Student Debt in Canada

Dealing With Student Loan Debt

Student debt is an issue that has been burgeoning in the shadows, impacting a significant proportion of the young population in Canada. Over the years, the magnitude of this issue has escalated to such an extent that it is now being termed a silent epidemic. This article provides an in-depth analysis of the student debt crisis in Canada, its repercussions on the lives of young Canadians, and potential remedies for this growing concern.

Unmasking the Student Debt Crisis

The student debt crisis in Canada is a grave and growing issue, with the number of young people resorting to student loans increasing annually. In 2018, student debt contributed to 17.6% of insolvencies in Ontario, marking the highest rate since the initiation of the study nine years ago. Extrapolating this data nationwide implies that approximately 22,000 ex-students filed for insolvency in 2018 to manage their student debt.

This issue might not seem significant at first glance. However, considering the number of student loan borrowers relative to the overall population, the youthful age of these borrowers, and the relatively stable economy in recent years, this issue takes on an alarming dimension.


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The Landscape of Student Debt in Canada

Getting an accurate measure of the total student debt in Canada is challenging. As of the 2016/2017 academic year, Canada Student Loans (CSL) was managing a portfolio of $18.2 billion in loans for over 1.7 million borrowers. In that year alone, CSL disbursed $2.6 billion in loans to 490,401 students.

While the loan disbursements dipped in the most recent year, over the past decade, CSL has disbursed 47% more in loans to 31% more students than in the preceding ten years. This increase in student debt is primarily due to rising tuition costs and the increasing reliance on student loans to finance post-secondary education.

Despite the introduction of initiatives like the Canada Education Savings Grant program and tax-sheltered Registered Education Savings Plans (RESPs), over 40% of post-secondary students finance their education through loans, either government-backed Student Loans or private student debt.

The Impact of Rising Tuition Fees

The average tuition fee for a Canadian university is now $6,838, marking an annual increase rate of 3.7% over the past decade. In Ontario, the average tuition is now $8,838, up an average of 4.6% per year over the past decade. This surge in cost has led to an increased reliance on student loans to finance post-secondary education.

However, the burden of this debt lingers. Only 34% of bachelor degree graduates manage to fully pay off their student loans within three years of graduation. According to Canada Student Loans, students typically take between nine and 15 years to pay off their student loans in full. However, some are unable to reach this milestone and end up declaring insolvency.

The Ramifications of Defaulting on Student Loans

The repercussions of defaulting on student loans are severe. Both Canada Student loans and private lenders report late payments to credit bureaus, which can have a damaging effect on the credit score of the borrower. This negative credit score can make it difficult for the borrower to qualify for mortgages, car leases, or other types of financial loans in the future.

If a borrower fails to make the required loan repayments on student lines of credit or credit cards, the bank can apply to the court to garnish their wages. Both federal and provincial governments also have the power to take tax refunds and garnish wages if loan repayments are not made.

Student Loan Repayment Assistance Programs

The Canadian government provides some respite to borrowers struggling with student loan repayments through the Repayment Assistance Plan (RAP). If the borrower can demonstrate financial hardship, they are entitled to interest relief under Stage 1 for up to 60 months. After this period, if the borrower continues to struggle, they may be entitled to both principal and interest relief.

However, despite these assistance programs, many insolvent student debtors either do not qualify under the stringent hardship provisions or find that the postponement of payments does not help when they are also struggling with other forms of debt.

The Gender Disparity in Student Debt

A concerning trend in the student debt crisis is the gender disparity. In 2018, 61% of student debtors were women. This ratio aligns with Canada Student Loan figures – in 2016/2017, 61% of grants & loans were distributed to women. Additionally, 65% of RAP recipients are also female.

Female student debtors, on average, owe more in student debt than their male counterparts. Furthermore, women filing for insolvency are more likely to be single parents than men, further complicating their ability to balance childcare costs and student loan payments on a single income.

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Proposals for Reforming Student Debt Policies

Given the escalating student debt crisis, there is a pressing need to rethink student loan policies. One proposed reform is to eliminate the seven-year waiting period before a student loan can be discharged. This change would treat government student loans on par with private student loans, both of which are used to finance the cost of education and living expenses.

Alternatively, the waiting period could be tied to the length and benefit of the program attended by the student. For instance, if a student drops out after one year, they should be eligible for loan discharge after an additional one-year waiting period. If they attend a three-year program, they should wait no more than three years to be eligible for discharge.

The Silver Lining: Debt Cancellation and Elimination of Tuition Fees

While the student debt crisis paints a bleak picture, there is a silver lining. Some experts propose canceling existing debts and eliminating tuition fees entirely. According to the Parliamentary Budget Office, this move would cost $16 billion in the first year and roughly $10 billion annually thereafter.

Though this cost may seem steep, it can be offset by implementing a small federal wealth tax on the wealthiest Canadians. This tax could generate sufficient revenue to erase the country’s backlog of student debt and create a fully publicly funded university system in Canada.

The Payoff of Affordable Higher Education

The benefits of affordable access to higher education are manifold. It does not just benefit the students pursuing it, but it also fosters future innovation and equity. By eliminating financial barriers, more students, particularly from low-income and marginalized groups, can access higher education. This access can lead to more diverse representation in various fields and contribute to a more inclusive society.

The Need for a Comprehensive Solution

While grants and loans have been boosted to help students cope during the pandemic, these measures are not comprehensive solutions. They either postpone the problem or add to the existing debt. A comprehensive solution would involve canceling existing debts and eliminating tuition fees entirely, effectively making higher education accessible to all and breaking the cycle of student debt.

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The student debt crisis in Canada is a complex issue that requires immediate attention and comprehensive solutions. As the burden of student debt continues to weigh heavily on young Canadians, it is crucial to implement robust measures to alleviate this burden and make higher education more accessible and affordable. If left unaddressed, this crisis has the potential to impede the economic progression of an entire generation.

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