Note: The report referenced in this article was released by the Educational Policy Institute Canada, not EPI. EPI Canada is a for-profit, non-partisan subsidiary of the non-profit Educational Policy Institute.

Dramatic tuition hikes must be part of a recession survival plan for Canada's ivory tower, warns an education thinktank.

Colleges and universities must consider charging more, despite a middle-class backlash, if they hope to avoid diluting the quality of education during the economic crisis, says the report by the non-profit Educational Policy Institute.

The report predicts fee hikes of up to 25 per cent in the next couple of years – in line with increases during the last recession – which would generate $1 billion to $2 billion for recession-hit campuses.

Caught between the surge in enrolment that happens in every recession, and the looming slowdown in government grants and private donations, Canada's colleges and universities must consider hiking fees, boosting student aid and cutting the ranks of big-ticket senior staff, said the report.

The good news, say the authors, is that many Canadians can afford to pay more. "The average net tuition a student pays in Canada, once you factor in inflation and tax credits, has gone up less than $90 in the past 10 years – to $4,066 from $3,985 – while family incomes have increased a lot," said analyst Alex Usher, co-author of the report by the institute, based in Toronto, Virginia and Australia.

"Also, there is a smaller percentage of students borrowing to pay their tuition, because so many have been able to find work," said Usher, whose report states bluntly, "The question in Canada is not whether families can contribute more (to tuition): on average, they can."

John Milloy, Ontario's minister of training, colleges and universities, said he was not willing to "get into a numbers game" yet because the province's 5 per cent cap on yearly tuition hikes for most programs doesn't end until September 2010.

"But obviously we're in a tough economy and it's no secret our resources are limited. However this government has said we do not want finances to ever be a barrier to a qualified student having access to post-secondary education."

In fact, any fee hikes during a recession are "an absolutely absurd proposal," said Shelley Melanson, chair of the Canadian Federation of Students' Ontario branch.

"It's fascinating that while every government in the world is saying we can't raise taxes, to increase what is really a flat tax on students – tuition – completely ignores the reality of the economy."

The federation is urging Queen's Park to actually roll back tuitions once the cap is lifted, to 2004 levels, and then cut it each year after that.

The University of Toronto, which, like most universities, is grappling with dwindling endowment payouts, is "doing a lot of math right now to see how much (increase in tuition) would be responsible without freezing out huge numbers of students," said Rob Steiner, the university's assistant vice-president of communications.

"Double-digit increases each year are probably a bigger jump than people are thinking of – now is not the time for massive sticker shock – but chances are the current framework (of 5 per cent hikes) will not be enough.

"We need to make sure we have enough (tuition dollars) to protect the quality of education and enough student support to make sure people can afford to come."

The report notes that unlike in earlier recessions, universities can't turn to endowments to bail them out this time, because they were the first to be hit. This has caught universities and colleges in what the report calls a "double whammy" – cuts to both donations and government grants.

In 2007, Canadian universities reported $10 billion in endowments; nearly one-quarter of this at the University of Toronto; about half shared by four universities. While no one knows exactly how much these are down, the report suggests a drop of $2 billion – about 20 per cent – is likely so far.

The other part of the double whammy – government funding cuts – may not hit right away, given the current focus on "stimulus," suggests the report. But once the recession passes and governments work to eliminate their deficits, continued grant increases of 6 to 9 per cent seem unlikely.

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"The bigger threat to Canadian institutions, therefore, lies in the budget cycles for 2011, 2012 and beyond: As recovery takes hold and the economy improves, budgets will be pared back and cuts to institutional funding will be hard to avoid."

The report also suggests government give colleges and universities the money to offer senior, highly paid staff a one-time buyout to "reduce the salary base."

Usher said he isn't "talking about eroding the ranks of tenured professors – the younger, cheaper faculty could well be tenure-track professors," but suggested universities might want to consider more teaching-only professors who don't have research responsibilities.