Economic Analysis of ontario Student Grant

Through the new Ontario Student Grant, the government of Ontario is trying to make postsecondary education more accessible and affordable to students from low- and middle-income families by partly or even fully covering their tuition. The new grant considerably decreases the cost of higher education, which, as a result, also increases low-income students¡¯ demand for more education. So I believe it will be effective to increase postsecondary education participation rates for the targeted group.

People make their decisions based on the cost and benefit. The opportunity cost of higher education consists of two components: tuition and forgone work earnings due to education, while the major benefit of higher education is the higher income after graduation. On average, an undergraduate student in Ontario pays approximately $400001 to get a Bachelor degree with tuition, ancillary fees, books and supplies included. Additionally the student will forgo approximately $80000-$1000002 of work earnings during the period of education. In other word, one will choose to pursue the higher education only if she, as a university graduate, earns more than $140000 in total, compared to people without the degree. If new grant eliminates tuition fees for lower-income students, their opportunity cost is expected to decrease at least by 30%. Same benefit and lower cost will encourage more people to choose education.

But critics may be raised that why new grant focuses only on lower-income students while a lower cost should also incentivize higher-income students. That comes to my second reason: Lower- and higher-income students have different demand for education due to different level of income. Assume that students need to allocate their income on education and all other goods. Also assume that both lower-income and higher income students have similar tastes between education and all other goods. As a result, if prices of other goods are fixed, a student¡¯s demand