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Minister Solberg says policy changes coming for student loans

Monte Solberg, minister of Human Resources and Social Development Canada, says that there are major policy changes coming for the Canada Student Loan Program. But student borrowers will have to wait until the spring federal budget to find out what to expect.

Monte Solberg, minister of Human Resources and Social Development Canada, says that there are major policy changes coming for the Canada Student Loan Program. But student borrowers will have to wait until the spring federal budget to find out what to expect.

Solberg broke his silence about student loans during a speech in Toronto late last week that addressed literacy and economic development. The student loan program has been under significant criticism in recent months stemming from media reports claiming that the system is “broken.” For instance, Maclean’s reported that two thirds of applicants are being denied the student loan disability assistance program even if they receive disability support from their provincial government.

Critics have also drawn attention to the program’s interest rates and alleged poor customer service and communication. Some borrowers have been forced to file freedom of information requests to get information about their own loans. Others brought complaints directly to their MPs after not being able to resolve them directly with the program. This has lead to critics calling for a student loan ombudsperson.

Solberg’s department launched a review of the program when the 2007 budget was released last spring. Up until now, Solberg’s office has responded to questions related to specific concerns about the program by referring to the pending review.

But some critics are concerned that the review is only looking at administrative changes and not major policy changes that could directly affect borrowers. Solberg’s comments last week seem to speak to that worry.

When asked about his vision for the student loan program, Solberg said, “To make it more flexible, more effective, and simpler to use. It has become very complicated and we want to make it work for students.”

But Julian Benedict, co-founder of the Coalition for Student Loan Fairness, isn’t convinced that real change is coming. “If the minister only shuffles paperwork and administration and doesn’t reduce the cost of borrowing for students, then the reform will be a failure,” he said.

One of the main criticisms of the current system is the interest rate, which can be as high as 11.25 per cent. Benedict believes that the interest rate should be lowered or eliminated. “The evidence actually shows that it is the interest that is causing a lot of people to default,” he said, also pointing out that the government spends a lot to chase down defaulted loans. “Reducing the interest would lower the cost of administering the program.”

“$420-million of the outstanding default loans is interest and they are spending tax payers money to collect interest that could be reduced,” Benedict said.

But Solberg did not give any indication of whether the interest rate could change with the upcoming policy announcement. “We have private providers involved,” he said. “It is not just the federal government but it is part of the review.”

Benedict doesn’t think that the involvement of private providers prevents the government from adjusting the interest rate. “Since 2000, a large majority of borrowers are under direct lend [the government loans the money to students directly instead of through a bank]. The government has the right to change the interest rate,” he said.

“At any time the government can decide to reduce the profit margin they are making off of interest. We believe that for every percentage point that the interest rate is lowered, we will see a decline in defaults,” Benedict said.

Auditor General of Canada Sheila Fraser also raised questions about the use of private collection agencies in her report of the program tabled in the House of Commons in May. While she found that most of the program was administered efficiently, the report said that neither the Canada Revenue Agency or Human Resources and Social Development Canada were adequately monitoring private agencies’ collection activities, including handling remittances. For example, although the contracts require annual audits, Fraser found that neither government agency had been reviewing them to ensure proper financial and managerial controls.

Collection of $450-million of $800-million in defaulted loans has been contracted out to private collection agencies. Some say that’s a problem. Denise Savoie, NDP post-secondary education critic, says she knows of at least one former student who received call from a collection agency on Christmas Eve. “I have seen outrageous kinds of claims on students – threatening claims. Pay up or else,” Savoie said. She believes that federal student loan collections need to be more understanding of individual cases rather than be solely concerned with the bottom line.

And yet, in HRDC’s Report on Plans and Priorities, the government plans to spend $10-million more on collections and $40-million more on the service bureau in 2009-10 than in 2005-06, while collecting $20-million less in defaults during that same period.

“Obviously, there has to be collection system in place,” said Solberg. “You can’t count on getting your money back when you loan it to be people.” He added that the current write-off policies are going to be reviewed.

“Again it shows misplaced priorities on pit-bull collections tactics instead of reducing the costs that send borrowers into default in the first place,” said Benedict. “A positive reform would be reducing costs for borrowers and taking the emphasis off collections and bad debts.”

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