Banks out of student loan talks

By Jamie Hellewell

Canada’s financial institutions will abandon the Canadian Student Loan Program as of July 31. Last week, the federal government announced negotiations with banks for a new student loan agreement had dissolved; the banks are simply not interested in the terms they offered. This sudden divorce leaves students uncertain about their futures and student lobby groups hoping to cut a better deal under a new arrangement.

"The banks are out; we expect the government will be creating Service Bureaus to take over the administration of the loans in August," said Canadian Alliance of Student Associations spokesman Kieran Green.
Spokesperson for Human Resources and Development Canada Gino Trifiro confirmed that the government is taking over the loan program from the banks, but assured students this will not adversely affect them.

"In no way should they worry; [the changeover] will not affect students at all. We fully anticipate a smooth transition," said Trifiro. "Students with loans will continue to pay their current lending institutions; there shouldn’t be any changes to the front-line operations."

But while there may not be any procedural changes for students, student lobby groups hope the loan policy-making process will change.

"It’s a great opportunity; with the banks controlling the program, students and other stakeholders were not allowed to be involved in the process," said Green. "The new arrangement opens the door for a more inclusive process."

Chair of the Canadian Federation of Students Michael Conlon is similarly positive about the changeover.

"We’re excited. We’re going to try very hard to keep [the student loan program] in public hands," said Conlon.

The private-public affair was a relatively short one in the history of the program. From 1964 until 1995, student loans were completely controlled and financially-supported by the government. Private sector lenders administered the loans, but the government provided 100 per cent guarantees for any repayment problems.

However, five years ago, the government entered into a Risk-Shared Agreement with several of Canada’s private financial institutions. Under the agreement–which expires this July–the private lenders were responsible for all aspects of loan repayment, including the costs of unpaid loans. The government, in turn, agreed to pay the lenders an annual risk premium of five per cent of the total loan amount paid out to compensate them for losses due to defaults.

The government hoped the agreement would increase efficiency by offering incentives for the private lenders to reduce the default rates. The private lenders hoped they would be able to make the loan program profitable. However, since 1992, default rates have increased rather than decreased, and the private lenders claim they have lost money as a result. With the Risk-Shared Agreement expiring this year, the lenders will not sign a new contract–even though the government offered to increase the risk premiums.

"They didn’t see it as a profitable enough venture to continue," said Conlon.

It’s not clear whether the government intends to take the pro gram back permanently. However, Conlon said this was a short-term solution.

"The federal government has committed to taking back the CSLP for the coming year at least, but they’re trying hard to farm it back out to a private provider down the road," said Conlon.

Green disagrees.

"I don’t see them trying to privatize it again," he said. "The banks aren’t interested. I think we’re going to have a public system for a long time to come."

Trifiro wouldn’t comment on the long-term future of the program.

"We are looking for the most efficient way to deliver student loans," he said. "Our first option would have been to continue with the banks. But that is not an option at present."

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