Canada’s student loans boast some of the highest interest rates in the world and some critics believe it is unfair for governments–both provincial and national–to run their student loan programs as anything but a social assistance program.
The Coalition for Student Loan Fairness released a report titled The Canada Student Loans Program: Solutions to Improve Public Confidence and Operational Effectiveness Tue., Jul. 24 outlining its recommendations for the government to improve their student loan program. According to the Canada Student Loans website students are paying anywhere from 8.25Â-11 per cent in interest.
“Currently, students in Canada are paying more than double the actual cost of governments borrowing,” said CSLF director and author of the report Julian Benedict. “So we’re actually subsidizing the cost of running the system even though we’re asking for loans because we can’t afford to pay for our own education up front.”
The government often counters that many students default on their loans, forcing them to charge higher interest rates, explained Benedict. Defaulting on a student loan is when a borrower goes more than 270 days without paying. Anywhere from 25-26 per cent of students default on their student loans, most within the first three years of finishing school.
“The government is running the student loan system almost unlike any department,” he said. “It’s not considered an imperative for the government to make money off of the health care system and no one expects it to. However for some reason student loan borrowers are being asked to pay far more in interest so that the government can attempt to run the program as a revenue-neutral operation. We believe that this is a social program like anything else and it’s here to help Canadians–because the more of us that are educated, the better the economy is going to be.”
University of Calgary Students’ Union vice-president external Mike Selnes has also been advocating the reduction of interest rates on student loans with the provincial lobby group.
“Through the Council of Alberta University Students we recommended that they reduce the interest rates from prime plus 2.5 per cent to simply prime,” said Selnes. “That’s more of a fair interest rate in the sense that students aren’t being unnecessarily gouged for their interest. Right now a lot of people are under the opinion that the government actually makes a profit off of student loans because they are taking the prime interest rate and then adding an extra couple per cent on to it.”
One of the difficulties with the student loan program is it’s jointly run by both the federal and provincial governments, he explained.
“Right now one of the recommendations we make is that students–regardless of how much they borrow–aren’t required to pay back more than $5,000 of that loan,” said Selnes.
Selnes explained that in addition to lobbying the government to lower interest rates for student loans he is also advocating for the government to change their remission policy on student loans, meaning the amount of money students have to pay back is lower.
“The base operating [budget] for the university isn’t high enough,” said Selnes. “There’s a lot more investment that needs to be made into post-secondary. Tuition is the amount of money that a student is forced to pay. When it comes to a student financing, it’s the money that the students are financing themselves to the system, so anytime that itself can be lowered, it’s a huge benefit to students because they take a significant portion of payment upon themselves to be achieving that education which creates a barrier for a lot of lower-income students.”
The government could also offer more grants and scholarships, especially to rural students who have the additional cost of having to travel somewhere to study, to make education more affordable, noted Selnes. He added his ideal post-secondary education system would be free.
“We want to make sure that those students that do borrow money aren’t being unfairly burdened because of it,” he said.
In Newfoundland and Labrador they recently cut their student loan interest rates to prime, which works out to approximately six per cent. In Ontario the provincial government charges students seven per cent explained Benedict. Right now the CSLF report only looks at the federal government but they are now examining each of the provincial loan systems, starting with B.C.
“There are improvements being made on the provincial side, but on the federal wing it’s been very high for a very long time,” he said. “The [federal] government’s own statistics show that it took in interest revenue in 2005/06 of $350 million and it stands to make $540 million dollars in 2009/10.”
Minister of Human Resources and Social Development Monty Solberg’s office declined to comment.