Are student loans a government cash cow?

Tuesday, April 7th, 2009

Canada’s Student Loan Program (CSLP) fosters many images " from education to debt, but what about the image of a cash cow for government?

Julian Benedict, head of the Coalition for Student Loan Fairness (CSLF), said CSLF has uncovered accurate figures concerning the government’s financial interest in the student loan program.

Through access to information requests, CSLF discovered the government has recovered more than $1 billion on defaulted student loans, and can expect to earn $549.5 million interest revenue in 2009-10.

Additionally, the government borrows the funds used for the student loan program from the Bank of Canada at an average rate of 4.5 per cent interest, yet charges students nearly double that amount.

“Current student loan rates run at 8.75 per cent compounded daily for floating rates, or 11.25 per cent compounded daily for fixed rates,” Benedict said. “That’s higher than virtually any other country.”

Instead, Benedict and the CSLF want the government to end interest on student loans.

“Many countries do not take interest on student loans ... We know that 75 per cent of defaults happen in the first three years of repayment when borrowers are mainly paying back interest,” Benedict said.

“The evidence shows that people are defaulting in large part because of interest ... this has to be the main focus [of any reform],” Benedict added.

But the government holds a different view.

In a Human Resources and Social Development Canada (HRSDC) press release, Rosaline Frith, director general of CSLP, explained the reasoning behind the current system.

“Current Canada Student Loan interest rates reflect the higher risks associated with unsecured lending,” Frith stated, adding the higher interest only partly covers the costs of the program and offsets some of the costs involved with helping borrowers and write-offs for defaulted loans.

“The CSLP is committed to helping those who qualify access postsecondary education while ensuring good fiscal management of CSLP funds on behalf of Canadian taxpayers,” Frith wrote.

However, David Simmonds, president of the Ontario Undergraduate Student Alliance and VP-university affairs for the University Students’ Council, believes the government’s answer isn’t good enough.

“I think it’s an answer ... It’s not an answer we’re willing to accept,” Simmonds said.

Simmonds explained the government’s reasoning " students are high-risk borrowers " did not follow, as public institutions default on loans on a far greater scale than students.

“There are barriers set up,” Simmonds said. “There are a number of students who are prepared to pay off their loans, but can’t find the full amounts of their loans because they’re not contacted soon enough or directly enough.”

The fact that Monte Solberg, Minister of HRSD pledged to put $800 million into the post-secondary education system could be a step in the right direction.

“I think [CSLF] has really touched a nerve,” Benedict said of the movement. “With a million borrowers in Canada I think students are tired of being a cash cow for the government.”

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