Manitoba Elections 2019: Preserving Zero-Interest Student Loans


September 3, 2019 - 9 minutes read

This article is part of UMSU’s Manitoba Elections 2019 series, detailing the policy priorities that we have advocated for provincial parties to adopt in their platforms to ensure postsecondary education in the province remains affordable and accessible. Learn more here.

Protestors at the University of Wisconsin-Madison rally against escalating student debt. Outsized student loans have been linked to negative mental health outcomes for current students, reduced career mobility for graduates, and lower consumer spending in the broader economy. Photo: Joe Brusky/Flickr 

 

RECOMMENDATION: That the Government of Manitoba maintain its policy of offering zero-interest student loans in recognition of how they help fulfill Manitoba’s Postsecondary Education Strategy (2015), support the career mobility of graduates, and will be instrumental in developing the skilled workforce necessary to fill the government’s labour demand forecasts.

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While recognizing the value of the previous Manitoba government’s strategy of streamlining loan processes and implementing fixed contribution rules while also boosting bursary amounts, maintaining a provincially-administered, zero-interest loan system is the only way to offer guaranteed financial support to all students in the province. This is especially true since the Government of Manitoba’s decision to remove the tuition tax credit in 2017.

While postsecondary education and training have become increasingly necessary within developed economies, the cost of postsecondary education has never been higher – and is still increasing. Data from Statistics Canada shows that tuition fees for undergraduate programs in Canada rose by an average of 3.3% in 2018-2019.

With recent legislative changes in Manitoba, institutions in the province are now permitted to raise their tuition by twice that rate. Amendments to the Advanced Education Administration Amendment Act (Bill 31) that came into effect for the 2018-19 academic year now allow for year-on-year tuition increases of 5% in addition to inflation, which in some years could be as high as 2.5%. In 2018-2019, postsecondary institutions in the province raised their rates by 6.5% – the highest average raise of any province across the country.

Higher tuition also fuels social stratification due to lower participation by students from low-income backgrounds, which can include Indigenous students, racialized students, students with disabilities, and students from the LGBTQ2S* community.

Compounding the cost of education to students in the province has been the elimination of the Manitoba Tuition Fee Income Tax Rebate, which allowed students to claim up to 60% of eligible tuition fees. Prior to being dropped in 2017, this tax rebate provided an estimated $52-$54 million in benefits annually to approximately 48,000 claimants who continued to be residents of Manitoba, offsetting a portion of the cost that they invested in their education.

While postsecondary education and training have become increasingly necessary within developed economies, the cost of postsecondary education has never been higher, and graduates are finding themselves further behind financially upon finishing school. Photo: Robert Fairchild/Flickr

 

Analysis of trends within Canada indicate large student loan debt burdens are dangerous for the consequences they have on both the mental health of students and career mobility of graduates. In addition, large amounts of student debt has the knock-on effect of dampening consumer spending within broader areas of the economy upon which tens of thousands of other jobs depend, such as hospitality, housing and retail.

The escalating cost of pursing postsecondary education has also created the ‘boomerang generation’ wherein graduates shackled with debt are moving back in to their parent’s homes at unprecedented rates. Faced with large debt loads and shaky job prospects after graduating – part-time or contract positions, or tenuous roles in unpaid internships or the gig economy – having children and starting a family is simply unfathomable for many young people.

Eliminating zero interest student loans in Manitoba would exacerbate the rise in student debt that has occurred due escalating tuition rates and the loss of the Tuition Tax Credit in 2017. *Denotes total loan required to complete a degree if loan taken out when indicated.

Research shows that higher tuition also fuels social stratification due to lower participation by students from low-income backgrounds, which can include Indigenous students, racialized students, students with disabilities, and students from the LGBT2QS* community.

With graduates in Manitoba owing an average of $9,300 in student loans after finishing their studies in four year programs that average $17,000, keeping zero interest loans aligns with aims of Manitoba’s Post-Secondary Education Strategy (2015) by being responsive to the needs of students and economic opportunities; accessible and inclusive for students from all backgrounds and all regions of the province; and helping to raise Indigenous postsecondary education participation rates to the provincial average.

The 7.8% rate of those in default on Manitoba student loans is lower than the 9% default figure in the federal student loan program – the added interest charged and higher resulting payments undoubtedly play a role.

The 2017 KPMG fiscal audit of the province which has served as a roadmap of sorts for policy action by the Pallister government while in office, and suggested eliminating zero interest loans – gave an overview of the $118 million in outstanding student loans in Manitoba, as of September 2016 (see figure).

Of the amounts owing at the time, the $9.3 million in collections – or 7.8% of the total amount of outstanding student loans – is the only figure that could rightfully be considered a financial risk for the province. The rest of the student loan money is in the process of being repaid, and has either gone to support ongoing studies; enabled students to graduate their programs with a lower personal debt burden; or is being repaid by individuals who have agreed to a revised timeline for repayment, or who have entered into a structured repayment assistance program.

The 7.8% rate of those in default on the Manitoba student loans cited by the KPMG report is lower than the 9% default figure in the federal student loan program – the added interest charged and higher resulting payments undoubtedly play a role. Under the Canada Student Loans Program (CSLP), a student with $30,000 in debt can expect to pay over $10,000 in additional interest over ten years.

Keeping the zero-interest student loan policy maintains a competitive advantage that Manitoba has in retaining homegrown talent within the province necessary to fill positions vital to the provincial economy in the near future.

Furthermore, with Newfoundland and Labrador, Nova Scotia and Prince Edward Island offering zero interest loans and the BC government having eliminated interest on its student loans in February, keeping the zero-interest student loan policy maintains a competitive advantage that Manitoba has in retaining homegrown talent within the province necessary to fill positions vital to the provincial economy in the near future. The Government of Manitoba’s own jobs forecast calls for the need to fill 12,000 jobs per year requiring university, college or apprenticeship training through until 2024.

With all these factors in mind, maintaining the more affordable zero-interest student loan system as currently established is the most useful way to offset the cost of postsecondary education for the greatest number current and future students, and thereby meeting the province’s future labour demands.