'Student brains have been taken hostage'

Months after graduating from the post-secondary institution of their choice, young people encounter one of the most unwelcome truths of adulthood: debt sucks. These are young people who received student loans – $5,000 ... $10,000 ... $40,000 – and must start repaying them. For some, it's like a mugging in a dark alley.

The loans doubtless enabled more young people to attend universities, colleges and technical schools, but the burden of youth debt – amounts many homeowners owed on mortgages 20 years ago – raises questions of the efficacy of the student loan program.

Does the student-loan debt have an unhealthy impact on the economy, with delayed purchases of cars, homes and other big-ticket items?

Does the debt contribute in a significant way to stress, depression, even suicide?

A recently graduated student tells of the barrage of calls he got from a collection agency after he had settled into his first full-time job. The calls came to his home and office. The agency would leave messages on an office answering machine shared by colleagues. One day the collection agency suggested the graduate ask his mother to lend him the money. When told that was out of the question, the agency caller asked, "Why? Doesn't your mother like you?"

When classes for the new academic year kicked off in the fall of 2001, some 350,000 students were expected to be on student loans. For those on student loans, the average debt is $25,000 – up from $8,690 in 1991. No small part of the problem is an astonishing increase in tuition fees across the country, up 125 per cent from 1990 to 2000.

James Turk, executive director of the Canadian Association of University Teachers, says students are being unnecessarily saddled with debt. "This is going to have a negative effect on the economy because people won't have the money to buy cars and houses," Turk told CBC News Online.

The Canadian Alliance of Student Associations (CASA), a coalition of student governments from universities across the country, says "student brains have been taken hostage." Liam Arbuckle, CASA's national director, says a study on student debt is "long overdue."

How does it work?

The student loan system works this way. During post-secondary education, the Canada Student Loans Program (CSLP) gives the student an annual sum of money based on family income. The government pays the interest on the loan while the student is in university, college or at private vocational school.

The student begins repaying the loan after leaving school. People with low income can apply for the interest relief plan, where the government pays the interest for up to 30 months. If the borrower faces extreme difficulty, it can be extended for another 24 months.

The repayment period is generally 10 years, but can be lengthened to 15 years. A student owing $25,000 in loans at 8.5 per cent interest faces a repayment schedule of $310 a month for 10 years.

Salaries for graduates average about $30,000-$35,000 a year. With rent, food, bills and loan payments, there's little money left. In the summer of 1997, Statistics Canada and Human Resources Development Canada did a survey of university graduates of 1995. They found this group borrowed more than any other in the past 15 years. Forty per cent of the class of 1995 didn't know when they would be able to retire their loans.

Turk of the Canadian Association of University Teachers compared university today with high school in the 1920s. In the '20s, he said, all provinces recognized the importance of high school education, so they made it free. "We favour the elimination of tuition altogether," Turk said. "University today is as important as high school was back in the 1920s."

Many countries offer free tuition, among them Ireland, Germany, Denmark, Spain, Sweden and Cuba. Australia had free post-secondary education in the 1970s and '80s. Canada and Japan are the only countries in the Organization for Economic Co-operation and Development (OECD) that do not have a needs-based grant program for students.

The history

Prime Minister Lester Pearson started the Canada Student Loans Program in 1964. He hoped to make post-secondary education financially possible for lower-income families. This resulted in increased enrolment, as baby-boomers began taking advantage of the career-advancing opportunity. Since then, the federal government has provided over $17 billion in loans to more than 3.5 million post-secondary students.

But in the early 1990s, in an attempt to battle the looming deficit, Ottawa slashed $4 billion from Canada Health and Social Transfer payments to the provinces. A good portion of that money was meant to fund post-secondary education. In 1998, the Liberal government recognized the need to help students deal with accumulating debt. Then Finance Minister Paul Martin outlined changes to the CSLP in his budget:

• Tax relief of 17 per cent on interest portion of student loans.
• Interest relief for more graduates.
• An extended repayment period for those who need it.
• An extended interest relief period for those who have financial difficulty.

In 1997, Prime Minister Jean Chrétien announced the Canada Millennium Scholarship Fund. The fund, worth $2.5 billion, was intended to relieve student debt by giving $3,000 scholarships to some 100,000 students each year for 10 years. The fund went into effect in 2000.

But the Chrétien government was criticized for adopting stricter measures to force ex-students to pay their loans on time. Student groups blamed the involvement of profit-hungry banks for the new rules. From 1995 to 2000, Canadian banks had contracts with the government to operate the loan program.

The major lenders were the Canadian Imperial Bank of Commerce, Royal Bank and Bank of Nova Scotia.

But negotiations between the banks and the government didn't pan out. The government even offered a better premium to compensate for those who default. The banks kept the amount of losses a secret, but said it was higher for student loans than for any others. According to government statistics, 25 per cent of ex-students are defaulting on their loans. From 1990 to 1996, 46,900 ex-students declared bankruptcy on nearly $395 million.

The federal government then implemented two new measures to curb the default rate:

• Credit checks for students 22 years and older who apply for loans.
• Those with student loans can't declare bankruptcy for 10 years after leaving school.

Ian Boyko, national director of the Canadian Federation of Students, blames the banks for the tighter measures on bankruptcy and credit checks. He believes the loan system is a social program – like health care – and should be treated the same, meaning it shouldn't be contracted out. "We're thrilled the banks pulled out of the agreement," Boyko told CBC News Online. "It's the best thing that's happened to the student loan program in years."

Arbuckle of CASA agrees things are better with the banks out of the picture. "Under the stewardship of the banks," he told CBC News Online, "the Canada Student Loans Program became a money generating machine and strayed from its original intent of ensuring that every academically qualified student in Canada had access to post-secondary education."

As a start, says Arbuckle, the government should lower interest rates on student loans. The rate on student loans now is prime plus 2.5 per cent floating and prime plus five per cent fixed. CASA is lobbying to drop these rates immediately to prime plus one per cent floating and prime plus two per cent fixed.

"Student debt is becoming a larger and larger problem in this country as more and more people borrow more and more just to go to school," Arbuckle said. "Tuition has increased by 125.9 per cent over the past decade and parents have not saved enough to send their children to school. Tuition has increased as a result of poor funding from the federal and provincial governments, effectively passing off the responsibility of funding education from the government coffers onto the backs and shoulders of the students."

[an error occurred while processing this directive]