PETER DOLEZAL: Student loans: the good and the bad in national program

Refined over the five decades of its existence, this program aims to alleviate economic impediments.

Despite Canada’s ever-increasing cost of higher education, the federal government, through its Canada Student Loan program, has attempted to ensure that every academically qualified young person has the opportunity to pursue post-secondary studies.

Refined over the five decades of its existence, this program aims to alleviate economic impediments for young post-secondary students whose families cannot provide sufficient financial assistance.

This extremely popular program has helped fund the education of more than 300,000 young Canadians annually. It has resulted in outstanding student loans of almost $19 billion on the government’s books. A huge sum, but a solid investment in our nation’s youth, which none of us should regret.

For post-secondary students from low-to-middle-income families, up to $3,000 of the loan, per year, is forgivable; it does not have to be repaid.

Recent changes to the Plan now allow graduates to delay commencement of loan repayment until they earn more than $25,000 annually. And, should they subsequently encounter difficulty making scheduled payments, graduates may apply for possible further relief through the Repayment Assistance Plan.

Despite these generous features, there is, as with any major program, a significant minority of students who, having benefited from this taxpayer-funded loan, end up abusing its generosity. In some years, the three-year default rate has reached as high as 25 per cent.

In 2016, the government wrote off almost 34,000 student loans at a shocking cost of $176 million — a practice which repeats annually. If a student has not made the required payments for more than six years, and cannot be located, the general practice has been to write-off the loan, regardless of the debtor’s ability to repay it.

Until this year, the government’s ability to track down student loan debtors has been hampered by Canada’s privacy laws.

The Canada Revenue Agency (CRA), despite its access to every Canadian’s income tax file, was not allowed to use these files to track down individuals who had defaulted on student loans.

An example of privacy laws run amok?

As of June 2016, after years of dithering, Parliament finally empowered CRA to access its tax files for this purpose. Hopefully, this will lead to a dramatic reduction in the numbers of student loans to be written off in future years.

Why does a common-sense change in the law take the government years to implement? How many other wasteful practices exist, which can be remedied to help reign in government spending?

If a business operating in the private sector dithered in this fashion, it would quickly pay the price in the marketplace. Unfortunately, that market discipline, and sense of urgency, is clearly lacking in government.

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his Second Edition of The SMART CANADIAN WEALTH-BUILDER.

Contact Panorama Rec Centre to register for Peter’s Elder College Spring session – Financial & Investment Planning for Retirees & Near-Retirees (Wednesday mornings; March 15 to April 12).

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