A vicious cycle: Why tuition is so high and will likely keep going up

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Hey students, here are the most expensive, cheapest programs in the country
WATCH: According to Statistics Canada, a full-time undergraduate student dished out on average $6,571 for the 2017-18 school year – Sep 6, 2017

Another September, another sticker shock for the 1 million Canadians who’ll be heading back to university or college this fall.

Last year, the average price tag for an undergraduate degree was $6,500 a year for domestic students, according to Statistics Canada. This year’s numbers aren’t out yet, but we can only imagine that tuition costs have gone up, as they have for 28 years in a row.

But that’s not all. Students are also facing a growing number of mandatory fees to cover anything from sports to health services. This added another $880 a year on average for undergraduate students, according to StatCan.

If you think that’s expensive, don’t even look at undergraduate tuition in ($22,297 a year for 2017-2018), medicine ($14,444 a year) or law ($13,642 a year).

It’s no surprise that more than 20 per cent of bachelor’s degree holders graduate with over $25,000 in debt.

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READ MORE: The cheapest and most expensive degree programs in Canada: StatsCan

So how did we get here?

“The major driver of rising tuition is changes in the way universities are funded,” reads a June report by RBC authored by economist Gerard Walsh. In the mid-1970s provincial governments were directly funding three-quarters of the cost of pursuing a university degree.

But that began to change in the 1990s, when a debt-conscious Ottawa started slashing federal transfers.

Since 1990, the government’s share of university funding has fallen by nearly half, while the cost of tuition at Canadian universities has nearly tripled in inflation-adjusted terms, the report notes.

READ MORE: Experts warn about private vs. government student loans

“They’ve individualized the responsibility for paying for higher education,” said Erika Shaker, director of the Education Project at the Canada Centre for Policy Alternatives.

In other words, the government passed the buck – or at least part of it.

As tuition costs soared, both Ottawa and provincial governments have increasingly stepped back in. In 1998 and 2004, Ottawa introduced the Canada Education Savings Grant (CESG) and the Canada Learning Bonds (CLB) to top what Canadians contribute via Registered Education Savings Plans (RESPs), the tax-sheltered savings vehicle for families saving for higher education.

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There are tax credits for tuition and textbooks, grants and merit-based scholarships. And provinces are increasingly trying to keep a lid on costs with tuition freezes, tiered tuition that charges more for out-of-province students, as well as offering free tuition for low-income students in some cases.

WATCH: How to manage student debt

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How to manage student debt

And then, of course, there are student loans. The federal government stepped in to directly finance new loans in 2000 through the National Student Loans Service Centre.

“The upshot of these programs was to shift government spending on post-secondary education toward supporting private expenditures through the tax code and other targeted programs,” writes Walsh.

But this shift also put pressure on universities themselves to come up with ways to help students with scholarships and student aid. Since 2000, the amount spent on scholarships and bursaries has ballooned to $2 billion a year, or 20 per cent of tuition and fee payments, according to RBC.

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That, though, has created a vicious cycle, as the need to raise funds for scholarships feeds further tuition and fee increases.

In some cases, “you have the student-aid program by students for students,” Shaker told Global News.

WATCH: Keeping student debt under control

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Keeping student debt under control

So what can students and families do?

RESPs are arguably the most powerful lifeline available to Canadians hoping to avoid or minimize student debt. Families can contribute up to $50,000 per child, with the government pitching in up to $500 a year per child via the CESG and an additional $2,000 per child through the CLB.

Not surprisingly, RESP take-up has soared in tandem with tuition costs. In 1999, only 16 per cent of Canadian households with children had an RESP. Today, that share stands at 51 per cent, according to RBC. Still, that means almost half of eligible families aren’t taking advantage of RESP, which can be used to fund not university but a variety of post-secondary diplomas.

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READ MORE: Taking money out of an RESP? Beware of the taxman

And RESPs aren’t much use to families who can’t afford to set money aside for education, noted Parisa Mahboubi, senior policy analyst at the C.D. Howe Institute.

Grants are scholarships, of course, come with no payback or initial investment obligations, but they do require research, initiative and the ability to stomach financial uncertainty.

“This funding is not automatic – individuals need to apply,” Mahboubi said, adding that knowledge gaps can hold back students in need.

The proliferation of government student-aid options has created a bureaucratic maze that can be difficult to navigate, said Shaker.

READ MORE: Tips for students to avoid long-term debt, save for the future

“You have to apply, you may not qualify, and [grants] may change halfway through the course of an education,” she said. “It’s become a bit of crap shoot for some students.”

Sometimes, students will get the money at the end of the academic year, and sometimes they’ll have to think about what portion of the money is taxable, she added.

And speaking of taxes, education-related tax breaks are one of the top sources of tax-return mistakes by Canadians, according to the Canada Revenue Agency.

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Working part-time and summer jobs help lower costs but are hardly a solution.

In 1990, young Canadians earning the average prevailing minimum wage of $5 in Canada would need 293 hours to cover the average tuition of $1,464, Walsh calculates.

Today, a student earning the average national minimum wage of $13 an hour would need 500 hours to cover the average undergraduate tuition – and that’s not counting fees.

WATCH: Ways to pay down student debt with a summer job

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Ways to pay down student debt with a summer job

Another option is to choose less expensive ways of pursuing a post-secondary education. Vocational schools, community colleges and technical programs are much less expensive.

“The overall cost of educating students at these institutions is roughly half that of universities, and governments pay for 62 per cent of the overall cost,” writes Walsh. And since 2000, he adds, “the average income of people with a non-university, post-secondary qualification rose the fastest of any educational group.”

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READ MORE: Want a job that pays $75K-$100K? Few do, amid Canada’s worst labour shortage in 10 years

That might explain why enrollments are up 33 per cent since 2000.

Still, that’s little comfort for those who do want to pursue a university degree.

“This fee-for-service model that we’ve adopted … is reproducing the inequalities that we have in society,” Shaker said.

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