirst section will respond to the federalgovernment’s recent policy paper on innovationentitled Achieving Excellence. The secondsection will offer a detailed assessment ofKnowledge Matters. The third section will offerseveral recommendations on the CanadaStudent Loan Program. The final section will bea critical assessment of the recent move towardtax measure as a policy solution to thechallenge of ensuring the accessibility andaffordability of Canadian colleges anduniversities.

Section I – Innovation for Whom?Canada’s Innovation Strategy

On March 14, 2000, a letter with the signaturesof 1,400 of Canada’s most prominent scientistsand academics was presented to Prime MinisterJean Chrétien. The letter rejected theconclusions of the report of the Expert Panel onthe Commercialisation of University Research.The signatories consisted of eminentresearchers in every academic discipline. Thesweeping nature of the report’s commerciallyoriented recommendations elicited thisunprecedented response. Among othersuggestions, the Panel concluded that “thecommercialisation of research” be added as afourth mandate to the mission statement ofuniversities.

Unfortunately, much of the tone and substance


of the Expert Panel’s report is repeated inAchieving Excellence, thus making theStrategy is a thinly veiled reassertion of thepreviously rejected political objectives. Forexample, Achieving Excellence calls on thefederal government to: “Support academicinstitutions in identifying intellectual propertywith commercial potential and forgingpartnerships with the private sector tocommercialise research results,” (page 52).Such a statement could have been lifted directlyfrom the Expert Panel’s executive summary.However, Achieving Excellence couplesalarming passages like this one with manylaudable targets, such as the doubling ofMasters and PhD fellowships. Despite clearallegiances with the vision of the Expert Panel’sreport, Achieving Excellence is a morebalanced document and presents severalpromising policy ideals. This brief willhighlight the inadequacies of the papers, as wellas provide productive suggestions for theimplementation of an Innovation Strategywhere “innovation” is in the public interest.

At its core, the motivation for commercialisingof university research is to blur the vitaldistinctions between “public” and “private.”Universities and colleges in Canada haveevolved to function, albeit imperfectly, aspublic institutions. That is, they are funded bythe public’s collective resources via aprogressive system of taxation. By definition,then, such institutions should serve the publicinterest. This public interest can be definedthrough three broad functions: education,community service, and research. In particular,university research serves to pursue andpublicly disseminate knowledge. Industry,government, and other researchers may takethis knowledge and build upon it for their ownends, but what characterises the university’ssocial product (or simply good science) is theobjectivity of the process.

The public mandate stands in stark contrast toprivate sector interests. By definition,corporations are ultimately accountable toshareholders. The short-term solvency of thebusiness drives a preoccupation with short-termgains. This motive extends to the expectationsof partnerships in university research. Whenprivate interests/business ethics are applied toscience in the institutional setting, academicfreedom is in peril in three specific ways:

a. Research Agenda

“The biotech revolution itself would not havehappened had the whole thing been left up toindustry,” –Paul Berg, Nobel Prize winning biochemist, apioneer in the field of DNA splicing

Traditionally, university and college researchhas enjoyed the freedom to investigate thatwhich no market-driven laboratory would havean interest. Basic/exploratory research, researchon health issues in developing nations, andresearch on poverty are all examples of projectsthat serve the public interest, but have verylittle immediate commercial value. Yet with theproliferation of public-private partnerships inresearch, the research agenda is increasinglydetermined by the short-sighted market criteriafavoured by industry. For the less commerciallyoriented fields, this means less funding and aslow decline. For the potentially lucrativefields, corporate funding means corporateinterests steer the aims and goals of theprojects. What gets studied, what questions areasked (or not asked), and who sees the resultsare not determined by disinterested inquiry forthe public interest, but rather what could yieldmaximum return for private investors.

Federal government research policy haspromoted this model of university research inrecent years. Worse, Industry Canada hasappropriated the term “innovation” to narrowlydescribe research initiatives that accomplishcommercialisation. Nowhere has this deliberateshift from the public interest to the privatesector’s interest been more obvious than in theasymmetrical investments in the federalgranting councils. The Canada Foundation forInnovation (CFI) has received $1.9 billiondollars since 1998 to fund research projects thatrequire a private sector partner. Compare this tothe $37 million of new funding for the SocialScience and Humanities Research Council(SSHRC) in the same time period. The trend isclear: private industry research is at theforefront of public spending on research. At atime when per capita spending on post-secondary education is at its lowest in Canadianhistory, private industry research has seen aboom in public funding.


b. Publication Interference

When university research funding policymerges with commercial interests (“innovation”as defined by the federal government), thescientific principles of dissemination andsharing of knowledge can, and have been,threatened. In fact, the entire notion ofproprietary information, “trade secrets”achieved through the commercialisation ofresearch, runs contrary to the advancement ofthe common body of knowledge thatunderwrites science. This tension betweenprivate gain and the public sharing of researchresults has led to a series of disturbing cases inwhich public dissemination has been sacrificedfor proprietary concerns. These sacrifices rangefrom delays in publishing to the activesuppression of taxpayer funded research results.

The delay in the publication of results that isrequired by many industry partners posesseveral problems. In some cases, graduatestudents cannot reveal the research for theirMasters or PhD theses until their corporatesponsor has successfully filed a patent. In caseswhere researchers are trying to develop medicaltreatments for illness, a publication ban oftwelve months can prevent treatments frombecoming widely available to the people whoneed them. A 1994 survey of life scienceuniversity research found that 58% of industrysponsors required a publication delay of at leastsix months.

As university-industry ties become moreintimate and the boundary between publicresearch and private research blurs, the futuresecurity of private sector sponsors becomemore dependant on the results of “their”university research. In cases where the resultsare not as encouraging as expected, or evendetrimental to the corporate sponsor’seconomic interests, many researchersexperience subtle or even direct pressure tosuppress their findings.

In the last two years, there have been a numberof high-profile in which principled universityresearchers have had to resist intimidation andlegal threats to publish the results of theirresearch. The cases of Drs. Olivieri, Kern,Dong, and Healy serve as disturbing remindersof the perils of industry sponsored research. Ofcourse, these examples are only the cases where

researchers were successful in gaining somedegree of support or attention.

• Nancy Olivieri, M.D., a researcher at theUniversity of Toronto and the Hospital forSick Children, was contracted by Apotex,Canada’s largest drug manufacturer and oneof the University of Toronto’s most importantdonors, to test a new drug for the blooddisorder thalassemia. During the course ofher research Olivieri discovered severaldisturbing side effects of the drug andrecommended that the trails be discontinued,or at least suspended, until the risk to herpatients could be assessed. When Olivierisought to publish her results and alert herpatients, she was threatened with legal actionand a smear campaign was organized againsther.

What is most disturbing and surprising aboutDr. Olivieri’s case is not the behaviour of thedrug company but the behaviour of theuniversity. Instead of supporting Olivieri inthis important case of public safety versuscorporate profit the university attempted tofire Olivieri and did everything it could tomollify Apotex for fear of losing fundingfrom this important donor. University ofToronto President Robert Pritchard went sofar as to write a letter to the federalgovernment in support of Apotex’s call forchanges to patent legislation. Throughout theentire controversy, the University of Torontowas involved in sensitive negotiations toestablish a $25 million partnership withApotex under the auspices of the CFI.

• David Kern, M.D., an associate professor ofmedicine at Brown University (U.S.), had hisfull-time research position eliminated at oneof the medical school’s affiliated hospitals inPawtucket, Rhode Island. The eliminationfollowed protests from a local textileproducer/university donor Microfibres Inc.The company claimed that if Kern publishedfindings describing the lung disease thatMicrofibres’ employees were contracting, hewould be revealing “trade secrets”.

• At the University of California-SanFrancisco, Dr. Betty Dong was threatenedwith litigation if she published findings thatconcluded that her corporate sponsor KnollPharmaceuticals’ drug was no more effective


than the generic alternative.

• Dr. David Healy is an internationallyrenowned psychiatric researcher. He wasoffered a position that he accepted with theUniversity of Toronto. Shortly after hisappointment, Healy presented at a conferencewhere he described a disturbing lack ofresearch to investigate the potentialrelationship between Prozac and suiciderates. He made his remarks in the context of apaper that raised serious concerns about theability of large pharmaceutical companies todrive the national research agenda. TheUniversity of Toronto immediately withdrewits offer of employment to Healy. Eli Lilly,the company that manufactures Prozac, is alarge donor to the University of Toronto.

c. Manipulation of Results

The most extreme form of undue influencerelated to corporate partnerships is the alteringof research data for commercial gain. It isimportant to stress that manipulation of datadoes not need to necessarily stem from aconscious misrepresentation of research results.Certain methodologies can be designed to elicitcertain results. In a study conducted by MildredCho at Standford’s Centre for BiomedicalEthics, 79 percent of non-affiliated researchprojects reported favourably on the drugs theywere researching, compared to 98 percent ofresearchers who were industry-sponsored. Thepush to commercialise can also create pressuresinternal to the university that manufactures avested interest in the success of commercialspin-offs. In 1999, Sheldon Krimsky of TuftsUniversity found that out of 800 scientificpapers he analysed, one third of the authors hada significant financial interest in the outcome oftheir research.

In most cases, the relationship betweenresearcher and industry sponsor is based onunequal relations of power. Future fundingfrom sponsors may be contingent upon short-term commercialisable outcomes. ThanosMergoupis at the London School of Economicslost his job and a £250,000 contract when theWorld Travel and Tourism Council saw theinterim report on the research they werefunding. Although this case does not represent acase of data manipulation, clearly there isintense pressure on researchers to give the most

generous interpretation possible. Their careersmay depend on it.

Many cases of manipulation are more direct.Many industry partners attempt to exerciseeditorial control over the manuscript beforepublication. In 1996 Sandoz Corp. removedpassages from a draft article that it wassponsoring, prompting the four researchersinvolved to quit and write a letter to the Journalof the American Medical Association outliningthe threat to academic freedom such meddlingposes.1 Other researchers capitulate to thepressure and delete vital information. A studyfound that 35% of researchers in engineeringresearch centres would let industry partnersdelete passages before publishing the results.2

Achieving Excellence outlines a need to“double the number of Master’s and Doctoralfellowships and scholarships awarded by thefederal granting councils,” (page 60). TheCanadian Federation of Students is in fullsupport of increased support for graduatestudent research, if this funding is administeredthrough the three granting councils. Adequatelyfunded graduate students will be essential todeveloping high quality teaching researchers tofill vacancies created by faculty retirement overthe next decade.

However, federal government policy ongraduate student funding has created massivegaps in available support. Years of under-funding the Social Science and HumanitiesResearch Council (SSHRC) led to thecancellation of the funding for Mastersstudents. Masters students make up more than62 percent of the graduate student population inCanada, yet they receive zero percent ofSSHRC’s resources directly.

A hidden cost associated with this absence offederal government support is the cost tofaculty. Already thin resources of arts and socialscience faculty are stretched even thinner by theadditional stress of funding students. Since noMasters students receive federal support fortheir research and slightly more than a third ofPhD students secure grants, many graduatestudents rely on small portions of a facultymember’s research grant as their only income.SSHRC’s grants to faculty only fund about 25%of the eligible community, and are more oftenshared between researchers.3 The additional


strain of a large pool of unfunded graduatestudents makes the federal government’shumanities funding increasingly scarce.

Federal funding cuts to transfer payments in the1990s have limited universities’ ability toprovide proper institutional support forresearchers. The recent infusion ofinfrastructure funding through the so-called“indirect costs” of research only begins toaddress the problems associated with shrinkingoperating budgets. New federal governmentsupport in the form of research grants does verylittle to maintain and improve libraries andlaboratories. Research funding must be coupledwith a commitment to additional core fundingto ensure that world-class research is notundone by fourth-rate facilities.

The Canadian Federation of Studentsrecommends doubling the number of graduateresearch grants awarded through the federalgranting councils. The new grants must bedistributed in a manner that reflects theasymmetrical situation of graduate students inthe arts and human sciences.

Achieving Excellence’s stated goals foruniversity participation in Canada’s InnovationStrategy do not simply overlook the publicinterest; they contain the potential to undermineit. This brief contains descriptions of manycases where good science in the public interesthas placed a distant second to the drive forprofit. When this trade-off occurs at abusiness’s own research facility, it is disturbing.When it happens at a publicly funded universityor college, it is indefensible. Public researchshould never be placed in circumstances whereprivate gain override established scientifictenets. Yet this is precisely the risk that theunbridled pressure to commercialise universityresearch runs. When public research is put atrisk, so too is the public interest, andinstitutions are no longer accountable to theCanadian public.

What about those scientists who have not comeforward? In dealings with Drs. Olivieri andHealy, Canada’s largest university sent a clearmessage to whistleblowers: your institution willnot support you. Or perhaps more thematically:“the customer is always right.”

Recommendation 1:The Canadian Federation of Studentsrecommends doubling the number ofgraduate research grants awarded through thefederal granting councils. The new grantsmust be distributed in a manner that reflectsthe asymmetrical situation of graduatestudents in the arts and human sciences.

Recommendation 2:The Canadian Federation of Studentsrecommends that the Canada Foundation forInnovation drop the requirement forresearchers to seek out matching funds.

Recommendation 3:The Canadian Federation of Studentsrecommends that the Social Sciences andHumanities Research Council budget beincreased by $365 million by 2007-2008,with an immediate infusion of $97 million forthe 2003-2004 year

Section II - Access Matters:Canada’s Skills Agenda

In 2002 the government released KnowledgeMatters the fulfillment of a commitment madein the 2001 throne speech to develop acomprehensive national skills strategy. To thatend, the paper lays out the framework forfederal government initiatives in skills andtraining. In what follows we will offer anassessment of the strategy and offer concreterecommendations to the committee to considerin the context of the skills agenda.

The gap between low and high incomeCanadians is widening and those Canadiansmost in need of skills and training are beingdenied access. Since 1990, tuition fees haveincreased by over 126% and most provincialgovernments have cut or eliminated grants andre-training programs. Between 1993 and 1998,18-21 year olds from the wealthiest 25% ofCanadian families were more than twice aslikely to attend university as 18-21 year oldsfrom families in the lowest income quartile.From 1990 to 1998 student debt increased froman average of $8000 to $25,000. If the federalgovernment is committed to more than just therhetoric of a skills agenda, the soaring cost ofpost-secondary education must be addressed.


In order to create a truly comprehensive,national system of highly accessible and qualitypost-secondary education the federalgovernment must set the national standards.These standards should be modeled on theCanada Health Act and be designed to ensurethat all Canadians have equal accessible qualitypublic education. To that end, the CanadianFederation of Students calls on the federalgovernment to enact a Post-SecondaryEducation Act.

Recommendation 4:The Canadian Federation of Studentsrecommends that the federal governmentenshrine a post-secondary education act thatmirrors the principles of the Canada HealthAct. Such an act would be designed to ensurethat all Canadians have access to high quality,affordable post-secondary education.

Recommendation 5:The Canadian Federation of Studentsrecommends that the federal governmentrestore the cuts made to the Canada Healthand Social Transfer (CHST) during the1990’s.

Scrap the Millennium ScholarshipFoundation and the CanadaEducation Savings Grant for RESPProgram

The evidence is now overwhelming that hightuition fees and high student debt is choking offaccess for low income Canadians. Regrettablyrecent federal government policy initiativeshave done little to address this problem. In factseveral programs are actually exacerbating theproblem of student debt and decliningparticipation rates of low and middle-incomestudents. Consider, for example, the RegisteredEducation Savings Program (RESP) and theMillennium Scholarship Foundation. In thecase of the RESP, new data conclusivelydemonstrates that the program is not promotingopportunity among those Canadians most atrisk of being denied access to post-secondaryeducation. In an April 2001 study, entitledSurvey of Approaches to Educational Planning,researchers tracked attitudes toward saving fora child’s post-secondary education as well asthe actual saving families were able toaccumulate. The study controlled for family

income and parental educational attainment.The study found in those homes with a familyincome of less than $30,000, 80% of parentssaid they hope to save funds for a child’seducation. However, only 18.7% of thoseparents were actually able to save. In homeswith family income of over $80,000 researchersfound that 95% hoped to save for a child’seducation and that 62.6% were actually saving.

These numbers confirm the case put forward bythe Canadian Federation of Students in earliersubmissions to the Standing Committee onFinance. The RESP program has been shown tobe a national system of grants for the wealthy; asocial program funded by all Canadiansdesigned to reward those with the means tosave. The recent findings by Statistics Canadaconfirms this analysis and provides hard data tosupport the contention that the RESP andCESG programs are a regressive use of publicfunds. These programs are doing virtuallynothing to assist those Canadian most in needof the skills and training offered by post-secondary education. RESPs merely expand thealready existing gap in Canada between thosewho want to help a child attend post-secondaryeducation and those who are actually able tohelp. It is perverse public policy to spend publicfunds on those who least need assistance whiledoing little or nothing to help those for whompost-secondary education remains only adream.

The effect of the Millennium ScholarshipFoundation has been even more fruitless.Announced in the 1998 “education” budget, theMillennium Scholarship Foundation was abelated acknowledgement by the federalgovernment of the student debt crisis inCanada. In the face of average debt levels of$25,000 the Millennium ScholarshipFoundation was to be the centrepiece of thefederal government’s student debt reductionstrategy. At the time of its introduction, FinanceMinister Paul Martin declared in the House ofCommons that the Foundation would help thosein greatest need and reduce average studentdebt by $12,000. However, three years after itsimplementation the Foundation has proved tobe largely a public relations exercise that hasled to no appreciable decrease in student debt.

The Foundation’s mandate and terms ofreference are contained in the 1998 Budget


legislation. The Act spells out the governanceof the Foundation as well as the frameworkthrough which scholarships are disbursed. Intheory, the Foundation’s job is to disburse $250million annually in student financial assistance.However, the federal government chose todisperse the funds through existing provincialstudent assistance programs. Without anyadvanced consensus from the provinces aboutimplementation, the hastily conceived structureof the Foundation made some provincesresentful participants.

The record of re-investment on the part ofprovincial governments has been spotty at best.The provinces signed agreements to re-investthe savings in augmentations to their existingstudent financial assistance programs; howeverthe agreements were non-binding.

The Nova Scotia government simply ignoredthe agreement, consciously re-directing fundsintended for students into other governmentrevenues. In Ontario, where approximately 40%of the Foundation funds are transferred, theprovincial government has directed less than15% back into student financial assistance.Despite the misuse of Foundation funds bythese governments, the Foundation has donevirtually nothing to rectify the situation, andhas neither criticised them publicly norsignalled a willingness to withhold furtherpayments. Instead, the Foundation has opted toactively deny that the misuse of the endowmenthas diminished its impact on student debt.

Despite (or perhaps because of) the fact that ithas been unable to address the issue of studentdebt, the Millennium Scholarship Foundationhas recently embarked on a campaign todownplay the crisis of student debt. Inappearances before government committees,federal bureaucrats, and university and collegepresidents, Foundation officials have arguedthat higher student debt and higher tuition feeswill not affect accessibility. In other words, asupposedly arms-length, publicly-fundedfoundation has taken on the role of apologistfor the federal government’s record on post-secondary education.

The Foundation’s efforts to downplay thestudent debt crisis rely on a misreading of thedata. For example, using research involvinginterviews with 60 people who did not go to

college or university, the Foundation wilfullyignores the fact that direct financial barrierswere the most commonly reported reason fornon-attendance: over 23% of participants intheir survey list direct financial barriers as thereason for not going on to college or university.Instead of recognising the significance of thisresult, the Foundation chose to draw attentionto the remainder of the non-attendees’responses as proof of other accessibilityproblems.

This decision by the Foundation is even moreconfounding when the data is more closelyexamined. Many of the “non-financial barriers”cited by non-attendees are actually likely to beindirectly related to insufficient personalresources. In this light, the number of peoplewho “chose” not to attend college or universitybecause of financial barriers is much higher. Asthis study relied on data collected in 1991 and1995, its results also fail to take into accountthe effects of the enormous increases in tuitionfees across Canada since the mid nineties.

In a 2001 poll conducted on behalf of theCanadian Federation of Students, 46% of lowerincome Canadians cite lack of money as thereason for not attending college or university.The Foundation rarely acknowledges the factthat the vast majority of those who don’t attaina post-secondary education are from lowerincome homes. Indeed, the dividing line inalmost all studies on access to college anduniversity is the financial status of theindividual in question.

A Credible Reading of Existing Data

Foundation officials have publicly claimed thathigher tuition fees have little or no effect onaccessibility, and that money is not the primaryfactor in determining who goes on to highereducation. However, most credible evidencepoints to the contrary. For example, StatisticsCanada recently reported that wealthyCanadians are twice as likely to attenduniversity as low income Canadians.

This conclusion is further supported by the2000 Statistics Canada Youth in TransitionSurvey. The Survey found that financialobstacles were a barrier for over 70% of the 18to 20 year old high school graduates who citedbarriers to their participation in higher


education (see Figure 1). This Statistics Canadasurvey is yet another example of research thatthe Foundation has reported upon withoutdrawing attention to the significant deterringeffects that high costs of post-secondaryeducation have on students from disadvantagedbackgrounds.

Conclusion

For whatever reason, the MillenniumScholarship Foundation has consistently soughtto perpetuate the idea that existing federalgovernment measures have sufficientlyaddressed the crisis of student debt. This efforthas been bolstered by the Foundation’s researchproject.

Despite overwelming evidence to the contrary,the Foundation’s research project hasessentially made the following three points:

1. The federal government should not investany more money in student financialassistance;

2. Non-financial barriers are more important indetermining access to college and universitythan an individual’s financial resources;

3. $25,000 (or higher) average debt is perfectlyacceptable “because it doesn’t matter howmuch debt a student has, what matters istheir ability to pay it back.”1

These are alarming positions for the Foundationto adopt, given that its alleged mandate is toalleviate student debt and promote access topost-secondary education. Not only has theMillennium Scholarship Foundation been afailure in the implementation of its ownprogram, it has now begun an aggressivecampaign to justify higher student debt and

higher tuition fees. In the end it would seem,despite Paul Martin’s promise that theMillennium Scholarship Foundation wouldreduce student debt, the Foundation has made itits business to campaign for increased studentdebt.

Recommendation 6:The Canadian Federation of Studentsrecommends that the Millennium ScholarshipFoundation and the Registered EducationSavings Plan be replaced with acomprehensive, national program of needsbased grants. With the cancellation of theMillennium Scholarship Foundation and theRegistered Education Savings Plan, such aprogram would be revenue neutral. The MSFhas been an abject failure and is now usingtaxpayer funds to deny the crisis of studentdebt. Following on the concerns of auditorgeneral Sheila Fraser we call on the federalgovernment to wind up the operation of theFoundation by the end of this fiscal year. Wefurther recommend that the RESP program beterminated. As this brief documents, theRESP program is transferring public funds tothose Canadians least in need. Takencumulatively the funds currently expended onthe RESP and the MSF would easily fund anational system of needs based grants.

Unemployment Insurance andtraining entitlements

The Employment Insurance (EI) program isdecades out-of-date with the realities of theorganisation of work and the growing demandfor education, training and lifelong learning. Atpresent, workers (except for apprentices) arenot entitled to regular insurance benefits fortraining. Despite the obvious need and value ofexpanding EI sponsored support for trainingand education, the surplus in the EI account isinstead used every year by the federalgovernment for debt reduction, tax cuts orspending on unrelated government programs. Ifthe federal government is serious about meetingthe goals outlined in Knowledge Matters, EIshould be restructured to reflect the originalobjectives of the Unemployment Insurance (UI)program: to ensure earnings loss in the event ofunemployment, pregnancy, parental leave andtemporary sickness. EI must also be expanded

9.6%

12.8%

70.7%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Not accepted

Financial situation

Source: Statistics Canada Youth in Transition Survey (2000)

Figure 1: Barriers to Post-Secondary Education


to include income support for workersparticipating in the full range of educationaland training opportunities available.

With these goals in mind, the Federationstrongly endorses the Canadian LabourCongress's 2002 Composite Resolution onUnemployment Insurance, with specialemphasis on the "Training entitlement andbenefits" section of the resolution (seeAppendix A).As stated in the CLC resolution,trainining and entitlement benefits should:

• be expanded beyond apprenticeship so thatregular EI benefits are available for all formsof workplace training;

• include a primary role for public education toensure access, high standards andaccountability

• be accompanied by a requirement forCanada-wide training and occupationalstandards

• be framed so that training in the event of jobloss is the equivalent to job search

In order to ensure the long-term security ofthese training and education programs, arenewed Unemployment Insurance fund,operating at arms-length from the federalgovernment and within a clear legislativeframework, should be established. Furthermore,the restructured UI program should ensure thatall worker and employer UI premiums collectedbe used exclusively for earnings insurancepayments and training/education measures forworkers. The use of UI money for federal debtreduction, tax cuts or spending on governmentprograms should be made explicitly illegal. TheFederation also recommends the repayment ofthe cumulative surplus (estimated at fiftybillion dollars by 2003) already borrowed fromthe EI account by the federal government forpurposes unrelated to Employment Insurance.

Recommendation 7:The Canadian Federation of Studentsrecommends that the Employment Insuranceprogram be renewed to once again meet theobjectives of the original UI program andexpanded further to provide income supportto workers participating in a full range ofeducation and training opportunities.

Section III - The Canada StudentLoan Program

In Summer 2000, the federal governmentassumed control of the Canada Student LoanProgram after the banks withdrew from therisk-sharing agreements established five yearsearlier in 1995. Under these agreements, thebanks had a decisive say in the policy andadministration of the Canada Student LoanProgram. Under the banks’ tenure severalregressive policy measures were institutedunder the guise of accountability. The mostregressive of these measures was the ten-yearprohibition on the discharge of student loansthrough bankruptcy. This unconscionablelegislation strips students of the very lastfinancial protection offered under the law. Theprovisions of the Bankruptcy and InsolvencyAct are designed to offer a last hope to thoseunable to cope with debt. Under the Act, anindividual must appear before a judge andpresent evidence under oath that their financialdisposition makes it impossible for them tomeet their obligations. It is this provision thathas compelled the Canadian Federation ofStudents to launch a Charter challenge beforethe Supreme Court of Canada to repeal thisunjust and unconstitutional law.

n Knowledge Matters there is a call to increaseaccess to post-secondary for all Canadians.However, in Knowledge Matters there is aparticular accent on part-time learners. This callis largely in response to the steep decline inpart-time study in Canada over the past decade.In addition, the authors of Knowledge Mattersexpressed concern about the degree to whichthe part-time provision under the CanadaStudent Loan Program is underused. To thisend, the Canadian Federation of Students willoffer several recommendations designed toincrease the participation rates of part timestudents.

Finally, we are calling on the federalgovernment to honour a commitment made tostudents in the 1998 “education” budget. Thatbudget committed to a Debt Reduction inRepayment program (DRR) supposed to helpover 12,000 students per year. Designed toreduce a student’s debt five years aftergraduation, less than 500 students per year arebenefiting from the program to-date. The


Department of Finance has designed entirelyunrealistic income eligibility tables, and theresult has been a small financial savings for thegovernment and a door slammed in the face ofstudent debtors. Officials from both theDepartment of Finance and Human ResourcesDevelopment Canada acknowledged thisproblem several years ago, but to-date no actionhas been taken. We urge the StandingCommittee on Finance to honour thecommitment made in the 1998 budget.

Recommendation 8:The Canadian Federation of Studentsrecommends that the federal governmentreverse discriminatory changes to theBankruptcy and Insolvency Act.

Recommendation 9:The Canadian Federation of Students isrecommending that the federal governmenthonour the commitment made in the 1998budget and institute the Debt Reduction inRepayment Program (DRR).

Recommendation 10:The Canadian Federation of Studentsrecommends that the federal government paythe in-study interest for those studentsstudying on a part-time basis.

Recommendation 11:The Canadian Federation of Studentsrecommends that the income threshold for theCanada Study Grants and student loans forpart-time students be raised in order toincrease the number of students eligible andthat living costs, in addition to educationalcosts, be included in the loan assessment forpart-time students.

Recommendation 12:The Canadian Federation of Studentsrecommends that those students currently indefault on student loans retain access to debtrelief measures such as interest relief and thatthe federal government change the currentdefinition of default from 90 days to 360days.

Recommendation 13:The Canadian Federation of Studentsrecommends that the amount students areallowed to earn while in study be increasedfrom $600 per year to $1,700 per semester.

Section IV - Tax Credits asEducation Policy

Since the mid 1990s, the Federal Governmenthas increasingly looked to so called "taxexpenditures" as a substitute for directlyallocated student financial assistance. Federaltax expenditures for education have grownfrom an estimated $566 million in 1996 to aprojected $1.425 billion in 20021. Some of themore significant new measures and changes toexisting education oriented tax credits haveincluded:

• 1996 to 2001: A series of increases to theeducation amount (the amount on which thefederal non-refundable education credit iscalculated) which has raised the potentiallyallowable credit from $13.60 to $64 permonth of full time studies2.

• 1997: The non-refundable education andtuition tax credits were altered so as to allowstudents to carry value forward if the creditscannot be claimed in the original year

• 1998: The introduction of a 17 percentfederal tax credit on the interest portion offederal and provincial student loan payments(changed to 16% in 2001).

Despite the size of these expenditures, theyhave failed to keep up with rapidly escalatingincreased tuition fee and living costs. Canadianstudents are significantly financially worse offnow than they were in the late 1980s and early1990s. Moreover, evidence suggests thateducation oriented tax expendituresdisproportionately benefit higher incomeearners, and that education tax credits as ageneral policy do little or nothing to improvethe accessibility of higher education.

The Education and Tuition Fees Non-refundable Tax Credit: Failing to meetthe increased cost of education

Of these various federal tax measures, the non-refundable education and tuition fee tax creditshave been the most expensive and the mostwidely used. In the 2000 tax year3, 2,169,360students and parents/grandparents of studentsclaimed the education and tuition amounts,costing the federal government $909,728,140 indeferred tax revenues4. The changes introducedin the 2001 budget will likely bring this totaleven higher.


With a probable overall price tag of over $1billion for the 2001 tax year, these creditsundoubtedly appear impressive when viewed asa total amount. One would expect anexpenditure of this magnitude to deliversignificant improvements to the financial wellbeing of individual Canadian students. Theunfortunate reality, however, is that changes tofederal non-refundable tuition and educationtax credits have actually done very little tooffset the soaring tuition fees and increasedliving costs students have faced over the lastdecade.

Figure 2 compares average Ontario universityundergraduate tuition fees to the maximumfederal non-refundable education tax creditsavailable to Ontario students in 1988, 1995 and2001 (in 2001 dollars). In 1988, an averageOntario university undergraduate paid $1,854 intuition fees and could claim or transfer up to$425 in federal education tax credits, leaving agap of $1,426 between these tax credits andtuition fees. By 1995 this gap had increased to$2,151, as tuition fees climbed to $2737 andapplicable education tax credits rose to $587.By 2001 average tuition fees had risen to over$4,000 and, despite increases to the educationamount in the 2001 budget, the gap betweentuition fees and federal tax credits was nearing$2,900.

Figure 2: Ontario Tuition Fees and Federal Non-refundable Tax Credits 1988, 1995 and 2001 (2001 dollars)

$1,854

$2,737

$4,062

$428$587

$1,215

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1988 1995 2001

Average Tuition Fees (OntarioUniversity Undergraduate)

Maximum claimable Federal Non-refundable Tax Credits for education(Tuition fees and Education Credit,based on average Ontarioundergraduate tuition)

The gap between federal tax credits and thecosts facing students living away from home iseven more dramatic. As shown in Figure 3,combined tuition fees, mandatory student feesand room and board for an average Ontariouniversity undergraduate climbed from $6,755per year in 1988 to $10,211 in 2001. While taxcredits also rose during this period, they didlittle to mitigate increasing costs. The maxi-

mum federal education and tuition fees creditavailable to an average Ontario universitystudent in 2001 amounted to only $1,215,leaving a gap of almost $9,000 between basiceducation costs and applicable federal non-refundable tax credits for education.

Figure 3: Total Costs Per Year of University Studies (Ontario)and Federal Non-refundable Tax Credits for Education,

1988, 1995 and 2001 (2001 Dollars)

$6,755

$8,614

$10,211

$428 $587

$1,215

0

2000

4000

6000

8000

10000

12000

1988 1995 2001

Source: Calculations based on Statistics Canada data

Total basic cost of one year ofundergraduate university studies (tuition fees, additional mandatoryfees, room and board)

Maximum claimable Federal Non-refundable Tax Credits for education(Tuition fees and Education Credit,based on average Ontarioundergraduate tuition)

Helping those most who need help theleast?

Substantial disparities exist on the averageamount being claimed by income bracketthrough the education and tuition fees credit .Individuals from the highest income bracketstend to claim more on these credits than doclaimants from the lower and middle incomeranges. In the 2000 tax year, for example,claimants with incomes less than $60,000 ayear claimed an average of $409 worth ofeducation and tuition fee credits. Claimantsearning over $250,000 (most of whompresumably claimed this credit as a transferredamount from a child) averaged $628 on thesesame credits. A substantial (and rising)percentage of non-refundable education creditsare being claimed as amounts transferred,which provides no guarantee that the full valueof this credit is necessarily being applied toeducation-related expenses5.The Department ofFinance estimates that total education creditstransferred have outstripped total creditsclaimed by students since 2001 (excludingamounts carried forward)6.

The "carry forward" measures introduced in1997 have allowed lower income students toclaim non-refundable credits that would havebeen lost to them in the past. Although this is asmall improvement over the previous system, itcontains a flaw that again skews the value ofthe credit towards those with higher incomes.Because of inflation, students who are forced to


carry forward education and tuition creditsultimately gain less value from their creditsthan students who have enough income to claimthem in the year they are assessed. Lowerincome students are thus penalised for nothaving enough income to claim the creditswhen they are first made available. With thetotal carry forward of education and tuition feecredits projected to reach $380 million by 2003,the cumulative amount lost by lower incomestudents through this depreciation could runinto the millions of dollars7.

The Student Loan Interest Credit

The Student Loan Interest Credit is probablythe least useful of current federal taxexpenditures for education. Though the total"cost" of this credit was over $71 million in2000, the average amount claimed on it worksout to only $9.50 per month worth of debt andtax "relief" per claimant. Low income earners(less than $20,000) only received an average of$6.83 a month. As this credit is only availableon interest paid, it provides absolutely no reliefto the most desperate student loan holders whoare unable to keep up with their loan payments.With average student debt loads approaching$25,000, this credit is totally ineffective inaddressing the ongoing crisis of student debt.

Tax credits do not increase accessto higher education

On the whole, tax credits are "back-ended"measures and do little to improve access for themost economically disadvantaged groups. Taxcredits require students to pay money "up front"in order to (maybe) have it refunded at somepoint in the future. As a policy, education taxcredits do nothing to address the initialfinancial obstacles that prevent low and lowermiddle income students from accessing highereducation. Thus, education tax credits are mostlikely to benefit those who require littleassistance with high tuition fees. A recent studyby Harvard University professor Dr. BridgetLong found that this was precisely the outcomeof education tax credits introduced in theUnited States: "[a]lthough one goal of the taxcredits was to increase access to highereducation, this study found no evidence ofincreased postsecondary enrollment amongeligible students"8. Long's study also found that

the education tax credit measures introduced inthe U.S. appear to have provided stategovernments with an incentive to raise tuitionfees at public institutions9.

Recommendation 14: The federal government should cancel theeducation and tuition amount for thoseearning over $70,000 and apply the savingsdirectly to new national system of needs-based grants.


Footnotes to Innovation Section:

1. “Money + Science = Ethics Problems onCampus.” The Nation. March 22, 1999.

2. Cited in “The Kept University.” 2001Science and Technology Policy Yearbook(American Association for the Advancement ofScience), Teich, A. et al. eds.

3. The Natural Sciences and EngineeringResearch Council supports approximately 75%of faculty in the so-called “hard” sciences.

Footnotes to Tax analysis:

1 Department of Finance Canada Tax Expen-ditures and Evaluations 2001

2 The education amount has risen from $80per month to $400 a month since 1996, butthe actual credit is calculated by multiplyingthe total of the education and the tuition feesamount by the lowest federal tax rate (16%for 2001 and 2002, and 17% on earlierreturns).

3 The most recent year for which interimstatistics are presently available

4 Canada Customs and Revenue Agencypreliminary figures




8 Bridget Terry Long "The Impact of FederalTax Credits for Higher Education Ex-penses", Prepared for the NBER Volumeand Conference: College Decisions: HowStudents Actually Make Them and HowThey Could, Harvard University August 2,2002

9 Bridget Terry Long "The Impact of FederalTax Credits for Higher Education Expenses"

Appendix A

From the Canadian Labour Congress's 2002Composite Resolution on UnemploymentInsurance:

Therefore be it Resolved

Training entitlement and benefits [be]:1. expanded beyond apprenticeship so that

regular EI benefits are available for allforms of workplace training;

2. accompanied by a requirement for: thedevelopment of a workplace human re-source and training plan; Canada-widetraining and occupational standards;recognition of prior learning and workerexperience; a primary role for publiceducation to ensure access, high standardsand accountability; and union participationin approving the training plan and establish-ing standards with employers, education andgovernment;

3. coupled with an EI premium reduction foremployers who provide paid educationleave or workplace training equivalent towhat is provided by EI training insurance(similar to the premium reduction foremployers and their employees with privateinsurance plans that top-up maternity,parental, and sickness coverage);

4. accompanied by the same protection ofworker employment rights in federal andprovincial labour standards that are pro-vided for EI maternity and parental benefits;

5. framed so that training in the event of jobloss is the equivalent to job search; and

6. framed so that hours of work prior to atraining count as qualifying time for benefitentitlement during and following leave.

Career

Sub 2002 Finance