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University students deserve our sympathy. They're paying more and more for less and less. And they've got a pile of debt to show for it. As of last year, according to Statistics Canada, the average student had racked up $18,800 in debt by graduation day.

Across the country, universities are cutting back on programs to pay for soaring operating costs. The fastest-growing cost is frequently the pension fund. Cumulatively, university pension funds are billions in the hole. And in order to bail them out, or at least get them back above water, universities are being forced to divert substantial chunks of money from their operating funds.

In effect, the students and taxpayers are on the hook for the generous pension promises made to faculty, staff and retirees. And they have pension deals the younger generation can only dream of.

"University employees don't want to contribute more money into the pension plan, and they have these grandiose promises that they're going to retire at age 55 with 70 per cent of their income for the rest of their life," says pension critic Bill Tufts. His new book, Pension Ponzi, co-authored with Lee Fairbanks, is a scathing critique of the pension inequities that have sprung up between the public and private sectors, and between the older generation and the young.

David Naylor, president of the University of Toronto, acknowledges the unfairness of it all. "Frankly, it's a pretty raw deal for students at a time when dollars from government are tight," he told me.

The U of T's current pension shortfall (which Mr. Naylor says is manageable) is just under $1-billion. But deficits at smaller schools are proportionately much worse. The University of Guelph faces a shortfall of $344-million. York University's is $339-million. The University of Ottawa's is $206-million. McMaster's is $301-million. One of the worst problems is at Dalhousie, where the pension shortfall has doubled in a year to a whopping $270-million. That works out to almost $100,000 per plan member.

Pension assets have endured a perfect storm. A decade ago, many pension plans were running huge surpluses. So everyone took contribution holidays and enriched the benefits for current and future retirees. Then came the perfect storm. The markets tanked and interest rates dived toward zero. Investment returns have shrivelled up, while retirees are living longer than ever.

Like other public-sector plans, most university pension plans have two enormously attractive (and expensive) features. Their payouts are guaranteed, no matter what. And the lion's share of contributions comes from the employer, who pays in twice as much as the employee does. In the private sector, guaranteed payouts are nearly extinct. And the contribution ratio for retirement plans is typically 1:1.

Naturally, university unions are fighting to hang on to the status quo. The trouble is that rapid cost inflation is making higher education, like many other public-sector services, an increasingly unsustainable endeavour. According to TD Economics, in 10 years' time, the cost of an undergraduate education for a student living away from home will be $92,000 – $15,000 more than last year in constant dollars. Something will have to give. As Mr. Tufts says, "How much longer can students support these skyrocketing costs?"

The bigger question is how much longer we'll be willing to keep transferring wealth to relatively affluent gray-haired professors at the expense of the next generation. This question applies not just to universities, of course, but to all the other arrangements we made in an age when we thought we could count on high growth forever. Now that those days are gone, we need a big rethink.

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