The Savage History of Student Debt

A frustrating five-part fable of our federal government’s failure and folly

by Gregory Beatty, Rick Pollard and Chris Morin

Illustration by Dakota McFadzeanIf you’re a student reading this, odds are you have a student loan, maybe a big one. Sorry to hear that. It wasn’t always this way, you know. In fact, some might suggest it doesn’t have to be this way now. Governments can adjust their priorities. The provinces and the feds can find ways to make college education more affordable. Canada’s done it before, for other generations.

PART I: WHAT THE HELL HAPPENED?

by Gregory Beatty

Visit the Canadian Federation of Students’ website and you’ll find a student debt clock prominently displayed. When I last checked on Tuesday Sept. 5, the total stood at more than $15.5 billion.

$15.5 billion. Let’s pause and let the scale of that debt — carried by Canadian students and graduates — sink in.

The figure is a bit of a milestone: until March 2012, the country’s debt limit under the Canada Student Financial Assistance Act (CSFAA) had been capped at $15 billion. That limit was established in 2000 — before that, the ceiling had been $5 billion. Now, it stands at $19 billion. But with student loan debt growing at over $1 million a day, the ceiling will likely have to be raised again in a few years.

The Canada Student Loan Program (CSLP) has existed since 1964. For the first 30 years or so, it was used by students as a handy source of low-cost debt financing to supplement summer employment so they could further their education at a university or technical college. Upon graduation, they would enter the workforce and, with the benefit of their enhanced earning power, pay off the loan in short order and get on with life.

Now, the situation is much more ominous.

To begin with, student unemployment is much higher than it used to be. It’s difficult for students to secure adequate summer employment, and even more difficult to find quality work in their field once they graduate. The cost of attending university has also skyrocketed. Like other Canadians, students face rising prices for food, accommodation, transportation and other essentials. Then there’s books and tuition to consider.

The net result is that the average student today graduates with debt of over $27,000, not including credit card and other private debt.

Ian Boyko of the B.C. office of the Canadian Federation of Students (CSF) says that no interest is charged on the loan. But once they graduate, regular loan provisions kick in.

“For federal student loans, I believe there’s a six-month grace period. You’re not required to make a payment during that time, but interest still accrues,” he says.

The default amortization period for federal student loans is 10 years, Boyko says.

“You can negotiate it down with the National Student Loan Service Centre. If you have a relatively small loan, it may not make sense for you to have a 10-year amortization where you’re paying $17 a month. You may want to accelerate that. You can also negotiate the period upwards throughout the life of your loan if you lose your job or whatever.”

Compared to today, previous generations of students had it much better. In 1990, the average student graduated with debt of around $10,000. Inflation needs to be factored into the equation, obviously. But by any measure post-secondary education in Canada was once much more affordable than today.

So what happened?

“It all started with Paul Martin’s infamous 1995 budget that cut around $7 billion out of education and training,” says Erika Shaker, co-author (along with David Macdonald) of the Canadian Centre for Policy Alternatives’ 2012 report Eduflation and the High Cost of Learning. “It also altered the funding mechanism for the Canadian Health and Social Transfer. The fallout from that was that provinces also changed how they were investing in education. It became more of a cost-based model where more and more costs were downloaded onto individual students and their families.”

The Chretien Liberals were in power when cuts to the Canadian Health and Social Transfer were made. But their hand was arguably forced by previous mismanagement of the economy by the Mulroney Tories. In Saskatchewan, a similar situation existed, with the Romanow NDP government hamstrung by $15 billion of debt accumulated by the Devine Tories.

The situation was so bad that Saskatchewan actually flirted with declaring bankruptcy, and we weren’t the only province to experience tough economic times. So cuts were made across the board.

Within a few years, economic conditions had improved considerably. But succeeding governments declined to restore funding for post-secondary education to pre-1995 levels — with predictable results.

“Thirty years ago, 80 per cent of a university’s operating budget came from government grants,” says Jessica McCormick, National Chairperson of the CFS. “Now, only 50 per cent does and the rest is made up through tuition fees.”

For Saskatchewan students, that’s translated into a four-fold increase in tuition from $1591 in 1992 to $6017 in 2012. If nothing is done to stem the tide, tuition will reach $6815 in 2015, and by 2026, when kids who are in kindergarten today will be entering university, it’s projected that average tuition in Canada will be $13,100 a year.

In place of the up-front grants that federal and provincial governments used to provide, a variety of measures have been introduced. The Canada Millennium Scholarship Foundation is one example. It ran from 1998-2008, and was later replaced by the $350 million Canada Student Grants Program. Tax credits for tuition fees are also available, and the federal government also administers the Registered Education Savings Plan, which enables parents to save money for their children’s education tax-free. The RESP is capped at $50,000 per child, and the government provides a grant of 20 per cent of the first $2500 in contributions each year, with a Canada Learning Bond program available to assist low-income families in starting an RESP.

In 2011, the total cost of the initiatives to government was $2.5 billion. That’s a substantial sum, but critics describe the hodge-podge of programs as “poor instruments” to relieve student debt and promote access to post-secondary education. Most tend to favour higher-income families, and studies show that rising tuition poses a significant barrier for students from low-income backgrounds to enter university.

Students’ worries aren’t over once they enter university either, says McCormick.

“A generation ago you could work over the summer and make enough money to cover your tuition and cost of living. Today, students get a summer job and it doesn’t come close to covering the cost of tuition, rent and groceries. So many students take on either a part-time or full-time job while they’re in full-time studies. It absolutely has an impact on their ability to concentrate and focus.”

And once students graduate, their capacity to maximize the value of their education is often compromised by financial pressures, says Shaker.

“They have this debt that they know they’re going to have to start paying off in a matter of months. Do they take the time to look for a job that’s in their area of study, or do they take a job that will give them a paycheque — perhaps not a significant one, but one that will allow them to start paying off the loan so they don’t fall into arrears and have to deal with creditors calling?”

“High student debt doesn’t just cause individual hardship, it also has a significant impact on our economy,” agrees McCormick. “Students who are saddled with $30,000 of debt when they graduate won’t be able to fully participate in the economy and do things like invest in a home or buy a car. And they most definitely won’t do it if they can’t find a job, and we’re facing a significant rate of youth unemployment now.

“It’s a perfect storm of high tuition fees, high debt and high unemployment,” she says.

[hr]

PART II: NO BANKRUPTCY FOR YOU!

by Gregory Beatty

Students aren’t the only Canadians struggling with debt. As news reports frequently remind us, the average household has a debt-to-disposable-income ratio of nearly 160 per cent. But if that burden becomes too onerous, the average Canadian has an out in the form of bankruptcy protection.

Strangely, students aren’t allowed to use that option.

In fairness, says the CFS’s Ian Boyko, the entire existence of the Canada Students Loan Program is a recognition that students aren’t like other borrowers.

“Often, the people involved are quite young and don’t hold a lot of assets or have much of a borrowing history,” says Boyko. “That hasn’t really changed over the years. And a lot of the special treatment students receive is positive. There is a credit check applied, but the rules are very low to qualify for a loan. The interest-free period when you’re in school is another example of special treatment. There’s just a few things, like the bankruptcy exemption, where a student loan is a worse loan to carry than a private sector loan.”

As a legal principle, bankruptcy is intended to enable people who are facing dire financial circumstances to wipe the slate clean and get a fresh start in life. But under the Bankruptcy & Insolvency Act, some debts, like those that arise due to fraud, or alimony and child support, or court fines, remain even after bankruptcy.

Since the mid-‘90s, student debt has been classed in that category. The change was justified by governments and financial sector charges that students were scamming the system — accumulating debt during their studies, then simply declaring bankruptcy once they graduated to escape their debt burden.

“That’s a myth,” says Boyko. “I’m not saying there isn’t some abuse in the system. But the vast majority of students take on student loans because they need them. And once they graduate, repaying their loans is only one of the financial pressures they face.

“The problem is that we’ve set up a system that puts low-income families in debt rather than trying to help them break the cycle of poverty with a generous system of financial assistance. So I would strongly disagree that there’s a problem with students who don’t respect their loan commitments. The vast majority of Canada Student Loans get paid back.”

Initially, students were prevented from declaring bankruptcy for two years, which most would probably agree isn’t too oppressive. But in 1998, that was increased to 10 years.

Now, the non-dischargeable period sits at seven years — although in cases of severe hardship a bankruptcy court can grant relief after five.

According to CFS estimates, 147,000 Canadians are currently unable to make payments on their student loans.

“People who are from marginalized backgrounds, aboriginal students, women, are all typically paid less in the workplace and therefore take longer to pay back their debts,” says CFS Chair Jessica McCormick. “And that debt is accruing interest, so in the end they’re actually paying more for their education than people who have the money to pay off their debt more quickly.

“The system is definitely not beneficial to those individuals,” she says.

[hr]

PART III: BEASTS OF NEVERENDING BURDEN

by Rick Pollard

We’ve already mentioned that when you visit the Canadian Federation of Students’ website, you’re greeted by the ominous sight of the student debt calculator, relentlessly counting up instead of down. According to that counter, Canadian students owe more than $15.5 billion to the Canadian Student Loans program.

But when debts to provincial student loan programs are added in, the total debt borne by students is more than $25 billion.

That’s a huge expenditure of taxpayer dollars. For some students, it’s the helping hand they need to complete their education. But for others, it’s a heavy debt burden to carry when they are just starting out. Many find that carrying that burden will weigh them down for the rest of their lives.

According to a 2012 study by the Canadian Centre for Policy Alternatives, the average size of a student loan in Saskatchewan is more than $9,000. Half of all students graduate with a student debt of $10,000 or more. Many graduate with debts of closer to $40,000.

Last March, the federal government announced it was writing off more than 44,000 student loans, a total of $231 million this year alone. That’s double the amount written down in 2010. Tens of thousands more have defaulted and are in some kind of collection process.

Sadly, not everyone is equipped to manage the burden that comes with taking on debt. Some are the first member of their family to attend university. Many have an aversion to accumulating debt that personal or family experience suggests they can’t repay.

This will be hard for some people to understand. University graduates typically have higher incomes, and can easily afford to pay down their loans. But what happens to students who don’t get a high-paying job after they graduate? Worse still, what happens to students who don’t graduate at all?

Even professionals are not immune to anxiety about debt. Research suggests that debt anxiety causes some medical students to forego careers in family medicine for more lucrative careers as specialists. How does this help us to recruit young doctors to family practice, especially in rural Saskatchewan?

Research also suggests that, as student debt rises, many people never finish their programs.

“When people start accumulating debt, many will pause their education and go back to work for a year,” says former University of Regina Students’ Union (URSU) President Kent Peterson. “Of course, once they’ve interrupted their studies, they then have to start repaying. That year turns into an indefinite leave from school. They quit with the intention of going back, but they never do.”

“The design of these programs is that you have to be a full-time student. When you stop being a full-time student, you have to start repaying. It’s hard to stop all that and go back to school.”

I’m one of those people who never went back.

I was the first person in my family to attend university. Looking back, I probably should’ve waited until I was better prepared, both financially and emotionally, but the pressure on me to attend university immediately after high school was enormous. I was one of the “smart kids.” I had good grades in high school. It was what people expected of me, and what I expected of myself.

When I started university, I was living at home and my first loan was mostly to cover tuition and books. But my situation soon changed, and I was forced to live on my own. For months, I struggled to make ends meet — and my grades suffered as a result.

Research compiled by CFS for a paper titled “Education Shouldn’t Be a Debt Sentence” suggests my experience is hardly unique. The link between falling grades and financial pressure is well documented.

Eventually, I was reassessed and received additional assistance that took into account my new living situation. But it still wasn’t enough — and in any case, the damage to my self-esteem and my academic standing had already been done.  Eventually I was asked to take a “dean’s leave” for a year.

I intended to return to school. But I was broke, drifting from one low-paying job to another. For a while, Canada Student Loans was understanding when I explained I couldn’t make loan payments. But the interest kept accumulating and the debt kept mounting. Eventually, I defaulted and my loan was sent to collection.

What followed was a series of horrible and demeaning confrontations with collection agents whose livelihood depended on squeezing money from me. One day, I talked to an agent who kept badgering me to borrow from family or friends. I kept repeating that the last thing I needed was to borrow more money I couldn’t afford to repay. He said that wasn’t his problem. Finally, my exasperation got the best of me and I told him, “I’m already broke. I don’t want to be broke, and have no friends. I want my friends to go on liking me. If you don’t like me, I can live with that.”

We never spoke again.

Eventually, I got a good job and began making payments. For years, the majority of my payments went to interest rather than the principal of the loan. But I persevered, and today, my loan is paid in full. The damage to my credit score took longer to repair.

At times, I’ve considered returning to school full-time. But I would never be able to do so without student loans. And although I have repaid my old loans, with considerable interest, the rules are clear. Anyone who has defaulted on a previous loan can never reapply.

I understand the reasoning behind the policy, and I don’t blame others for my mistakes. But I can’t help but wonder: Why are we setting up people like me to fail? Why is this program failing the very people who need it the most?

Peterson suggests that, while most Canadians believe that student loans help subsidize the education of low-income students, the reality is quite different.

“It actually sets up low-income students to effectively pay for their education three times. First, like all of us, they pay for it through their taxes. Then, they pay for it again through their tuition fees and other expenses. Then, they pay thousands of dollars in interest on their loans. In the end, lower-income people will pay more for their education than higher-income people.”

CFS has proposed converting education tax credits into grants for low-income students, something which would free up $1.44 billion a year and reduce student debt by 75 per cent.  It’s an idea with merit. It would end a tax break for families who can front the money to send their kids to school and help the students who need it without forcing them to take on more debt.

Ending tax breaks is never an easy political sell, but we can no longer afford the status quo. For too many people, student loans are a trap rather than a springboard. Too many people’s potential is being crushed under the weight of student debt.

That should be unacceptable to all of us.

[hr]

PART IV: STRIKE? NAH, TIME FOR BEERS

by Chris Morin

The 2012 student strikes in Québec were a reminder that education is intrinsically linked to a simmering national class war. Unfortunately it’s also a lesson that student politics — like any other form of politics — are malicious, cutthroat and depressing.

The strikers who marched for the common student good, for the notion that post-secondary education shouldn’t be out of the reach of the lower- and lower-middle classes, were met with resistance from those within their own ranks who sought to sabotage the movement.

Call it a disconnect between a group’s interest and a group’s behaviour — the strikes showed that some students apparently support the idea that other students are being forced into debt and getting royally screwed by loan repayments.

Emily Raine is a journalist and an instructor with Montréal’s McGill University, a campus that she says is typically conservative, with students who aren’t as prone to political activism as the students at Concordia (who were particularly active in the strikes).

And when the Québec student strikes were sparked by the announcement by the governing Liberals that tuition fees would increase 75 per cent by 2017, there were McGill students who backed the hike.

The reasoning? It served their personal interests to keep education out of reach of the working class.

“The Business and Management Department at McGill was quite vocal about wanting a tuition hike because they felt like it would make their degree more valuable,” says Raine. “There were actually petitions to raise the costs of tuition.”

Many of the students attending McGill are Americans who want an Ivy League degree without paying hundreds of thousands of dollars for it. So a lot of those students didn’t mind paying more than what local students pay for tuition, since it’s still far cheaper than what they would pay in the U.S.

Many of them, obviously, leave the country once they get their degrees.

This transience and apathy directly pitted them against the Québécois students, the ones who benefit from the low tuition, who saw affordable education as a long-term gain.

But even with the entire country watching the Montréal marches — some of which turned bloody when police donned riot gear to clash with protestors — the same level of protest didn’t reach Saskatchewan institutions, despite our own hefty tuition hikes.

Ishmael Daro, currently an editor at Canada.com in Toronto, served as editor-in-chief at the University of Saskatchewan’s student newspaper The Sheaf from 2011 to 2012. Daro says that there was surprisingly little sympathy for the Québec student strikes on the Prairies.

“People still grumbled in a general sense but the frustration never boiled over — despite three to five per cent hikes each year,” says Daro. “In a sense, U of S students had just accepted the price as the cost of doing business.

“There was also a real split between people working through school and others who either had well-off parents or just took on debt with reckless abandon, in that [working] tended to affect the actual schoolwork and how much people could devote themselves to their studies.”

Marc Spooner, an associate professor at the University of Regina, says that many of the issues surrounding student debt stem from provincial underfunding across Canada.

It’s an issue that should have forced Saskatchewan students out of the classrooms and onto the streets.

“Why is it, in our supposed boom times in Saskatchewan, that our provincial universities are being underfunded?” asks Spooner.

“For example, at the University of Regina, we asked for a four percent increase to deal with our increasing numbers and we only got 1.7, or roughly half of what we asked for. So that difference has to come in the form of tuition increases.”

Daro says that the level of activism seen in Québec just isn’t typical of many schools in Western Canada. He says that most of the students he talked to simply wanted to get through their degrees as quickly as possible and start their careers. Few had strong ties to the school in a political sense, so lobbying for new services or lower fees didn’t happen at the U of S.

But it’s not just students fighting amongst themselves over tuition hikes. Daro also blames a toothless student governance system for the lack of resistance to the hikes.

“Since the USSU president sits on the board of governors, which approves the tuition rates, the union president (and by extension, the other USSU execs) could not decry a tuition hike,” says Daro. “It’s a system that co-opts the apparent representatives of the students.”

Spooner hopes that the Province will start addressing the root of student competition.

“Anytime we make resources scarce, there’s an increased competition over those resources,” says Spooner, who was also the federal NDP candidate for the riding of Wascana in 2011.

“If the Province places our universities under this false austerity, they narrow the field in which students choose to study their passions. It becomes a class issue, when university becomes out of the reach of the working class and you can pre-select who can even attend.

“If we see this as strictly a business transaction, which is buying a degree, then I think we really lose sight of what higher education is meant to do,” he says.

[hr]

PART V: IF THERE’S A WILL, THERE’S A WAY

 by Gregory Beatty

When it comes to solving Canada’s student debt crisis — and with the cumulative debt load at $15 billion and counting (have we mentioned that already?), crisis is exactly what students are facing — there’s no magic bullet.

It’s not like the federal and provincial governments could just wave a magic wand and reduce tuition fees to pre-1995 levels right?

Well, actually…

In fact, if the political will was there, governments could do a lot more than just reduce tuition fees. They could eliminate them altogether. Sound daft? Not according to Germany it doesn’t.

“Germany is getting rid of tuition fees,” says the Canadian Centre for Policy Alternative’s Erika Shaker. “[Fees were] considered a failed experiment. They tried them out in some jurisdictions and realized ‘No, this is a problem.’ So they’re phasing them out again. Students and faculty were extremely involved, but the public recognized as well that this was an investment that needed to be made.”

Germans aren’t alone in recognizing the value of post-secondary education to the national well-being. Canadians do too.

“Polling shows that the public still supports a public system of post-secondary education that is high-quality and highly funded,” says CFS National Chair Jessica McCormick. “Unfortunately, that’s not reflected in government policy.”

At the core of the disconnect is the creeping agenda of privatization that has become political gospel over the last three decades. Reduced public funding for education is only one example, albeit a dramatic one, of how governments at all levels have been downloading the costs of formerly public services and amenities onto individual Canadians.

Some funding is still provided, of course, but because of the way many of the programs are structured the money doesn’t necessarily help those most in need, says the CFS’s Ian Boyko.

“Our organization advocates for the eventual elimination of tuition fees. They’re unnecessary and cause all sorts of problems for families, potentially for generations.

“But having said that, tweaks to the financial aid system could certainly be made. Over the last 20 years, the federal government has introduced more and more tax credits for education to the point where [$2.5 billion] is going out the door every year. Rather than give a tax credit to everyone in the system, including the wealthiest in our society, if you shifted the tax credits into up-front grants to families that need them you could eliminate the need for the Canada Student Loans Program.”

That’s not the only measure the CFS advocates, says McCormick.

“Canada is one of the only OECD countries that doesn’t have a national vision for post-secondary education, and a national minister of education. So we advocate for a strategy to ensure we don’t see the type of tuition fee disparities that we have now across the country, so that regardless of where people live they can access post-secondary education.”

Just how wide is that disparity? In the 2012-13 academic year, tuition fees for the average undergraduate arts and science program ranged from a high of $7,180 in Ontario to a low of $2,649 in Newfoundland. At $2,774, Québec was a smidgen above Newfoundland. Of the other provinces, only Manitoba’s tuition was under $4,000, while all others were above $5,000. At $6,017, Saskatchewan had the second-highest tuition behind Ontario — although some back-end assistance is offered through a Graduate Retention Program for students who work in Saskatchewan after graduating.

“In Québec, tuition has been low for some time,” says Shaker. “They have a different philosophy when it comes to post-secondary education that starts in the CEGEP [General and Vocational College] system. For all intents and purposes, it’s public. That means it’s accessed at a very high rate. It’s also more flexible. That, in part, is bolstered by the fact there’s much more public investment and much less of a cost to the individual.

“In Newfoundland, it was just in the last decade that they decided to roll back tuition fees 25 per cent over three years, and then freeze them.”

“The Newfoundland and Labrador government has also committed to replacing student loans with up-front non-repayable grants by 2015,” says McCormick. “So that’s an example of a government that has made post-secondary education a priority as part of a labour market strategy to improve skills and training.”

Direct public investment in post-secondary education, a recent OECD study found, yielded a benefit in excess of $100,000 per individual.

“I would like to see a more thoughtful and robust discussion about how we all benefit from living in a highly educated society,” says Shaker. “The returns on that investment are enormous — not just financially, but socially as well.

“Research has been done in other jurisdictions examining the effects of providing education much more broadly to various age groups and how people have benefitted,” she says. “Outside of the fact they’re probably going to get better jobs and have higher salaries, so that they’ll pay more taxes and reinvest more in the public pot of money that we have to spend, they also tend to be healthier and more civically engaged. They’re more involved with their kids and their communities. So there’s all sorts of spin-off benefits we need to start recognizing.”

Instead, says McCormick, governments seem fixated on short-term market-driven goals at the expense of broader educational attainment.

“What we’re seeing with the federal government is a real push toward training for very specific fields that are in high demand, like oil and gas extraction. So they’re encouraging students to pursue studies or get training in those areas.”

It’s a market truism that jobs that are in demand now are not necessarily in demand in the future. In their rush to gain increased tuition revenue to compensate for declining public funding, say critics, universities are turning their backs on their traditional role as educators in our society, mandated to produce graduates with the type of critical thinking skills that will position them for success in an ever-evolving job market.

“On-the-job training is an area where Canadian industry falls down very badly,” says Shaker. “Instead, the argument’s being made that it’s the job of universities to train people to fill these roles on the factory floor or in the oilfields or whatever.”

In the last three years alone, Canada’s standing in higher education, as measured by the World Economic Forum’s report on competitiveness, has dropped from eighth in 2010 to 15th in 2012. Deferred maintenance on aging infrastructure, crowded classrooms and a lack of tenured faculty to give students high-quality instruction are other challenges post-secondary institutions face these days.

“What I’d like to see [in this discussion] is a broader understanding of opportunity,” says Shaker. “Yes, we have to look at what we’re doing to make university available, affordable and of high quality. But we also have to look at what the provinces and federal government are doing to ensure there are jobs there afterwards, and that students can actually put the education they’ve spent four or five years achieving to use in the service of their own well-being.

“That’s something we all benefit from,” she says.

Send letters for publication (300 words max) on this article to feedback@prairiedogmag.com. Sign your full name and include your city/town of residence.

2013-09-05

2 thoughts on “The Savage History of Student Debt”

  1. Who really cares if the educated have trouble accepting the facts of life? Fact is, I have no debt, make fantastic money, and never went to school. Maybe “the schoolyard changed” instead of the other excuses used by loser ex-students who have a holier-than-thou-art attitude? Nope. Same know it all jack-asses.

  2. Thanks for the comment Steven with a V. I think a lot of people care and recognize the value of an educated society.

    Although as you say, you never went to school and that hasn’t stopped you from becoming an awesome, insightful, empathetic specimen of human achievement who makes fantastic money.

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