heqco – fear of finance: student assistance as a tool for ... morris... · for students from low...

Ministry of Training, Colleges & UniversitiesPost Secondary Education Division

HEQCO – Fear of Finance:Student Assistance as a Tool for Low-

income Students

November, 2011


2

PURPOSE

The advantages of PSE for low income students vs. participation rates

Questions:“How does OSAP encourage low-income students to participate in postsecondary education?”

“What are limits of Student Financial Aid in encouraging low-income students to participate?”

“What more can be done? Is complexity of process and information over-load a barrier?”


3

ADVANTAGES/RISKS OF PSE

ADVANTAGES:A recent TD Economics report says that education remains “the best investment you can make”, with undergraduate degrees netting an average annual return of more than 10 per cent. Various other economic studies reach similar conclusions.

Postsecondary graduates have higher employment rates and salaries than those with only a high school diploma.

According to a recent OECD report, 29.8 per cent of university bachelors’ degree graduates in Canada are earning more than twice Canada’s median income.

In addition to direct financial returns, postsecondary education is associated with better health, good citizenship, higher productivity and economic competitiveness.


4

RISKS:Like any investment, there are risks and costs to consider.

Risks that the investment will not pay off:– Postsecondary entrants do not always successfully complete

their program and end up with a credential.– A minority of graduates do not do well; 18.4 per cent of

bachelors degree graduates in Canada are earning less than half of the country’s median income of $37,000 (OECD).

Costs are incurred for several years of:– Tuition, books, etc.– Living costs– Foregone income

ADVANTAGES/RISKS OF PSE


5

LOW INCOME PARTICIPATION IN PSE

Various studies confirm that low-income students are less likely to participate in postsecondary education.

HEQCO analysis of Ontario data from the Youth in Transition Survey shows:– The share of students enrolled in postsecondary education –

and especially university - increases steadily with family income.– Overall, nearly 82 per cent of Ontarians surveyed had enrolled in

some form of postsecondary education by age 21 – a high rate by world standards.

– The percentage who enrolled ranged from a low of 72.4 per cent for youth from families with income below $25,000/year to a high of 92 per cent for youth from families with income over $100,000/year.


6


Students from low income families are less likely to go on

Source: @Issue Paper No.8, An Overview of PSE Accessibility in Ontario, Norrie and Zhao, HEQCO, July 2011


7

Why are Low-Income Students less likely to participate?Liquidity Barriers – actual cost and foregone income

Different Perception of Benefits - Costs - Risks– First generation students have different expectations– Peer groups play a role– Debt aversion

Different family or cultural expectations

Parents less likely to have attended postsecondary

Academic barriers – perception that they cannot compete academically

Complex applications; complex fee structures; SMALL BARRIERS



8

HOW DOES OSAP REDUCE BARRIERS

The OSAP population consists of:– 152,000 “single dependent” students;– 88,300 single independent students;– 17,300 married students;– 12,300 sole support parents.

University & College Students by Income Quartile

Notes: 2010-11 year 1 and 2 single dependent OSAP recipients. Source: OSAP query data for 2010-11 - March 25, 2011.

Lowest quartile

Second quartile

Third quartile

Highest quartile

< $32,300/yr $32,301 to $67,900/yr

$67,901 to $112,500/yr > $112,500/yr

University 30,887 31,882 27,620 11,280

College 16,835 16,419 11,164 2,621

47,722 48,301 38,784 13,901 148,708


9

1. OSAP is structured to reduce financial barriers to access PSE, and reduce the opportunity cost of time in studies

2. OSAP targets non-repayable subsidies/grants to low income students that helps entry and enables higher level of persistence

3. Modernized web-sites, accessible information, and simplified applications are reducing the complexity to access assistance

4. Improving the student experience through modernized systems that allow for “touch-free” student assistance (lifetime loan agreements; electronic confirmation; direct deposit)

5. Repayment assistance (RAP) and debt remission (OSOG) under OSAP reduce debt aversion, reduce the level of debt on graduation, and gear PSE repayment to post-graduation income



10

Reducing Financial BarriersOSAP (Canada/Ontario) issues about $2.6 Billion/year in loans and grants to help remove liquidity barriers for Ontario students.

This assists over 270,000 PSE students/year in Ontario – about 45 per cent of those who attend PSE, a very substantial increase since 2002.

A “dependent” student on OSAP is entitled to up to a maximum of just over $12,240/yr of assistance, depending on their situation. This includes significant grant components.

For students from low or lower-middle income families no contribution from parents is required.

– Ontario expects no contribution from parents’ income until about $60,000 (family with two children).

– Federal aid assumes no contributions from this family until $74,000.



11

Targeting Grants/Subsidies:Grants are issued to students from low-income families that improve their relative rates of return. – Ontario Access Grants cover up to 50% of tuition for low-income

students in the first two years of their program. – Canada Student Grants for Persons from Low Income Families

provide $2,000/year in grants.

Together, a low-income university student can get up to $5,000/year of costs met through up-front grants. These funds are easily visible to students.

In addition, once a student’s year is completed, Ontario Student Opportunity Grants can pay down remaining student loans to a debt cap of $7,300/year (two term)



12

Simplified Applications – More Accessible Information:OSAP underwent a complete re-write of the on-line application (99%) of students complete on-line) to tailor it to each type of student, and make it easier to complete with on-line and detailed reference information.– It is heavily used, with about 47.5 million hits per month on

average.

OSAP transformed it’s web-site to:– Improve access to information (ie. max 3 “click-throughs”), – Provide easy to access planning tools for PSE– Provide simple aid estimators and repayment calculators (used for over

250,000 aid estimates over the past year)– Provide real-time client account information and “next steps”

Created a 1-800 access centre for student information and repayment programs



13

Improving the Student Experience:OSAP is transforming the student experience to ensure easy, accessible and a “touch-free” student access to funding.

OSAP is implementing a “life-time” loan agreement for 2012-13, reducing the need and complexity to sign 2 loan agreements/year, and submit them in person to the Financial Aid Office.

OSAP is implementing fully electronic confirmation of enrolment, eliminating the need for students to line up twice per year.

OSAP is implementing fully electronic direct deposit to ensure students have their funds in a timely way, reducing errors and lost cheques



14

Repayment Supports Reduce Risk and Debt Aversion:If a postsecondary education does not result in the expected labour market outcomes, this leaves students with debt that they may struggle to repay.

Worst case outcomes include carrying forward large debt burdens, defaulting, damaged credit ratings, and collections activities - Risks are higher for students from low-income families.

OSAP reduces repayment risk to students through Ontario Student Opportunity Grants (OSOG) which limit debt to a maximum of $7,300/year.

In 2010, Ontario started new Repayment Assistance Program (RAP). Through RAP, Government shares the costs of repayment if student’s income is too low to reasonably manage payments, based on standardized comparison of monthly payments and monthly income.

– After five years, this assistance can include payments towards principal and all debt is retired by 15 years after completion (10 years for disabled).

– There are 110,000 Ontario borrowers on RAP, most with $0 payment



15

The decision to attend PSE is a complex one, related to family circumstances, geography, culture, aptitude, availability of programs, and many factors exogenous to family income.

Recent data from the Longitudinal Survey of Low-Income Students shows the timing of decisions to attend PSE is made early. Based on surveying a group of low-income Ontario students who had successfully transitioned to postsecondary:

– 36.5 % “always knew” they would attend postsecondary;– 26% decided in Grade 9 or 10;– 9.8% decided in Grades 11 and 12;– 5.3% decided after high school.

Reaching students with little motivation to attend PSE, in their high school years, is difficult, multi-dimensional, and in constant flux.

LIMITS OF STUDENT FINANCIAL ASSISTANCE


16

Ontario has done much on the financial front to assist students to access PSE - Ontario’s annual OSAP expenditures are now more than double what they were in 2003-04. Improvements to OSAP and more support for low-income students over the last seven years have improved the adequacy by:

– Introducing new up-front access grants– Limiting debt– reducing parental contributions– doubling of OSAP exemptions– indexing book, supply and equipment allowances– strengthened institutional aid requirements – Student Access Guarantee

In 2010-11, about 45 per cent of full-time university and college students access OSAP support, up from only 31 per cent in 2003-04.



17

Adequate financial aid is a key component in any program to support postsecondary access for students from low-income families, however, affordability barriers are only one part of the story.

Lower-income is correlated with other characteristics that affect educational decisions:

– Different family expectations– Parents less likely to have attended postsecondary– Academic barriers

Barriers sometimes reinforce each other. For example, high school course selections and level of academic effort are affected by whether a student plans to continue.



18

WHAT MORE CAN BE DONE

Reducing ALL “Small” Barriers: We’re working on a pilot project with the Ministry of Education. The Life after High School Pilot Project will look at the effects for postsecondary transitions of:

– providing one-on-one information on labour market opportunities, economic benefits of postsecondary education, choices, and costs;

– guiding students through the PSE and Ontario Student Assistance Program (OSAP) application processes.

Less Red-Tape, More Convenience for Students: We have major initiatives under way with our partners to reduce red tape and make getting student aid easy and convenient:

– We released the 2011-12 OSAP application 4 months early. Longer-term goal is to get OSAP launched early enough to coincide with application centre timelines;

– We introduced Mobile OSAP applications, letting students get OSAP updates on mobile devices;

– Implementing major process improvements with our federal and postsecondary partners that will mean fewer documents for students to sign, smaller line-ups at institutions by students picking up their OSAP, and more efficient transactions.

– We are looking for opportunities to simplify the application.


19

We are always open to ideas.

The Government has acted on many ideas presented by student groups for how Reaching Higher dollars could best be used to improve OSAP.

In the current context, there is likely more of a market for cost-neutral ideas and trade-offs, not just add-ons.

WHAT MORE CAN BE DONE


20

THANK YOU

QUESTIONS??

heqco – fear of finance: student assistance as a tool for ... morris... · for students from low...

Documents