HRPD Committee Report

 As Canada moves into the next century, Canadians need the tools to take advantage of the opportunities presented by a technological society. Perhaps the most important of these tools is embodied in human capital and in knowledge. Both of these are critically important as engines of economic growth and as the means to improve the quality of life for all. Nations that develop and manage these two "assets" effectively have higher growth and larger increases in productivity. Similarly, individuals with more knowledge and a greater amount of human capital have the potential for economic success and a more fulfilling life.

While it has respected provincial responsibility for education in Canada, the federal government has also recognized that improving knowledge and human capital is a requirement for national economic, social and cultural development. This is the reason that the federal government has supported post-secondary education, research and the development of knowledge. But in more human terms, the federal government has also made a commitment to equity and to excellence embodied in its efforts to assist qualified and motivated Canadians to gain access to post-secondary education.

Direct and indirect federal support to post-secondary education reached over $8 billion in 1995-96. In that year, the provinces received indirect federal support of about $6.3 billion through fiscal transfers and various tax measures. Direct federal programs provide students with financial assistance and universities with funds for their research activities.

Currently, several federal departments support post-secondary education at the federal level. While these include Industry Canada, Indian Affairs and Northern Development, Canadian Heritage, Human Resources Development Canada has taken the principal role. The department’s mandate provides the foundation for this interest --

• to contribute, with the provinces to the development of the human resources that are essential for economic and social development;
• to act as a national focal point for the identification of emerging learning issues and needs that are national in character;
• to ensure Canada’s effective voice is heard internationally at the United Nations and at the Organization for Economic Co-operation and Development; and
• to promote access to post-secondary education and learning opportunities in all provinces through the Canada Student Loans Program.

Human Resources Development Canada, in fact, manages the most significant federal program that facilitates access to post-secondary education. Since 1964, the Canada Student Loans Program (CSLP) has assisted Canadians -- who qualify and who have financial need -- to pursue their post-secondary education and to earn a degree, diploma or certificate. These loans are intended to supplement the student’s own resources from employment and academic awards as well as family contributions. (Parents are expected to contribute to the cost of their children’s education until they are independent.) The federal loan provides sixty per cent of the assessed need for each full-time student up to a weekly loan limit of $165.

The federal government also recognizes that some students have additional needs that may not be met by the current student loans programs. The federal government, therefore, pays the full cost of three Special Opportunity Grant programs for students who incur additional education-related expenses in pursuing their studies (students with disabilities, high-need part-time students and women in certain doctoral study programs).

The Canada Student Loans Program provided $1.5 billion to over 365,000 students (1995-96). Statutory expenses for the program are estimated at $616 million for 1997-98 while the estimated cost of the Special Opportunity Grants will be an additional $34.7 million. From its inception in 1964 until the end of the 1996 fiscal year, the Canada Student Loans Program has provided $12.1 billion in loans to 2.7 million full-time students.

Since the revamped Canada Student Loans Program was introduced in 1995, Canadians with an interest in the post-secondary education system have shown increasing concern about the mounting level of student debt. This growing problem has been partially addressed by several measures introduced in the past two years. For example, in February 1997, the federal Budget extended from 18 to 30 months, the period of time during which CSLP borrowers are allowed to defer payments. This Budget also included a commitment by the federal government to explore new, flexible repayment options that are tied more directly to individuals’ incomes. In his speech on the Address in Reply to the Speech from the Throne in September 1997, the Prime Minister announced a new Millennium Scholarship Endowment Fund.

Because this Committee knows that these latter two measures are currently under consideration and will likely be addressed in the 1998 Budget, we decided to hold a Roundtable on Assistance to Post-Secondary Students on 27 November 1997. We brought together a group which represented the major interests -- students, university teachers, universities, community colleges, private educational institutions, financial aid administrators, and financial institutions as well as the provincial and the federal governments.

They spoke with one voice. The overwhelming consensus of the participants at the Roundtable was that student debt, particularly the level of debt at the end of their studies, constituted the first priority for all of them. They agreed that debt reduction measures, linked to income, should be expanded and should provide for graduated interest relief. At the same time, our witnesses expressed considerable reluctance to increase the period of repayment of student loans beyond 15 years. Their second priority -- a package of upfront grants -- would ensure that debt did not become burdensome. They discussed with us a package of measures -- from a new grant for students with dependants to a grant that would be available during the first and second year of studies. They believe that these would ensure the retention of students who had begun their studies and would remove disincentives for those who were afraid of accumulating too large a debt load during their post-secondary years. In addition, they identified a series of tax measures that, they felt, would encourage savings. They identified the need for better communications among governments, universities, financial aid administrators, students and their families. Finally, they pointed out that the student loan system had grown very complicated with students required to apply for loans every year, to carry two sets of loans (federal and provincial) and then to consolidate their loans once they left a post-secondary institution.

The other important measure of consensus involved a rejection by our witnesses of a pure income-contingent repayment or income-related repayment plan for student loans. They expressed serious reservations about the length of the repayment period that these kinds of plans entail. For income contingent repayment, the length of the repayment period is usually 20 or 25 years. During these years, the interest that has accrued on the student loan becomes part of the capital and actually increases the debt load for the borrowers.

Our Roundtable reinforced our view that the principles that led to the establishment of the Canada Student Loans system remain as valid today as they were in 1964 when this plan was introduced. Student aid is -- and should remain -- a program that assists all qualified Canadians to overcome the financial barriers to post-secondary education that they may encounter through no fault of their own.

We recommend that:

 At the federal level, we can only translate these principles into good public policy if appropriate data about the operation of the student assistance program is made available. Unfortunately, this does not seem to be the case. The newspapers are full of statistics about the rising debt burden of students attending our post-secondary institutions. Pundits bandy about figures on default rates and student bankruptcies that may -- or may not -- be correct. For our part, this Committee has asked repeatedly for some definitive information about the nature of student debt, default, and bankruptcy. We find that the trends identified by Statistics Canada and individual financial aid administrators of the universities and colleges do not fully corroborate the statistics that have been provided to us by the Department of Human Resources Development. While we agree that increasing student indebtedness is a problem, our task in finding appropriate solutions has been made more difficult by these mixed messages. We therefore recommend that: 

The rest of this report sets out our views on the way to address the short-term and longer term issues associated with student debt.

At our Roundtable on Student Assistance, all the participants -- students, financial administrators, provincial representatives, post-secondary institutions and lenders -- expressed a strong consensus: high debt levels and the consequent danger of loan default must be addressed in the near future.

While these options have been partially successful in helping individuals to deal with the debt burden, the participants at the Roundtable presented this Committee with a number of changes better to assist students in dealing with their debt. For the most part, the stakeholders wanted changes that would provide increased flexibility in the interest relief programs. They also argued in favour of debt reduction or debt forgiveness for those who remain unable to meet their student loan obligations more than five years after graduation. In both cases, the stakeholders expressed a unanimous view that access to these options should be linked to a person's income or ability to repay the loan as well as to the overall level of the student debt.

During our Roundtable, we heard many of the stakeholders describe the current interest relief program as too rigid. They drew an analogy to an "on/off switch" – an individual either qualifies for total relief over thirty months, or does not. The current system is black and white while the reality that most borrowers confront is, in fact, grey.

For example, we heard about this from a representative from the National Association of Career Colleges, a group of private institutions that provide career-based education to approximately 150,000 students in 400 institutions across the country. This sector -- not at all well-known or understood in the context of post-secondary education -- has been addressing very specific needs for a segment of society for more than 130 years. A significant proportion of the students who use this sector have additional needs. Given this, it is hardly surprising that these students may represent a ‘higher risk’ student population; a population that requires greater flexibility in terms of the Canada Student Loan Program’s interest relief and debt reduction. In other words, students attending these career colleges appear to be a group where flexibility and targeted interventions will show very positive results.

While it may benefit some of those in private educational institutions, it is likely that some borrowers in every type of post-secondary institution may want -- or need -- to make smaller payments. Others may require more than the present 30 months of interest relief. We consistently heard that increasing the flexibility of loan repayment and providing targeted relief would go a great distance in helping students deal with their debt. We recommend that:

 A number of provinces currently offer borrowers some form of debt reduction/forgiveness upon graduation. Not all graduates, however, are eligible for this type of assistance and the amount of debt reduction assistance varies from province to province. In some instances, graduates who do not even require debt reduction may currently gain access to it through existing provincial schemes. At our Roundtable, we heard that some provinces, particularly the province of Ontario, were spending increasing amounts of money on their debt reduction programs as student debt loads mount.

 The witnesses who appeared at our Roundtable identified this patchwork approach as inconsistent with what we all define as important principles in post-secondary education -- fairness and equity. Instead, this Committee heard that these principles would be better served by a targeted and needs-based program of debt reduction for the small number of borrowers who demonstrate significant difficulties in meeting their debt obligations after the 5-year transition period. Therefore, we recommend that:

 One of the suggestions that was put forward during our Roundtable involved the possibility of making the interest on student loans tax deductible. This proposal might, in fact, have some merit. In tax terms, it could lead to the same tax treatment for interest on money borrowed to finance an investment in human capital as money borrowed for a business improvement. While we find this idea appealing, this Committee does not believe that we have enough information about the costs or the consequences of such a change. We recommend, therefore, that:

Many of those who appeared at our Roundtable told this committee that the formula used to calculate the upper limit for Canada Student Loans did not provide for a sufficiently large loan. They pointed out that the CSL program was originally designed to address unmet need, and that the process of "need assessment" remains central to determining the levels of loans that students will receive. While the CSL loan limits were increased in 1994-95 and pegged thereafter to the Consumer Price Index (CPI) minus 3 per cent, they believe that this formula does not reflect real increases in the cost of living or in the cost of student tuition. Because of this, they would like to see a review of the CSL limits. In our eyes, this argument has considerable merit, therefore, we recommend that:

As we indicated above, the amount that a student may borrow, both for a CSL and for a provincial loan, is based on a complex assessment of need. Among other things, this assessment takes into account the income from part-time work during the school year while students are pursuing full-time studies. According to the current rules, students are not allowed to earn more than $600 without having their loan decreased by 80 per cent of any amount over $600. This means that if a student earns $2000 during a school year (or about $100 per week) this student would have $1120 deducted from his or her student loan. Student groups told us that this limit on earnings and the clawback has become a serious disincentive for those who wish to contribute to the cost of their education.

Similarly, the amount that a student receives in scholarships and grants is included in the needs assessment process. We feel that students should be encouraged to seek out scholarships to offset their educational costs and that pursuing them provides an incentive for students to strive for excellence. In light of these concerns, we recommend that:

 Participants at our Roundtable strongly supported the recent federal government announcement to pledge $60 million toward addressing the special needs of students with dependants. Like existing Special Opportunity Grants (SOGs), this new grant would supplement student loans for a group with an additional need. Obviously, students with children have higher financial needs. Because they represent almost 20 per cent of CSL recipients with need in excess of existing limits, additional support for this group has been welcomed.

This Committee believes that need should be the basis on which financial assistance is determined. At the same time, we must express our concern that by splitting the pot of money that is devoted to those with additional costs into several categories, people with real, unmet needs may fall through the cracks. We believe that good public policy does not create artificial barriers or categories and consequent administrative overlap. It should incorporate the maximum flexibility required to meet the needs of the potential beneficiaries of any program. We, therefore, feel that the whole concept of differentiated Special Opportunity Grants should be carefully examined.

 We, therefore, recommend that:

We do, however, support financial assistance for students with dependants and recommend that:

Although the National Educational Association of Disabled Students (NEADS) could not appear at our Roundtable, they provided us with some useful suggestions. Like NEADS, we recognize that persons with disabilities need to have access to a strong national student aid program and appropriate support from the provinces to recognize the extra costs of disability and the additional time that they may require to complete their studies. NEADS also expressed its concern that the Canada Student Loans Program, the successor to the Vocational Rehabilitation of Disabled Persons Program and the Special Opportunity Grant for students with disabilities, all need to provide for adequate accommodations and the extra costs associated with a disability – technical aids, note-takers, and attendant care, among others. As NEADS pointed out, the Federal Taskforce on Disability Issues recommended that the SOG for students with disabilities should not be treated as taxable income. We, therefore, recommend that:

We also recommend that: 

G. Information and Harmonization

During our Roundtable, this Committee found a general consensus that the CSL process was extremely complex due, at least in part, to the elaborate ways in which the CSL program must mesh with provincial loan programs. In fact, a representative of the financial lending institutions described the CSL program as their most complicated consumer loan program. At the same time, we all recognize that student loans are taken out by a group with the least amount of experience in dealing with debt, credit and loan repayments.

We are also aware that a number of eligible students fail to apply for student loans. Even more of those entering colleges and universities are unaware of the existence of scholarships and bursaries available to them through awards offices at their institutions or through community groups. This strikes us as a reflection of a problem in providing information to students and their families. As a result, we recommend that: 

 In order to reduce the complexity of the existing CSL and provincial loan programs, we consistently heard that these should be better harmonized. This would simplify the paperwork, the administration and the repayment process for students who, upon graduation, are required to consolidate their outstanding CSL and provincial loans in order to arrange repayment. Currently, CSL and provincial loans are subject to different rules and regulations and students are often unaware of their responsibilities around these loans. Stakeholders told us that if students had one loan upon graduation with one set of rules and regulations, a number of problems could be avoided. We recommend that: 

H. Preventing Dropouts

A recent study by the Maritime Provinces High Education Commission indicates that the cost of post-secondary studies has an increasingly significant impact on the decision of students, particularly from families with modest and low incomes, to seek post-secondary education. Apart from their immediate concern about finding money to pay the rising costs of tuition and living expenses, these young people are more averse to taking on large debt loads to finance their education. At the same time, their concerns are compounded by a growing recognition among students and their families that a post-secondary education has become a virtual pre-requisite to find a job with a solid future and to create the potential for both personal and financial growth and security.

I. Millennium Scholarship Fund

Participants in our Roundtable expressed great interest in the recent announcement of Canada's Millennium Scholarship Endowment Fund that will be created to "reduce the barriers to post secondary education and help prepare young Canadians for the knowledge-based society of the next century." They indicated, however, that support for the Fund was conditional on satisfactory answers to a number of questions on the design, direction, intent and scope of the fund. We look forward to receiving the details of this program and recommend that: 

J. Saving for Education

Financing of post-secondary education represents a significant expense for students, families and all levels of government. There is indeed significant merit in encouraging a habit of saving for educational needs. While Registered Education Plans (RESPs) like Registered Retirement Savings Plans (RRSPs) will not be a viable option for all parents or students, we heard some support for greater flexibility in the terms of withdrawal from an existing RRSP if this money is used for the pursuit of post-secondary education.

This Committee is also interested in the option proposed by the Finance Committee in its recent report Keeping the Balance. This proposal calls for a deferred credit formula for the RESP that would offer student beneficiaries a federal grant, based on a proportion of the total RESP contributions. We find this proposal, rather than the proposal to allow tax deferral on RESPs, has merit because the benefit accrues to the student during studies, rather than to the parent. Therefore, this Committee supports the Finance Committee’s recommendation which calls for the establishment of a deferred credit formula for the RESP that would offer student beneficiaries a federal grant, calculated as a percentage of total RESP contributions. This grant would be disbursed in equal amounts in each year of a recognized post-secondary program. 

We further recommend that: