CAUT - Submission to the Review of the Canada Student Loan Program

Publications & Research

Introduction: The Role of Student Financial Aid

The Canadian Association of University Teachers (CAUT) welcomes the opportunity to present its views to the government on the future of the Canada Student Loan Program (CSLP). Founded in 1951, CAUT today represents more than 57,000 teachers, librarians, researchers and professional and general staff at universities and colleges in all provinces. We are committed to improving the quality and accessibility of post-secondary education in Canada and to protecting academic freedom. CAUT is currently a member of the National Advisory Group on Student Financial Assistance (NAGSFA).

Since the inception of the Canada Student Loan Program in 1964, the federal government has played a vital role in promoting access to post-secondary education through student financial assistance. Over 50% of students who receive loans say that they would not have been able to pursue post-secondary studies without the CSLP. The federal government currently spends over $2 billion in a patchwork of loans, interest subsidies, and repayment assistance.

When first conceived in 1964 the CSLP was meant be a modest supplement to a small minority of students unable to afford the up-front cost of college or university. However, the increasing cost and growing demand for post-secondary education has far outstripped the original design of the CSLP. Unfortunately, the basic design and principles of the CSLP have not kept pace with the needs of students and their families. While there have been intermittent enhancements to the program, there has been no systematic review of how best to integrate federal and provincial programs, target student financial assistance, and ensure that student financial assistance policy effectively responds to the rapidly increasing cost of post-secondary education. It is, therefore, timely that the federal government is undertaking a review of the CSLP with the goal of modernizing the administration and policies of the program.

CAUT believes that any changes to the CSLP must ensure that post-secondary education is available to all qualified students on the basis of need and that no student is denied access because of a lack of resources. Moreover, we believe that changes to the government’s overall student financial assistance policy is needed so that students or their families do not have to incur onerous debt to pay for a post-secondary education. We believe that this review affords an opportunity to reorient the Canada Student Loan Program and it is our strong view that this opportunity will be squandered if the CSLP limits itself to minor administrative changes.

Canada Access Grants

Any modernization of the Canada Student Loan Program must include the development of a comprehensive system of grants. As post-secondary education increasingly becomes a required credential for employment, access to post-secondary education must be expanded. Though Canada has relatively high levels of general participation, participation rates of Aboriginal and low-income Canadians lag far behind. It is, therefore, vital that the federal government recognize the need to enhance access for underrepresented groups. In our view the current CSLP is far too focused on repayable loans. In recent years, the federal government has expanded loan limits allowing students to borrow more as costs soar. While we support the Canada Access Grants introduced in 2004, the program is too limited to enhance access to post-secondary education. Students are eligible for the grant in their first year of studies only, and the current maximum is either $3,000 or half of tuition fees, which ever is lower.

There is a growing body of international evidence that suggests that loans do little to improve access for those from low-income families. By contrast, there is strong evidence that grants increase the likelihood that a student from a low-income family will both start and complete a program. Other studies show a correlation between high levels of student debt and low completion rates. In Canada, students who borrow more than $10,000 are only half as likely to complete a program as those who borrow less than $1,000. As Table 1 demonstrates, debt has an adverse effect on persistence.

Table 1: Completion Rates By Level of Student Debt

Under $1,000        71%
$1,000- $1,999     59%
$2,000 - $2,999    64%
$3,000 - $9,999    51%
$10,000+             34%

This finding is particularly troubling given the fact that average student debt in Canada is near $25,000.

The accumulation of high student debt is regressive in two distinct ways: those who have high debt levels pay a substantial premium for their education through interest payments on their loans, and those who incur high debt are less likely to see the full benefit of a post-secondary education because they are also less likely to graduate. Based on the available evidence and the public policy goal of expanding access to post-secondary education, we believe the federal government should expand the value of the Canada Access Grant to $5000 and extend eligibility to all years of a college or university program. We believe the cost of doing this could be largely achieved through the reallocation of funds from existing programs, such as the Millennium Scholarship Foundation and the Registered Education Savings Program, that are ineffective.

Millennium Scholarship Foundation

When it was established in the 1998 budget the Millennium Scholarship Foundation (MSF) was greeted with resistance and skepticism from most provinces. This ensured that the MSF was in a very weak position when bargaining with the provinces for disbursement of funds.

The agreements that were struck, as Foundation officials admit, are non-enforceable “gentlemen’s agreements” that allow the provinces to spend the money as they wish. When the program was established, several provinces simply used the MSF funds to finance existing programs. In Saskatchewan, Nova Scotia, and Ontario no new programs were created with MSF funds. In Nova Scotia spending on student financial assistance actually went down in the years following the agreement with the province. In Saskatchewan the province insisted that it had used the funds as a means of keeping tuition fees hikes to a minimum. In the years following the creation of the MSF Saskatchewan was at or close to the top of the country in tuition fee increases.

These difficulties are noted in a 5-year report commissioned by the Foundation:

The Foundation recognized the issues of displacement early on and came to side agreements with the provinces on the reinvestment of the displaced funds. Nonetheless these agreements are quite vague, in some cases, and thus may not lead to investments that help directly help students. The leverage of the Foundation in negotiating more specific investment agreements was limited by an announcement by the Government of Canada that implied that provinces were free to spend displaced funds in whatever way they chose. (15)

The result has been that the Foundation has fallen well short of the federal government’s promise that the program would mean that “those students most in need will see their debt reduced by $3,000 per year.”

In addition, public policy experts have argued that foundations are a poor vehicle for administering public policy. The Millennium Scholarship Foundation’s performance to date gives us no reason to doubt that assessment. Unlike federal departments the Foundation does not report to Parliament and the Foundation is governed by a private board. The inherent structure of the Foundation does not allow for proper transparency or democratic governance and this is unacceptable in an area of public policy as vital as student financial assistance.

Some have argued that the mandate of the Foundation should be extended because students would see a reduction in student financial assistance if the Foundation was not renewed. However we believe that the funding for the MSF could be better allocated in a way that provides real and transparent assistance to more students in need. The funding that would be needed to renew the Foundation should be redirected into existing student financial assistance programs, not eliminated. It is our view than that when the Millennium Scholarship Foundation mandate expires in 2009 it should be wound down and equivalent of $300 million annually should be added to the Canada Access Grants.

Registered Education Savings Plan/Canada Education Savings Grant

As the cost of tuition fees have escalated over the past 10 years the federal government has created several programs designed to encourage families to save for the cost of post-secondary education. The Registered Education Savings Program (RESP) allows families to invest in a savings plan for a child’s education, with the federal government matching up to 20% of the first $2,000 for a grant total of $400. Though the savings themselves are not tax deductible the grant and any interest earned on an RRSP is tax-free. The program costs over $100 million per year. However, it is now clear that the program has become an expensive subsidy to middle and high income families. Statistics Canada reports that while 97% of families want to save for a child’s education, the majority of those benefiting from the RESP and CESG program are families earning over $80,000 per year. Over 80% of those in the upper income bracket were saving while only 19% of those earning under $30,000 were able to save.

In an attempt to encourage greater savings from lower-income households, the federal government introduced the Canada Learning Bond (CLB) program in the 2004 budget. The learning bond is available to families with children earning under $35,000 annually. The program provides a one time RESP allocation of $500 for those who register and then deposits $100 a year into an RESP account until the child is 18. Therefore the maximum available under the program is $2,300. Given that the bond takes 18 years to mature, even by the most conservative estimates the total value at maturation will unlikely be enough to allow a low-income family to pay one quarter of an academic year’s fees. Aside from the nominal amount of the grant the other obvious flaw in the program is that the first year in which anyone will be helped by this program is 2021. We believe the federal government could more effectively assist students in need by eliminating both the CESG and CLB programs and re-allocating the funding to an enhanced needs-based grants program. Such a re-allocation would free up over $600 million to be spent on need based student financial assistance.

Need Assessment and Administrative Changes

The current system of need assessment within the CSLP is in urgent need of reform. The assessment process has not kept pace with the increasing cost of post-secondary education and students are having a more difficult time meeting basic expenses. According to the 2004 CSLP actuarial report, close to 40% of students have unmet need. As tuition fees and other costs escalate, high levels of unmet need will eventually compromise access. Students are already working close to 20 hours per week and employment income comprises nearly 30% of the resources students use to fund their education. These already high numbers will continue to increase without a more realistic need assessment process.

In our view, the need assessment should cover the full cost of tuition and ancillary fees, transportation costs, full disability accommodations, realistic transportation allocation, market cost for modest accommodation, as well as a reasonable provision for technology expenses. As outlined above we favour turning the CSLP into largely non-repayable student financial assistance program. As outlined earlier, the increased cost of both grants and an enhanced need assessment process could largely be funded through the cancellation of regressive or ineffective programs like the RESP and MSF programs.

The CSLP should also look to reduce interest rates. The current rate of prime plus 2.5% is among the highest in the world and causes substantial hardship for students in repayment. In addition, the Debt Reduction in Repayment Program (DRR) must be expanded. Even with recent enhancements the program is still only helping a marginal number of heavily indebted borrowers. We also call on the federal government to re-examine how it treats part-time borrowers. The rapid reduction in the number of students studying part-time confirms our view that the CSLP regulations for part-time study actively dissuades students from studying part-time. As part of its commitment to expanding access, the CSLP should treat part-time borrowers the same as full-time borrowers.

CAUT also remains concerned that student loan recipients continue to face discriminatory treatment by being prevented from filing for bankruptcy for ten years. The government has recently proposed to reduce that limit to seven years, but we believe this does not go far enough. The restrictions should be eliminated altogether. There is no justification for treating people who borrow to get an education so harshly, while having no similar restrictions on any other type of borrower.

Finally, on administrative changes, CAUT would favour one harmonized assessment process for all students. Such a process would simplify eligibility for students but, more importantly, deal with the perennial problem of federal student aid enhancements simply displacing existing provincial programs. Under the current system, if a student receives enhanced grant money either through the MSF or the Canada Access Grants that aid is counted against money the student might be eligible for from the province. In our view federal initiatives should not supplant or replace provincial programs but should augment what is available to students. Every dollar of federal student aid should go to students rather than be absorbed by provincial treasuries. We accept that such a proposition is an ambitious long term goal but access and affordability are consistently undermined in the current system in which the provincial and federal student aid programs often behave as if they were in competition with each other as opposed to serving the same Canadian student.

Conclusion

To create a more equitable and effective system of student financial assistance, the government must change it from a loan and savings driven program to one based on grants. While additional funding is needed to achieve this goal, it can be largely financed through the savings achieved by the elimination of ineffective and regressive programs. However, these changes alone will not be enough unless the federal government begins to play a more proactive role in curtailing the cost of post-secondary education. Any review of student financial assistance is incomplete and likely to fail if it does not address the issue of tuition fees. Though tuition fees are not directly under the federal government’s jurisdiction, the federal government must nevertheless begin a dialogue with the provinces to ensure that new funding flowing to the provinces is used to promote access and increase the quality of our post-secondary education institutions. In the absence of this, any enhancements to student aid will quickly be eroded by tuition fee hikes. In short, if enhanced aid only backfills the need created by ever increasing fees the government’s goal of encouraging access for underrepresented groups will be undermined.

The federal government made a down payment of new post-secondary education funding in the form of $800 million for post-secondary education through the Canada Social Transfer (CST). When that announcement was made in Budget 2007 the federal government committed to a dialogue with the provinces to develop national objectives for post-secondary education funding. Regrettably the federal government has not followed up on this commitment. We call on the federal government to fulfil this promise as a first step in establishing a comprehensive and well funded national system of post-secondary education.

This document is respectfully submitted on behalf of the Canadian Association of University Teachers

Greg Allain                              James L. Turk
President                            Executive Director


1. See for example Empty Promises: The Myth of College Access in America.
United States Advisory Committee on Student Financial Assistance, June 2002
http://www.ed.gov/about/bdscomm/list/acsfa/emptypromises.pdf

2. Lori McElroy, “Student Aid and University Persistence — Does Debt Matter?” Montreal: Canada Millennium Scholarship Foundation, 2005, p. 4.

3. The Price Of Knowledge, Millennium Scholarship Foundation 2007, p7.

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