I know that I promised to try to keep politics out of this blog during the election campaign, but when the topic of student loans and benefits gets raised- a favourite pet topic of mine since I was involved with the students’ union back in my undergrad- I just couldn’t resist.
The Liberal Platform, released earlier this week, makes the following commitments:
“To ensure that students benefit from support when they need it, the existing tuition and education tax credits for full-time post-secondary students will be replaced with an Education Grant payable to each student every three months - at the same time as the GST rebate is paid to most students.
When combined with the GST rebate received by most students, this new grant will be worth $1,000 per full-time undergraduate, postgraduate or college student per year.”
$1,000 cash- sounds great, right? Well, it does until you crunch the numbers and see this is a downgrade to the current system. Under the current arrangement, full time students are entitled to a federal tuition tax credit on their entire tuition amount, an educational tax credit amount of $400 per month, and a textbook tax credit of $65 per month. For those asleep or too busy making out in Tax 101, a tax credit will generally be worth the value of the lowest tax bracket, currently 15%. Assuming the student pays tuition of $4,000 (which is roughly the average undergrad tuition according to Statistics Canada), the current tax system provides the following benefits:
Tuition Credit Eligible Amount = $4,000.00
Educational Credit Eligible Amount = 8 months @ $400 = $3,200.00
Textbook Credit Eligible Amount = 8 months @ $65.00 = $520.00
Total Eligible Amounts = $7,720.00
15% Tax Credit = $1,158.00
In addition to this amount, eligible students will still be entitled to the GST Credit, which ranges from $242 per year to $369 per year, depending on income.
Under the proposed Liberal plan, students would lose the existing education tax credits and would instead get cash payments totaling $1,000 per year. This is $158 less per year for the average student. However, keeping in mind that the Liberal payments include the GST Credit amounts in the $1,000 annual total, meaning that the proposed Liberal plan would see most students lose at least $400 per year, even more if the student attends a program with above average tuition or makes enough to qualify for the higher GST credit amounts. For those in professional programs where the tuition rates can exceed $15,000 per year, the Liberal plan could cost students over $2,000 a year. That’s a pretty big chunk of change.
The Liberal rationale for this reformed system is that most students do not benefit from the current system because they do not earn enough to take advantage of these non-refundable tax credits. However, this overlooks the fact that these credits can be carried forward to future years when they can be used. Furthermore, it ignores the fact that there are many students who do in fact pay in to the tax system and benefit from these credits. In addition to the many students who work in addition to their studies, scholarship and bursary amounts in excess $3,000 are fully taxable, and let’s also not forget students in co-op programs who can earn substantial incomes during the school year. Finally, as much as I disagree with the practice, there are many parents who pay for their children’s education, and the existing system allows the student to transfer up to $5,000 of these tax credit amounts to parents or grandparents. To say that most students do not benefit from the current system is misleading at best.
If Stephane Dion is truly concerned that the benefit to students may be delayed or too indirect, make education tax credits refundable. Or, if he insists on quarterly payments, at least make the amounts under the proposed Liberal system equal to those that are currently available to students, rather than introducing a plan that significantly reduces the benefits in exchange for immediate gratification.
And before the allegations of partisanship come flying, I’m very much in the undecided camp at this point. I think several of the other proposed Liberal changes, most notably the guaranteed $5,000 student loans regardless of parental income, are great ideas and long overdue. I don’t have any particular vendetta against the Liberals, just against bad policies.
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{ 2 comments… read them below or add one }
I can see some benefit to cash payments- they’re guaranteed and predictable and a lot more tangible than tax credits. There’s also the confusion issue- the tax system is tough to understand and confusing for lots of people, especially students. Simplifying things is good!
Not sure if you took it into account, but the Liberal plan would also reduce the base rate, so the differences might be less than you predicted.
Yeah, the cuts to the basic rate will reduce the difference, but only slightly as the proposed cut is 1.5% over 4 years.