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Financing of Higher Education: Canada and India

Dr. Kavita Sharma
President of South Asian University & Advisory Council
Canada and India present several points of convergence and divergence in the expansion of higher education and its financing. Many of these arise out of federal and provincial jurisdictions.  While education is a provincial subject in the Canadian Constitution, it is on the concurrent list in India.  This has certain implications.  While in India, the bulk of higher education takes place through state universities; in Canada, it is the provinces that are primarily responsible for higher education, and the federal government negotiates post-secondary education through areas of federal responsibility like national defence, Indian affairs, the territories, external affairs and the like.  Unlike as in India, there is no national or federal government department to oversee aspects of higher education policy in Canada.
As Trowe has pointed out, there are three models of participation in higher education— elite, mass and universal  All over the world, the system has moved from elite to universal.  This is not only because of issues of equity.  There is a more utilitarian motivation that has been articulated by both governmental and non-governmental organizations.  A vast body of evidence supports a general public policy consensus that investment in advanced education yields high returns because of increased labour market participation that leads to greater productivity, economic development and innovation.  The question is how to provide universal access to higher education.  Can the government alone do it or is private funding essential?  Of course, a compromise between the two is the public private participation model which also has to be adapted to different situations.  In addition, what is the mix between the three?  No definitive answers have emerged and higher education in both countries has moved in an evolutionary trajectory as it has responded to demand, democratic compulsions and the available state funding.
According to the Association of Universities and Colleges in Canada (AUCC), there are 95 public and private not-for-profit universities and university-degree level colleges in Canada today.  Canada also has around 150 colleges distinguished by a range of titles such as Institute of Technology, Collège d’enseignement general et professional (CEGEP translated as College of General and Vocational Education) University College and Polytechnic.  Since education is a provincial or territorial responsibility, these institutions vary in mandate, management models and policy frameworks.  However, they share the primary functions of responding to the training needs of business, industry, public service sectors and the educational needs of vocationally oriented secondary school graduates.  Historically, these institutions offered diplomas and certificates, not degrees.  However, many have university transfer programmes and some are now offering degree programmes.
Participation rates have risen since the 1990s in Canada. Amongst the countries belonging to Organisation of Economic Cooperation and Development (OECD) countries, Canada has the highest level of educational attainment.  Almost half of its population, amounting to about 46% aged between 25 to 64 has completed some kind of tertiary level education.  The OECD average is 26%.  Canada spends 2.4% of its GDP on higher education, which is the third highest amongst OECD countries after USA (2.9%) and South Korea (2.6%).
The economic downturn led to an increase in enrolment to the extent of 4.1% at the full time undergraduate level and 7.2% at the full time graduate level in the fall of 2009.  The universities responded by making more opportunities available.  As of 2009, there were close to 870,000 full time students studying at Canadian universities of which 734,000 were undergraduates and 136,000 graduate students.  In addition, there were 279,000 part time students of which 232,000 were undergraduates and 47,000 at the graduate level.  Further, there were 400,000 continuing education students.  The number of students has steadily grown in the last fourteen years.  In 2009, there were 300,000 more students than in 1996.
Canadian universities, therefore, serve over 1.5 million students and employ more than 42,000 as faculty.  Nationally, Canadian universities are more than a $30 billion enterprise.  Per student funding for teaching and research was $21,000 CAD in 2008-2009 whereas about $30 billion was spent overall on research.  The research activities of Canadian universities are worth about $10 billion of which 55% – 60% is externally funded, the largest source being the federal government.  The latter provides about $3 billion annually for direct and institutional cost of research infrastructure and salary.
Prior to World War II, higher education in Canada was more or less the exclusive domain of the privileged class.  It prepared a few for elite professional and leadership roles in society.  A system of mass participation emerged from 1950s onwards.  It resulted in a massive expansion from 1960s to 1970s.  Dale Kirby citing Dennison and Gallagher states: “This `golden age’ of development was driven by demographic factors such as the baby boom, changing labour market requirements and a greater acceptance of Human Capital Theory, that is, the understanding that there is a connection between one’s educational attainment and personal income, and that public investment in human capital contributes to economic growth.”
The most rapid expansion of higher education took place in the mid-fifties.  Dr. E.F. Sheffield presented a short paper entitled “Canadian University and College Enrolment Projected to 1965”, at a symposium organized by National Conference of Canadian Universities (NCCU) in June 1955 in which he said that full time University enrolment would almost double between 1954-55 and 1964-65 increasing from 67,500 to 1,28,900/-.  The system did not have the capacity to absorb so great an increase.  University enrolment had increased by only 12% between 1944 and 1954.  This reflected the importance of University education in a rapidly industrializing and urbanizing economy.  The consequences of these enrolment increases predictably created pressures in two areas— physical facilities and academic staff.
In 1954-55, there were about 6000 full time university instructors in Canada and a doubling of enrolment implied doubling of the faculty in the next ten years in order to maintain the same student teacher ratio.  It was realized that this would be expensive as would be the addition of required infrastructure.  Where was the money to come from?  In the 1920s, provincial grants had accounted for approximately 50% of all university income, tuition fees for 20% and private income for 30%.  During the post world war depression, provincial grants were reduced and tuition fee had to be increased proportionately.
Increased enrolment evoked a wide range of reactions in Canada from the caution advised by Toronto’s Sidney Smith who feared a decline in standards to “Larry” Mackenzie, President of U.B.C. who felt that universities should take in almost anyone who came.  Overall, most Presidents of universities were in favour of growth.  Consequently, operating grants for universities were doubled and in addition, 550 million were made available through Canada Council, half of which were for support of university capital construction.
By mid 1950s, the idea was firmly established that universities and university education represented an almost certain path to economic growth and individual prosperity.  Universities began planning for new buildings, new programmes and much larger number of staff and students.  The 1960s saw a virtual revolution in Canadian higher education based mainly on four propositions: massive physical expansion of major universities, growing autonomy for junior and affiliated colleges, transformation of denominational colleges into public universities, and community pressures for new institutions in cities currently then without a university or college.  The Canadian provinces took the position that university capacity had to be continually expanded to meet the increasing student demand.  The principal question that emerged was how large should a university become and at what cost.  Several campuses were opened for each of the universities but they did not want to remain subservient to the existing universities, so they were gradually declared autonomous universities.
Since there is no one central policy of higher education in Canada, only broad trends can be indicated.  For example, initially western provinces had resolved upon the policy of only one provincial university but geo-political realities necessitated the establishment of at least one additional institution affiliated with a university as a junior or satellite campus.  Each of these satellite campuses chafed at their subordinate status and saw it as a policy of forced underdevelopment.  This spurred them on to independent growth.
While the Canadian universities initially managed to accommodate the increased enrolment, additional faculty recruitment lagged behind by a year or two after which it expanded rapidly giving rise to concerns about the quality of faculty all of whom in the meanwhile had also been granted security of tenure. The increase in faculty was accompanied by increase in their salaries in order to attract talent.  According to a survey of 17 universities carried out by the Dominion Bureau of Statistics, the median salary increase by nearly 40% in just three years between 1956-57 and 1959-60 naturally lead to a steep rise in university expenditure.  The total operating cost doubled in five years from 76 million dollars to 143 million dollars.
The principal source of funding for sustaining the expansion of the system had been federal funding although in Canada, education is strictly a provincial subject.
The value of federal per capita operating grant that had been doubled to $ 1.00 for 1956-57, increased to $1.50 for 1958-59 and again to $ 2.0 for 1962-63.  The value of grants to the universities however, had not grown so dramatically.  On a per student basis, the grants were worth $ 120 in 1951-52.  This increased to $134 in 1952-53 but had dropped back gradually to $ 127 by 1955-56.  The increase for 1956-57 raised the per student value to $ 221 but it dropped to $ 205 in 1957-58 before another increase brought it up to $ 297.  By 1965-66, it had fallen back to $ 210.  Thus, over the 15 year period from 1951-52 to 1965-66, the per capita value of the grants had increased four times, while the per student value had increased by a mere modest 43%
The National Research Council (NRC) was established in 1971 and was the principal sponsor of university-based research.  It accounted for at least 60% of the total money spent on research.  Provincial support began to increase substantially in the early years of 1960s but by 1965-66, it was still only 15% of the total.  Around 1967, all federal support went to natural and related sciences.  There was hardly any government support for research in the humanities and social sciences.
The Government responded to the dual challenge faced by it in the 60s of a rapidly expanding university system and increased unemployment in society.  In November 1960, the National Housing Act was amended to permit the Central (now Canada) mortgage and Housing Corporation to make loans available to universities for the construction of student residences.  This was not only a response to a real problem faced by universities but another consideration was to stimulate the construction industry and provide one method of coping with the high unemployment rate.  The scheme provided mortgage loans of up to 90% of the cost of a project, with repayment over a period of up to 50 years.  The major benefit to universities lay in the subsidized rates of interest.  The total fund allocated for it was $ 50 million with the cost of each project limited by regulation to $ 7000 per student accommodated.  In 1961, the overall limit was doubled and in 1964, it was raised to $ 150 million.
The federal government had been participating in a modest way in the support of university students since the Dominion-Provincial Student Aid Programme was introduced in 1939.  All the provinces had developed student aid programmes and almost all of them contained provision for subsidized student loans.  The Canada Student Loan programme was launched in July 1964.  It provided individual loans of up to $ 1000 per year, with an overall maximum of $ 5000 for any one student.  The money has actually be lent by chartered banks and credit unions, with the federal government both guaranteeing repayment and covering all interest charges until six months after a student’s graduation at the end of which the student had to assume responsibility for the repayment of the principal and interest over a ten year period.  This was the Canadian way of helping students with the high tuition fees charged for post-secondary education.
Canadians also tried to cope with the expanding university system and convert it into an opportunity to expand employment by providing universal access to prepaid medical services.  But this required a massive expansion in the training of health care professionals, including physicians.  Several existing medical schools had to be expanded and new faculties of medicine established over the following ten years.  There was also an addition of more university schools of nursing, expansion of the existing ones together with the creation of new dental schools.
The enrolment in Canadian universities kept rising resulting in a report on ‘Financing Higher Education in Canada: Report of a Commission to the Association of Universities and Colleges of Canada’ (1965).  It began with the issue of enrolment that had been identified by Dr. E.F. Sheffield in 1955.  Dr. Sheffield once again emphasized that the total full time enrolment, which had reached 178,200 in 1964-65, would almost double over the next six years to 340,400 in 1970-71.  The rate of increase was expected to start declining after 1970-71.  Even so, enrolment would continue to increase, reaching 461,000 by 1975-76.  The Commission rejected any policy of restricting student access to higher education either by raising standards or by setting market driven quotas within the framework of a work force policy.  However, it was aware that the increased cost of continued expansion would be even more dramatic than the projected increase in enrolment.  Including operating and capital expenditures as well as student aid, the total costs would increase at almost twice the rate of enrolment reaching $ 1.7 billion by 1975-76, almost five times the $ 355 million spent in 1964-65.  The Commission argued that only the Government was in a position to bear this expenditure and hence it would have to meet 70% of the operating cost, 80% of the capital cost and an even higher share of the student aid bill.  At the same time, it recommended the increase in the operating grant from $2.00 per capita to $ 5.00 per capita and thereafter further by $11 each year.  Student aid also needed to be expanded and a capital grant fund had to be established and funded at the rate of S5.00 per capita per year.  Moreover, it was recommended that the federal support of research should be greatly expanded and all research grants and contracts should be accompanied by an additional 30% to cover the indirect or overhead costs.
Another major study appeared in December 1965 in the form of the second annual review of the Economic Council of Canada.  It made the most emphatic case possible in favour of increased expenditures on higher education.  Based on studies of economic returns from investment in education, the Council estimated, “….the returns on the ‘human investment’ in high school and university education in Canada are in the range of 15 to 20% per year with slightly higher rates for an investment in a university education…” Moreover, the Council concluded, approximately one quarter of the real growth in personal income in Canada since 1911 could be attributed directly to increased levels of education.  Hence, it called for, “rapid and substantial expansion of post-secondary education in all parts of Canada… to provide a ready opportunity to every qualified Canadian student so that financial obstacles will be eliminated as a barrier to higher education.”
The era of rapid growth in provincial expenditure on university education ended in the 1960s.  By the 1980s, a fair degree of stability had been achieved but in spite of it, while enrolment kept increasing, funding remained static.  Universities preferred not to raise tuition fees to meet the rising costs.  Resource mobilization through tuition fees had been the traditional complement to government grants and so had increased as a proportion of university revenues whenever government funding declined; for example in the Depression of the 1930s.  As a matter of provincial public policy, however, this option was mostly precluded.
Universities resorted to borrowing but this could only be considered responsible if there was a realistic prospect either of increased revenue or of reduced expenditures in the near future.  In the absence of this, deficit financing only increased the problem, because the cost of borrowed funds had to be added to the expenditure side in the subsequent years.  There was also a political dimension to deficit financing.  If a university was seeking to convince its provincial patron of the reality of underfunding, an operating deficit might be seen as telling evidence that the problem was serious.  Hence, deficit financing was the first tactical response of most universities.  Governments responded by resisting these tactics.  Also, the universities realized that deficit financing could impair private fund raising as contributors would not want to donate to reduce debt.
Financial stringency led to favouring of selective cuts over general compression.  Harold Shapiso, the then President of University of Michigan, said in 1982,
The idea that an institution should reallocate its limited resources to its areas of greatest merit rather than following a ‘mindless’ policy of ‘across-the board cuts’ enjoys greater favour at most faculty meetings.erican Higher Education’;, advocated the strengthening of university management as a means to the radical restructuring of programmes and operations.
Some efforts in this direction can be seen.  For example, funding was dramatically reduced in British Columbia pushing its three universities to make dramatic choices.  Several responses surfaced.  The proposition ‘save jobs and let salaries slip’ found overwhelming support at the University of Victoria but no serious thought was given to the elimination or restructuring of programmes or to the termination of regular faculty.  Some faculty positions were reduced by the process of attrition.  Simon Fraser’s response was that lay-offs or terminations had to be avoided but significant programme changes were a must.  A committee of faculty members submitted a ‘white paper’ on the future of Simon Fraser.  As a result, new departments of computing science, communication, kinesiology and engineering were opened.  The idea was that in spite of the economic crisis, these new faculties would attract research funds, and public support.  Several language programmes were sought to be eliminated and others integrated into existing departmental resources.  Thus, Simon Fraser implemented impressive restructuring. The University of British Columbia earned international notoriety by actually dismissing permanent faculty members.  This led to the negotiating of generous severance arrangements.
Explicit policies and procedures governing lay-offs for financial reasons led to insecurity and as a consequence unionization and collective bargaining.  Most collective agreements differed in detail but embodied two broad principles: the concept of academic redundancy was separated from financial exigency; and only the senates or their equivalents were empowered to approve faculty for academic and not financial reasons.   If any faculty member had to be dismissed for financial reasons, the financial crisis was required to be confirmed by an independent audit that had to establish that all other reasonable steps to increase income and reduce non-essential expenditures had been taken.
One of the ways by which the financial outflow on salaries has always sought to be reduced is through the use of part time instructors, and this practice continues.  Students are routinely employed on a part-time basis resulting in relatively inexpensive teaching assistance.  It adds an essential component to the students’ financial support package and offers a measure of on the job professional training.  Further, practitioners are used on a part time basis to complement full time faculty in professional programmes.  For the practitioners, such teaching constitutes a recognition of their high professional standing. For the universities, it proves inexpensive and enables them to offer a large variety of programmes.  Successful summer teaching is also done in this way.  It is a method of a substitution of contract employees for tenured or tenured stream faculty members.  This has also given rise to controversy from time to time as the aspiring tenured stream faculty members feel threatened.
Universities also turned increasingly to the private sector as potential source of funds.  With government grants and tuition fees both declining in dollar value per student taken at a constant rate, it offered perhaps, the only means of fiscal flexibility.  Canadian universities showed great success in increasing private sector funding through fund-raising endeavours although they still fell short of the American endeavour.  Annual giving, primarily from alumni also increased.  Increased reliance on private sector also extended to research.  Public private partnerships also cropped up.  One such partnership was seen in the creation of `science parks’ that were a consortium of industrial research laboratories which operated in the private sector although land for them was assembled with the help of the Government.  Several other schemes were launched for closer industry-university collaboration.  These gave rise to concerns about implicit threats to academic freedom.   John Panabaker, Chairman and Chief executive officer of the Mutual Life Assurance Company and a founding member of the Corporate-Higher Education Forum, argued that “universities have no real choice”,
Rightly or wrongly, society has come to see Universities as critically important to economic development, and expects to support universities more generously because of that perception.  But that support will not make the universities’ lives easier.  They must still redefine their roles in relation to their own sense of purpose and in relation to the needs and priorities of the larger society.  That redefinition represents one of the greatest challenges Canadian universities have ever had to face.
Canadian governments are trying to influence the economy’s technological performance primarily through universities and public labs, not through initiatives aimed directly at the productive sector.  This requires that the higher learning be co-opted…This is the political manifestation of a deeper development, the bureaucratic organization of knowledge.  Under these fiscal and political pressures eroding, vast sums of money, hordes of people and almost all governments are dedicated to the realization of this prospect.
In the last decade, there have been further reforms because of policy guidelines in the late 1980s and early 1990s.  British Columbia can once again be taken as an example as it has taken some radical steps to bring about reforms in organization, management, curriculum, access and finance. Out of these, two are especially significant.  One is the Access for All policy of 1988 that required the government to improve space and equipment in the post-secondary sector and to enhance access to adult education, strengthen and increase the number of second year university equivalent courses in community colleges, establish a number of degree granting “university colleges” attached to a university, and enhance access to underserved community like the First Nations and those living in remote areas.  It led to the creation of university colleges and colleges and institutes that were given the right to confer “applied” degrees.  Thus, the non-university sector expanded vastly in response to the demand to produce better technical workforce so that Canadian business and industry could compete internationally without having to import skilled labour from other countries.  The federal government made large financial resources available to provinces to construct and maintain an alternate system of post-secondary institutions, other than universities, to educate and train a workforce with the skills necessary to fill the industrial needs of the nation.  These institutions were given different names in the various regions of Canada—Community Colleges, Technical Institutes, Colleges of Applied Arts and Technology and in Quebec, CEGEPs.  Some of these institutions offered two-year programmes equivalent to the first two years of a university degree but the majority concentrated upon certificates and diploma offering skills to equip graduates for the workplace.[xxi]
However, in spite of the useful work done by these colleges, pressure continued on the governments to provide more seats in degree programmes as demand from prospective students grew and public interested intensified.  The response from the provincial governments was threefold; one, established universities were funded to increase capacity; two, a number of new universities or university like institutions were established; and three, some non-university institutions in a few provinces were authorized to offer “applied” degree programmes. The latter was a clear departure from prior practice as upto then the word `university’ and `degree’ had been protected, and only universities had the right to grant degrees.  British Columbia, Alberta and Ontario authorized the granting of `applied degrees’ by non-university tertiary institutions offering diplomas in applied areas like Business, Health and Applied Sciences.
The second step was the decision to not only allow but to even encourage the emergence of the private higher education sector to complement and compete with the public sector.  The latter opened higher education to market forces.  The public sector opposed this development because public universities feared that despite government assurances that no public funding would be diverted to private institutions, the private higher education sector would drain the much needed resources from public institutions.  In spite of these reservations and protests, private higher education continues to grow.[xxii]
Private sector post-secondary education, both degree and non-degree granting is not entirely new in British Columbia (BC).  The private vocational sector grew rapidly in the 1980s.  It had been encouraged by the Federal Government policy for a “free market” in federal training programmes.  This development was supported by the provincial government, which probably saw competition from the private sector as having an effect on controlling increasing unit costs in colleges and institutes.  By 1990, there were over a thousand private vocational training institutes in BC.  These institutes are small but their numbers have been steadily increasing and by 1999/2000 they accommodated 190,000 learners that were equivalent to approximately 60,000 full time enrolled students in terms of the public sector universities.  These private for profit institutions target prospective students not served or inadequately served by the public post-secondary education system of British Columbia and also who are willing and able to pay the fees.  When a new government came to power in 2001, it promised to revise the legal provisions for private sector education so as to enable it to expand in post-secondary education for both vocational training and study for degrees.
The Private Career Training Institutions Act (PCTIA) was passed in the legislative in the spring of 2003.  This meant that the earlier Private Post-Secondary Education Commission (PPSEC), which was a government agency, created in 1992 by the Private Post-Secondary Education Act stood abolished.  The earlier Act had made the registration of all private post-secondary institutions mandatory and thus provided some basic “consumer” protection to students.  But the  new Private Career Training Institution Agency (PCTIA) was not a public funded body.  It was entirely financed and controlled by the private education industry and only “career related” training establishments came under it.  This meant that several institutions like language schools and others were not covered under its regulation and hence their students were left unprotected.
In spite of a significant increase in public higher education since the 1990s, the demand still far outstripped the spaces available.  Hence, apart from the Private Career Training Institutions Act, the legislature of British Columbia passed the Degree Authorization Act in 2003.  This law enables private and out of province public institutions to both grant degrees legally in British Columbia, and to use the word “university” in front of their name.  A Degree Quality Assessment Board was created with the mandate to review applications from the institutions wishing to award degrees.  After review, the proposals have to be posted on the Ministry website.  These are peer reviewed and if required by the Board, a report is also made by external experts.  All this forms the basis for the Board to make recommendations to the Minister.  Although the Degree Authorization Act does not apply to public post-secondary institutions, but the Ministry requires even their new degree programmes to be reviewed by the Board thus replacing the old Degree Programme Review Committee.  Thus, points of convergence between the public and private sector have sought to be created.


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