Fixing the Canada Student Loans Program: Our View
When the federal government announced its plans to conduct a review of the Canada Student Loans Program (CSLP) last year, high-level bureaucrats didn’t know the move would open up a huge can of worms. Since then, Canadians from across the country have been demanding significant reforms. Lawmakers have come to realize that simply tinkering with existing system will not silence critics.
Originally, the feds did not even want to conduct public consultations. The Program was eventually forced to reverse its decision, launching a limited email-based dialogue near the very end of the review. Skeptics also wondered why the CSLP decided to announce the move in a late-night September press release — sent out long after the national media had gone home for the weekend.
Monte Solberg, the Minister responsible for the student loan program, has remained surprisingly tight-lipped about his plans for the CSLP. Despite his well-known reputation in Ottawa for being a talkative, jovial character, few appear to know what his views are concerning student aid. Some reporters have been forced to ambush the Minister with student loan questions at unrelated press functions.
So why is reforming the system so difficult? Why don’t more politicians jump at the chance to fix the student aid? Of course, the complexity of the existing system is a major part of it. But there is a more difficult political question: to what extent should the federal government financially support those attending post-secondary education?
It is indeed a philosophical conundrum for decision-makers. Most people in North America still view student loans as a benefit to individuals, rather than society as a whole. These loans, some say, regardless of their crushing interest rates, complex red-tape, and unreasonable repayment terms, help borrowers get better paying jobs. The argument, we suppose, is that student loans should operate as a penalty, since they provide an avenue for lower-income earners to better themselves.
But for wealthier Canadians whose children don’t need or qualify for student loans, the whole discussion is academic. Politicians know this. That is why they favour across-the-board post-secondary tax credits over more targeted help for students - even though several reputable studies now say tax credits aren’t working.
So, as the government finalizes its plan for loan reform, here are some of our suggestions for fixing the system:
| The Government of Canada should significantly reduce or eliminate interest charges on student loans. |
Why? Figures show the poorer graduates take longer to pay off their loans than wealthier graduates; consequently, the current system ensures that, in the long run, the poor pay far more in interest. Eliminating the interest would also reduce defaults, saving everyone time and money.
| Eliminate Interest Relief and reform Debt Reduction in Repayment Plans. |
Why? If interest was cancelled on student loans, there would be no need for an Interest Relief program. Besides, thousands are turned down for Interest Relief each year, while many more have their applications lost in the process. Meanwhile, Debt Reduction in Repayment, a last-chance for borrowers unable to pay their loans for a variety of reasons, should also be expanded.
| Establish a student loan Ombudsperson Office. |
Why? Thousands of borrowers each year complain that they are unable to resolve disputes with our broken student loan program. The CSLP must have an independent body available to adjudicate disputes between borrowers and the CSLP. This is not a new idea - the Americans have had an Ombudsperson since 1998. A 2007 survey found that the vast majority of Canadians polled liked the idea.
| Streamline and integrate the provincial and federal loan systems. |
Why? Under the current system, provinces which have not signed integrated loan agreements with the Government of Canada require borrowers to sign several different loan agreements. This policy ensures that some borrowers graduate with as many as 4 different loans. The system should support the idea of ‘one student, one loan’.
| Cracking down on abusive collection agencies; waiving interest charges on defaulted loans. |
Why? Too many borrowers are routinely harassed and abused by collection agencies hired by the federal government to recover defaulted student loan debt. The feds should ensure that borrowers are treated fairly and respectfully by these agencies by enforcing collective directives. In order to help borrowers get back on track, too, the government should waive the interest charges on loans already in default.
Canada’s 990,000 student loan borrowers hope the federal government is listening.
About the writer:
Julian Benedict has an Honours in History from Simon Fraser University, and is the co-founder of the Coalition for Student Loan Fairness. He has written several research reports and articles on the student loan system, including “The Canada Student Loans Program: Solutions To Improve Public Confidence and Operational Effectiveness” and “Slaying the Revenue-Neutrality Dragon” in Douglas Welbank’s book: The Rise and Fall of Julius Seizure.
by Julian Benedict