Download the Grants
Not Loans Petition New Loan Limits
By increasing loan limits in the 2004 budget the federal government made it clear that loans are the preferable policy model for coping with the exploding cost of post-secondary education. Unfortunately, this approach will exacerbate the social inequities in access outlined above. The most recent National Graduate Survey quantified the intuitive point that those from the lowest income families are borrowing the most. More importantly, it is those from low-income households who are having the hardest time repaying their loans. They are taking the longest time to pay off their loans and, through compound interest, pay more for their education than those who borrow less or nothing at all.

Debt Reduction In Repayment
The Canadian Federation of Students is calling on the federal government to honour a commitment made to students in the 1998 budget. The Debt Reduction in Repayment program (DRR) was supposed to help over 12,000 students per year. Touted as a method of reducing unmanageable debt after graduation, eligibility criteria instead ensured that less than 500 students per year on average have benefited from the program in its first three years. Only those repaying living in extreme poverty could qualify for DRR.

In 2003, the Department of Finance finally acknowledged this problem and committed to reworking eligibility requirements for DRR. However, no revised tables have been presented to date. In the meantime, many of those who should have legitimately qualified for Debt Reduction in Repayment in the past five years will have defaulted on their loans, and be rendered ineligible under the revised criteria.

The dismal performance of the DRR program is particularly disappointing because, by definition, the program was intended to help those most in need. When it was unveiled in 1998, then Finance Minister Paul Martin promised that the program would assist those overwhelmed with massive student debt. Five years later, student debt continues to increase and the program exists primarily in name only. The federal government’s decision to increase student debt in the 2004 budget makes the need to remedy this problem even more acute.

Credit Checks
In 1998, the federal government introduced credit checks for all Canada Student Loans Program applicants over the age of 21. A student loan can be denied to an individual who, in the three years preceding application for a student loan, has missed at least three monthly payments on each of three separate loans or debts worth $1,000 or more. The ostensible reason for the introduction of this regulation was to screen out habitual credit abusers. However, virtually any family in Canada that falls upon hard economic times could fail the current credit check. In most cases, failing the Canada Student Loans Program’s credit screening is not due to a moral failing or fraudulent intent, but rather a matter of financial desperation. These are the Canadians that the federal government has made a specific commitment to help in the past7. Therefore, it is punitive and counter intuitive to disqualify those who are the most in need of the skills and hope offered by post-secondary education from receiving student financial assistance. The federal government has failed to distinguish those in legitimate financial hardship from those committing fraud. In its effort to protect the fiscal integrity of the system, the government has, in effect, punished people for being poor.

SOLUTIONS: Grants NOT Loans
There is overwhelming evidence to suggest that grants (not loans) are the way to promote access. In the largest study of its kind, British researchers followed low-income students through the system and determined that the availability of grants was the primary factor in determining whether low-income students could finish their degrees. A similar study in the United States, entitled Access Denied, also found that access to grants was the determining factor on whether or not low- and middle-income students would enter the system and persist until graduation. In another UK study, researcher Stephen Machin tracked a decline in the participation rates of low-income students after the UK government abolished grants for living expenses. In the final year of the program, 13% of those in UK universities were from the lowest income strata. Six years after the grant was scrapped, only 7% came from the poorest British families.

The grants program for low-income students introduced in the 2004 budget is a belated and modest recognition by the federal government of the necessity to increase spending on grants. However, at the current level of financing, the program is unlikely to be much more than a first step since a grant’s value is relative to the cost it is intended to mitigate. Without restoring funding to the provinces for post-secondary education, tuition fees will rapidly erode the value of federal grants.

Canada Student Loans and Privacy

In spring 2000, negotiations for a new contract between the federal government and the two banks administering Canada Student Loans broke down. In essence, the two banks decided that they were not making high enough profits on public student loans and refused to continue student loan services without a massive increase in contract fees. The federal government responded by taking on the role of lender for Canada Student Loans and contracting-out the disbursement and collection services to a Canadian Imperial Bank of Commerce-owned corporation called Edulinx. Since 2000, Edulinx has been responsible for issuing loans to students and collecting the “direct” loans on behalf of the federal government.

On October 26, the Canadian Imperial Bank of Commerce announced that it had sold its controlling share of Edulinx to Nelnet Canada, a subsidiary of Nelnet Incorporated of Lincoln, Nebraska in the United States of America (U.S.). Nelnet is one of the largest student loan servicers in the U.S., with over $13 billion in total assets.

The sale of Canada Student Loans service provision to the subsidiary of a U.S. corporation has serious consequences for the privacy of students in Canada. According to Canadian civil rights researchers, Canadian student loan and banking data could be subject to the U.S. Patriot Act. The Patriot Act was passed in 2001 at the height of U.S. paranoia and the protection of the U.S. “homeland”. The Act gives U.S. police forces unprecedented powers of surveillance and removes most of the checks and balances typically applied to police powers of search and arrest. One such power is the ability of U.S. law enforcement agencies to demand records from any American corporation, or records to which any American corporation can gain access. Furthermore, according to the Patriot Act, companies ordered to surrender records are prohibited from revealing that they have been the subject of a search.

Similar cases are coming to light in other areas of record keeping: in investigating the contracting out of British Columbia’s medical record storage, the government’s BC Privacy Commissioner stated unequivocally that BC’s privacy laws were unlikely to protect information held by American companies if they were subject to a search carried out under the Patriot Act.

The Federation has met with Edulinx senior management and Canada Student Loans Program officials to discuss privacy concerns arising from the reach of the Patriot Act.

Read the Ottawa Citizen story here.