Student loans reach a breaking point

On Aug. 20, the federal government made a last minute change to the Canada Student Loans Program (CSLP) in order to ensure that the program continues to operate normally for the coming school year. There is a cap on the overall amount of loans under the program that can be outstanding at any given time, set by law at $15 billion. In 2008, the government estimated that the cap would be reached in 2014 or 2015, but due to an unanticipated increase in new student loan applications it became apparent that the cap would likely be reached this year.

According to Christine Neill, assistant professor of economics at Laurier, there are three main reasons that the total value of outstanding loans under the CSLP has increased more rapidly than expected. She explained first that there was “an increase in loan values in recent years, likely because of the extension of CSLP eligibility to students from higher income families and the increase in maximum loan limits, both of which happened around five years ago” and secondly, “a decrease in rates of repayment of student loans in recent years, likely in part due to the recession and the associated decrease in incomes of graduates.”

Finally, Neill stated that there was “an increase in enrolments due to some population growth and a higher enrolment rate, perhaps in part due to the recession, which did leave many younger people unable to find jobs.”

If no action was taken, an estimated 50,000 students would have been denied their loans, with a total value of around $300 million. The government’s solution is to change the way that the total amount of the loans is calculated, cutting it down by about $1.9 billion. However, this is only a temporary solution and a decision will have to be made over the course of the next year as to whether the cap should be increased.

It is hard to see a nominal rate of
one per cent as sustainable forever.”
—David Johnson, professor of economics at Laurier

Neill believes that any cap is ultimately redundant, reasoning, “If you’re going to effectively ignore the cap, if and when you hit it, it seems to me that the most sensible thing is simply to remove any mention of a cap from the legislation or to put the cap at an extremely high level.”

Some see this situation as symptomatic of rising tuition fees and an alleged decline in government financial support for post-secondary education. The Canadian Alliance of Student Associations (CASA) estimates that, adjusted for inflation, the federal government transferred $3 billion less to the provinces for post-secondary education in 2007 than it did in 1995. Neill disagreed with suggestions that governments ought to increase their student financial aid programs.

“Actually, I think there’s a case that post-secondary education in Canada is funded too much by governments and not enough by individuals,” she states. “There is very little evidence that, on average, students have serious problems repaying their student loan debt.”

While it is widely understood that tuition for post-secondary education is increasing at more than the rate of inflation, the gap may not be as great as some people think. “Tuition fees have been increasing somewhat faster than inflation, but not radically so,” said Professor Neill. She adds that between 2002 and 2008, tuition fees were up only two per cent more than inflation over that period.

“Student loans under OSAP/CSLP are a very good deal. Every student should check whether they are eligible and how much they could receive and should not be deterred from applying simply because it may mean graduating with debt.”