Higher student debt loads and default rates

“Your lovin’ gives me a thrill but your lovin’ don’t pay my bills. Now give me money, that’s what I want!”

The Beatles had it right, even back in the ’60s.

In August, the federal government came close to hitting a $15 billion cap on the amount of loans it can give to students and had to extend the program by an extra $2 billion. Roughly 50,000 students would have been denied $300 million worth of loans if not for the extension, according to the Globe and Mail. The government originally expected to hit the cap by 2014-15.

It was these factors that prompted the Canadian Council of Learning to review student debt and the Canadian Student Loans Program system.

According to the CCL student debt report released Sept. 22, not only have debt loads doubled in the past 20 years but more students are borrowing money to afford education. The report also shows that students with larger debt loads tend to have higher rates of default or missed payments. The higher rates of default contributed to reaching the loan cap sooner than expected as student payments go toward the cap’s equity.

Third-year mechanical engineering student Colin Pham believes many students are defaulting on loans because they are unable to get jobs after graduation.

“Most students, I think, figure that after they graduate they expect to be able to get jobs quickly and be able to pay off the loan as soon as possible,” Pham said. “I don’t have a Plan B or anything if I don’t get hired right away.”

To combat high relapse rates, the government introduced a repayment assistance program and posted more information regarding loans online.

“There seems to be a consensus that students lack financial literacy,” said Claudia Barret, University of Calgary associate director of student awards, financial aid and enrolment services.

She said that some students “didn’t really know too much about repayment and what happens afterward.”

“They’re entering into a very serious and very sophisticated financial relationship,” said enrolment services advisor Krista Strome. “At that point, you’re young and you don’t have a lot of financial history, but through your student status you’re able to borrow a lot of money.”

“It’s a sophisticated process for an unsophisticated borrower.”

The CSLP is a system by the provincial and federal governments. In some provinces a student gets a loan that has been combined between both government levels. In other provinces, a student will receive two loans ­– a federal loan accounting for 60 per cent of the cost and a provincial loan for the other 40 per cent. This complex system can lead to confusion for students.

“I don’t think students are fully aware of what exactly they’re doing when they apply for a student loan,” said Strome. “They shouldn’t just be filling out applications hoping for a large amount of money to support them. They need to have a plan from the beginning.”

Post-secondary institutions have worked to help mend the information gap between students and the CSLP. The University of Calgary incorporated presentations on loan applications and repayment management in both the orientation program for undergraduates and the new “disorientation” program for graduating students.

“The institutions have really responded on this need to supply students with more information so that they know what their obligations are for repaying and when they get into student financial aid programs they know what their responsibilities are,” said Barret.

“We also want to make sure students are looking at a bunch of resources aside from student loans.”

The availability of other resources, such as bursaries or grants, is getting smaller. In the past year the provincial government cut grants and bursaries to $13.5 million (down 55 per cent from the year before) and at the same time eliminated almost $35 million from student loan relief funding.

Council of Alberta University Students chair Hardave Birk said that the government compensated by increasing loan disbursements by around $35 million.

This year, CAUS aims to advocate for a increase of government investment into the financial aid system.

“We don’t want to see that students have to rely on going into debt to get an education,” said Birk.

Avoiding student loans is something that Pham can support.

“I took out a student loan for my second and third year — my scholarship pretty much paid off my first year,” said Pham. “My parents can’t pay for my schooling and the other option might be working in the school year but I don’t really have time for that.”

To help with student debt loads Birk is working on extending the grace period and making it interest-free.

“When a student graduates, they’re maybe moving out of the house, they have more bills to pay now, they’re trying to find a job. It’s a transition period in their life,” said Birk. “Having either an extended or true [interest-free] grace period will allow students to have that six months to figure things out and get up on their feet.”

Pham agreed that an extension of the grace period would help graduating students.

“People wouldn’t have so much pressure to get hired as soon as possible, you’d have more time. Most students think they’ll get hired right away, but I’ve talked to people and they say that it’s usually a few months to a year until they do get hired. So any kind of help would definitely be beneficial for us as students.”

The Canadian Alliance of Student Associations is focusing on interest rates on student loans and have submitted a budget to the federal government asking for a better investment in grants and bursaries as opposed to student loans. CAUS has also done a budget submission to the provincial government asking for more money to be put into the financial aid system.

“We’re really pushing to see more investment in grants, bursaries and scholarships,” said Birk. “These other options will help take some of the load off the student loan system and also help take a load off the backs of some students here.”

In November, both CASA and CAUS head to Ottawa to discuss student issues.

“At the end of the day it is an investment that the government will make for the future of our country, and a very necessary one I think,” said Birk.

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