On Campus

Deeper in debt

Students borrowing more, taking longer to repay; average student now borrows $5,631

Full-time students owe more in federal student loans than ever before, according to new numbers released by the Canada Student Loan Program. The latest annual report to be released next week reported that full-time students received an average annual federal loan of $5631 in 2005-06 — $802 or 17 per cent more than in the previous year.

The jump is likely due to changes to parental and spousal contribution levels that came into effect during the period. The changes to policy lowered the amount parents and spouses were required to contribute. The move was designed to make student loans available to more middle and upper-income students.

From the source: full interview with Human Resources and Social Development Canada
Read the report yourself: CSL Annual Report 2005-06

Julian Benedict, co-founder of Coalition for Student Loan Fairness, says that the reasons for the jump in average loan amounts don’t change the issue: students are getting deeper and deeper in debt. “The government is facilitating more debt for students, but providing less assistance to reduce debt,” he said.

The government distributed less money through the interest relief program in 2005-06 than in the previous year. 6,000 fewer borrowers benefited from the program and the government distributed $4.3 million less than the year before. Also, 1,000 fewer borrowers used the Debt Reduction during Repayment program.

According to Murray Gross, HRDC departmental spokesperson, the decline in borrowers using the assistance programs is a good thing. “Interest Relief recipients have decreased by 13 per cent over the last three years,” he said. “This decline suggests that fewer students are having difficulty repaying their loans, so that they are less likely to need interest relief or debt reduction.”

But Benedict says that the statistics show that borrowers are extending their repayment period and lowering monthly payments to avoid defaulting on their student loan. 25 per cent of borrowers revised the terms of their loan in 2005-06, a jump of 12.6 per cent.

Murray says that one third of those revisions are borrowers shortening the period of repayment. “In fact, relief recipients have decreased by 13% over the last 3 years,” he said.

However, Benedict questions why so many borrowers are choosing to lengthen their repayment periods, adding that this might be why the government received more interest revenue than expected. (The report revealed $49 million more in interest revenue than projected.)

Benedict believes that one reason more borrowers are extending their loan periods is because they are not educated about their other options, such as debt reduction and interest relief programs. “Their own satisfaction survey shows that borrowers aren’t applying for interest relief even if they qualified. It’s an issue of educating borrowers about their options,” he said.

It seems that the government is making an effort to increase awareness of the Canada Student Loan Program and its various assistance programs. Minister of Human Resources and Social Development Canada Monte Solberg announced an advertising initiative Friday to highlight the flexibility of the program. The campaign includes television and transit ads.

The government announced a number of changes to the Canada Student Loan Program in the 2008 federal budget after conducting a yearlong review of the program. Among the changes, $123 million over four years was pledged to “modernize” the system. Gross said that these changes will be implemented with provinces over the next year.

He elaborated on the new funding: “$23 million over four years for a new service delivery vision that will expand online services and enable students to manage their loans online from application through repayment; $26 million over four years to narrow the gap between contributions from spouses and parents of students by reducing the expected spousal contributions, and to make federal student loans more attractive to part-time students; $74 million over four years to make the Canada Student Loans Program more responsive to the economic circumstances of borrowers, including those with disabilities, by providing greater assistance for those experiencing difficulty in repaying their loans.”

Benedict is critical of $23 million for online services. “We’re cautiously optimistic that the 123 mil will go into programs to improve the system not just administrative changes,” he said. “But spending $23 million on a new website is not, for us, a good use of taxpayer’s dollars. They are proposing to spend the same amount on a website that they would spend in a year on debt reduction.”

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