News  Election 2008: Students tepid about new loan system

The Canadian government’s overhaul of the federal student loan and bursary program is not adequately addressing student ability to repay their loans, some student groups say.

The reform will not make education affordable to young Canadians, said Julian Benedict, co-founder of the Coalition for Student Loan Fairness, a Vancouver-based organization that pushes for student loan program reform.

“If we continue to have an extension [for repayment] without interest [rate] cuts, students will end up paying much more interest in the long term,” Benedict said.

Stressing the importance of decreasing interest rates, he added, “It’s admirable that they’re trying to reform, but they forgot the most important part.”

The Repayment Assistance Plan (RAP), aims to help students successfully repay their loans by allowing a five year grace period – during which students can apply for an exemption from loan payments. In the plan, announced in this spring’s federal budget and slated for introduction next August, the government pledges to pay the balance on student loans remaining 15 years after graduation. The plan also caps payments to 20 per cent of income and exempts those earning less than $20,000 from loan payments all together.

According to government figures, the RAP – that replaces the 25-year-old Interest Relief and ten-year-old Debt Reduction programs – will greatly reduce the monthly amounts students having difficulty making payments on time owe the government.

Zach Churchill, National Director of Canadian Alliance of Student Associations (CASA), was pleased that the program took strides toward improving repayment, but said that it was not the answer to student debt in the country.

“Interest rates will actually double students’ debt over the course of ten years,” he claimed. “It’s an insurmountable amount of debt…. The government needs to hammer down those rates.”

The interest rate on federal loans issued under the RAP greatly exceeds that of provincial loans. Federal loans have an interest rate of 2.5 per cent above prime – the rates the banks charge their best customers – while Ontario charges prime plus one per cent and Quebec charges prime plus 0.5 per cent. Over the maximum 15-year repayment plan, this would increase the total interest paid on a $20,000 federal loan by $5,000.

Complicating repayment further, applications for loans and bursaries in Canada stretch over provincial and federal systems. In some provinces, students apply for an integrated federal-provincial loan; in others, they apply for two loans – one federal and one provincial; and in Quebec, the federal government contributes indirectly to provincial loans through transfer payments to the Quebec government.

Benedict said he was disappointed that the program did not establish an ombudsperson for students to turn to in repayment crisis.

“[Students] just face a huge bureaucracy that is ultimately indifferent,” he said.

In addition to the federal government’s reform of repayment structures, it also recently modified its student grants programs.

Along with RAP’s announcement in this spring’s budget, the Conservatives decided not to renew the expiring Millenium Scholarship Foundation, a grant program introduced in 1998 by Liberal Prime Minister Jean Chrétien that awarded 95 per cent of its student bursaries based on merit. It said the program was not demonstrably increasing enrollment or providing a stable source of funding. In its stead, the government introduced the Canada Student Grants, which gives grants to those with low and medium incomes.

Churchill was glad the government had committed to keep directing money to student grants, but would have preferred that student financial aid be based on need.

“[The programs] are not looking at those with higher needs,” he said. “There’s been a fundamental shift on how loans are distributed; it doesn’t answer the problem.”

Churchill added that high interest rates on student loan repayment and appropriate student grant distribution were key election points for students.

Katherine Giroux-Bougart, the National Chairperson for Canadian Federation of Students, saw the grant program as more accountable.

“Since the grants program is administered by Canada Student Loans, it will be accountable to the government,” she said.

Giroux-Bougart said that there was still more the program could be addressing.

“Ideally, every student who has needs or qualifies would get a full amount in grant money,” she said.

The government department that administers the federal loan, grant, and repayment systems, declined comment due to the federal election.