Value, not cost, is the basis of education

This column originally appeared in The Globe and Mail on March 14, 2013.

The placards made clear their demand: "Free tuition NOW." But if the picketing university students were honest, their signs would read: "I want someone else to pay for my education." Education is never free. Someone has to pay.

But the students' view that someone else should help pay for their tuition is a reasonable request. Society benefits tremendously from an educated work force, so taxpayers (and future taxpayers) should be expected to pay at least part of postsecondary education. The fight usually boils down to how much of the cost should fall on students, and how much on taxpayers.

At the root of the debate are the economic principles of cost and value. They're related, but they're not the same thing.

Cost is what we give up to get something, and it's usually captured by the dollar price of the good. Value reflects how useful, essential or emotionally appealing something is, and that can differ wildly between individuals and circumstances.

For a variety of reasons, cost is not always aligned with value. We value clean drinking water very highly, but because its price is usually low, cost and value are disconnected. Even in the free market, cost and value can differ. Diamonds, for example, cost a great deal but have little practical use; it's their aesthetic and emotional value that drives up their price. But on a deserted island with no food or water, the situation would change. You'd pay much more for a jug of water than you would for a diamond, so cost and value become more closely aligned.

If the price of a good (its cost) is too far out of line with its usefulness (its value), the allocation of resources is inefficient. In non-economic terms, if something is too cheap, it gets wasted.

This is demonstrated perfectly by a party with an open bar. Drinks are free for guests, so the cost is zero to them. They may love this, but the drinks end up abandoned, scattered around the room half-consumed, and some people may imbibe too much. Charging even a small fee, however, means guests hold on to their drinks more carefully. The cost of the drink is more closely aligned to its value, so fewer drinks are wasted.

Like free drinks at an open bar, free tuition would no doubt be welcomed by students. But is there a danger education could be devalued? Would it be wasted if students dropped out of courses with less thought or regard, if they didn't pay the tuition? Or might they "consume" too much, earning degree after degree with no practical goal in sight?

Expecting students to pay too much of the cost of their education isn't the answer, either, because then the cost to society drops. If it falls too much, it devalues the benefits that taxpayers gain from a well-educated population. The linkages between education and societal benefit are strong; crime, illness and poverty are greatly reduced when education levels rise.

The tuition debate focuses entirely on the cost of education. But if we focused more on the value of education, the tone of the debate would change.

Postsecondary education offers tremendous value to students, both in terms of becoming critical, reasoned thinkers and also in terms of earning potential. There's also value to society because education is a public good that benefits everyone.

Provincial governments currently offer a complex and patchwork system of student loans, bursaries, and debt-forgiveness programs. Some provinces even waive income taxes for a period to help students financially.

Perhaps a simplified program could be designed: When students graduate and start working, 100 per cent of the provincial income taxes they pay would be applied directly to their debt. No complicated tax credits, waiving of income tax, or debt-forgiveness schemes. This way, students would bear some of the cost of their education but wouldn't be forever saddled with a crushing debt load. Governments would also bear some cost because they are forgoing tax revenue. And the cost to both students and taxpayers would more closely align with the value each receives.

There is no such thing as a free education - but there should be a stronger connection between its cost and its value. By focusing more on value, we might find some creative ways to finance the system that benefits both students and taxpayers.