The Elephant on Campus – Tackling Student Debt Burdens in Canada

November 27, 2018 - 7 minutes read

By Jakob Sanderson and Owen Black

Student debt in Canada is spiraling out of control; graduates are having to delay adulthood and the federal government is forced to continually write-off hundreds of millions of dollars in taxpayer funded loans it has no hope of collecting. One obvious solution is to change tuition tax credits to upfront tuition grants. 

Every year post-secondary students face an unenviable choice: pursue education at the cost of mounting personal debt or delay it to attempt to save money in a tepid youth jobs market.  This situation benefits no one.  To push for change, from December 3-6 we will be joining our peers from the Undergraduates of Canadian Research-Intensive Universities (UCRU) in Ottawa to advocate to MPs that the federal government reallocate the estimated $1.5 billion from the Tuition Tax Credit program to upfront, non-repayable grants to be administered through the Canada Student Grant Program.

As things currently stand, the average undergraduate in Canada will finish their studies with $26,000 in debt and take more than a decade to pay it off. At least one in ten will default on their loan within the first three years of graduating, rendering them ineligible for repayment assistance support through the Canadian Student Loans Program. And the situation is poised to get worse, with Statistics Canada finding that tuition fees for undergraduate programs rose by an average of 3.1% in 2017-2018.

In February the federal government wrote off $200 million of the $19 billion it is owed in student loan money. This sum is in addition to nearly another $1 billion in similar write-offs since 2012 under both Liberal and Conservative governments. Such actions would seem to be an admission from both sides of the aisle in Ottawa that the current system is dysfunctional, prompting reform. However, one reason why the student loan system has only been tinkered with rather than overhauled: interest rates on student loans are a convenient source of funds for the federal government – generating upwards of $862.6 million in revenue in 2018 alone. The non-partisan Parliamentary Budget Officer (PBO) has estimated that by 2020-21 more than half a million students will make use of the Canada Student Loan Program and the value of new loans each year will eclipse $3 billion.

Manitoba currently has among the lowest debt loads for post-secondary students in Canada, with graduates owing an average of $9,300 after finishing their studies. However, students here were hit particularly hard this year after the Pallister government chose to both cut $6 million in provincial grants for post-secondary education while also repealing the previous cap on tuition fee raises that held them in step with inflation. Both U of M and U of W are expected to implement another 6.6% tuition hike – the maximum now allowed – in their next budget for 2018/2019. Manitoba’s status as being one of two provinces, along with Alberta, that offer zero-interest provincial student loans is also perhaps endangered. The fiscal audit of the province by accounting firm KPMG in December 2016 that has so far served as the road map for much of the Progressive Conservatives’ actions since taking office suggests cutting the program; and the mandate for new Minister for Education and Training, Kelvin Goertzen, includes integrating Manitoba’s student loan program into the federal system.

The social and economic consequences of a generation of students drowning in debt are already playing out in real-time.  The escalating cost of pursing post-secondary education has created the ‘boomerang generation’ wherein graduates shackled with debt are moving back in to their parent’s homes like never before. Faced with shaky job prospects after graduating – part-time or contract positions, or the murky industry of unpaid internships – having children and starting a family is simply unfathomable for many young people. And never-mind trying to enter Canada’s overheated housing market. Experts are already warning this delay in personal life milestones and aspirations is playing havoc with the mental health of graduates and current students alike. While in 2016 the federal government raised the income threshold to $25,000 before requiring graduates start paying back money on their student loans, this only addresses federal loans and does not apply to provincial loans or personal loans from private banks, which often carry much higher interest rates.

Instead, what UCRU advocates is re-directing money committed to the federal Tuition Tax Credit into funding for the Canadian Student Grant Program. The UCRU budget submission outlines how just a third of the $1.5 billion of the Tuition Tax Credit is actually delivered to students each year – the other two-thirds are claimed by parents, spouses, or are rolled over into unclaimed credits from previous years. Indeed, a 2016 report from the PBO details how “High income families are disproportionately more likely to benefit from tuition tax expenditures … Over $250 million or roughly 37 per cent of tuition tax expenditures [being] allocated to families in the highest income quintile”. The same report lays out how, under the present program structure, by 2020-21, 49% of students will have needs that are at or above the loan limit.

If the objective of the Tuition Tax Credit is to provide relief to students by offsetting the high costs of enrolling in post-secondary education, then by most measures it is failing. Young persons should not be thrown deeply into debt as a result of pursing an education, and Canadian society and the economy should not be deprived of a lost generation of youth unable to pursue their passions because they risk financial detriment. This objective could be met much more effectively by providing upfront grants to pay enrolment and tuition fees and purchase textbooks and other necessary materials. Doing so would work toward easing access to education for all, rather than tax credits that for the most part only reward those that can afford education in the first place.