Manitoba should scrap no-interest provincial student loans for post-secondary students, KPMG says in its newly released review of the province's finances.

The consulting firm's fiscal report, released on Tuesday, said the lack of interest charged on student loans "may discourage repayment of the loans."

It said the current student loan program is "burdensome," and the province should move to an integrated program administered by the National Student Loan Service Centre, through the federal government.

Unlike Canada Student Loans, which are provided through the federal government, Manitoba Student Loans are interest-free while students are in school and after they've completed their studies, as long as they continue to repay the loans.

The KPMG report looked at different aspects of post-secondary funding, including university grants, hiking tuition and targeted funding to programs, but pointed to the previous NDP government's decision to waive interest on student loans as a money-waster, estimated to cost the province about $4.5 million each year.

First Ministers 20171003

Manitoba Premier Brian Pallister has already taken action on other recommendations in the KPMG report including freezing operating grants and getting rid of the tuition fee income tax rebate. (Justin Tang/The Canadian Press)

The report said the average four-year post-secondary program costs around $17,000 and the average student loan debt after graduation is about $9,300.

KPMG was tapped in 2016 to conduct the fiscal review, at a cost of $740,000. The province received the completed review last December.

The provincial government said for months the information gathered for the fiscal review is owned by the company and it would be illegal to release it, before releasing the review results on Tuesday.

Already acting on recommendations

Brian Pallister's Progressive Conservative government has already taken steps based on recommendations in the report, including freezing operating grants, getting rid of the tuition fee income tax rebate and removing caps on tuition increases.

Tuition was frozen from 2000-08 in Manitoba under the previous NDP government, and during the same time interest was eliminated on provincial student loans. The NDP unfroze tuition in 2009, adding rules that cap tuition increases to the rate of inflation.

The Progressive Conservative government has introduced a bill to eliminate that cap, a suggestion in the KPMG report. The proposed law would allow for tuition hikes of five per cent plus the rate of inflation.

But there's been no word from the PCs about whether KPMG's suggestion to ditch interest-free student loans will also move forward.

Targeting students in debt: CFS

"The department is researching possible options and best practices from other provinces for student aid delivery," a spokesperson for the minister of education and training said in a statment emailed to CBC.

"We will give consideration over time to what makes the most sense in terms of providing the best possible support for students and ensuring the responsible use of taxpayer dollars."

Annie Beach, the Aboriginal students commissioner with the Manitoba branch of the Canadian Federation of Students, says removing the interest-free loans would be proof the PC government is "trying to balance its budget on the backs of students and families."

"Our thoughts are that this is an attack on the poor of Manitoba, the poor Manitobans, and that if this is to go through, then it is already targeting students who can't pay up front," she said. 

"It means we are targeting students who are already $20,000 in debt from their tuition."

A University of Manitoba spokesperson said the university is still reviewing the KPMG report. "Conversations with government will continue," the spokesperson said.

The University of Winnipeg said it is also reviewing the report.

0% interest dissuades repayment, report says

The province had nearly $118 million in outstanding loans to about 32,000 people as of September 2016, the KPMG report said.

About $57 million of that went to 12,000 currently enrolled students. Another $46 million had been borrowed by 15,000 people who had since graduated and were not accruing interest on their repayment, the report said.

Some of the remaining $14.5 million in student loans went to people who were given a longer period of time to start repaying their loans — about $800,000 to 100 people — and 750 people enrolled in a repayment assistance program who had borrowed about $4.5 million.

About $9.3 million was also tapped into by 3,100 people who have defaulted on loans and are in collection, the report said, adding Manitoba has the highest default rates for university students.

"This could indicate that a zero-interest approach may dissuade students from repaying and/or the collection of student loans is not being effective pursued," the report said.

Manitoba and Alberta are the only provinces that still have stand-alone student loan programs, separate from the federal program.

KPMG's report said the provinces with an integrated program see savings by leveraging the Canada Student Loan infrastructure and processes. It also improves service delivery and reduces staff and administration costs, the report said.

'Fiscal constraints' would prompt cuts to 'ineffective programs'

The report added that allowing the universities and colleges to raise tuition could encourage them to spend more on salaries. In response to that, it suggested the government should get annual performance reports from institutions focused on educational outcomes.

It also suggested schools facing a funding crunch will refocus their offerings to students.

"Fiscal constraints will promote greater collaboration between universities and colleges to remove duplication and ineffective programs from the system and encourage specialization and innovation in their programs and practices," the report said.

KPMG said the government needs to start considering outcomes — like graduation rates — in its funding models, and should prioritize funding to programs that produce graduates in high-demand professions.