Today's average Ontario student graduates with $37,000 in government guaranteed and private student loans. Let's put that number in perspective:
- Average annual rate for a one bedroom apartment in Toronto in 2014: $13,000 (CMHC);
- Annual driving costs for a compact car driven 20,000 kilometers in Ontario: $9,200 (CAA);
- Average annual food expense for single person in Canada: $ 4,500 (Statistics Canada).
My point? If you struggle to find a suitable job after graduation, those loans would pay for the equivalent of almost 17 months in basic living expenses. Or perhaps you've found a job, but that job is not steady: same problem -- living expenses become a priority over student debt repayments.
This is the experience highlighted by our most recent Joe Debtor study. More than 13 per cent of all insolvencies (bankruptcies and consumer proposals) involved student debt. On average, student debtors still owed $13,818 in student loans at the time they declared bankruptcy or filed a consumer proposal. At an average age of 36, the insolvent student debtor has been out of school for a while, trying to make payments.
Our study also highlights that the burden of student loan repayment is even harder for women. Six in 10 insolvent debtors with student loans in our study were female. On average they still owed $14,748 in student debt, almost 20 per cent more than male student debtors. The financial reasons for this disparity are two-fold:
- Female student debtors are more likely to be unemployed at one point or another, jeopardizing their student loan payments. While 91 per cent of male student debtors were working, only 83 per cent of female student debtors held a job at the time of their insolvency.
- Almost four in 10 female student debtors were also single parents. The financial strain of raising a family on a single income is difficult enough; when you factor in student loan debt, the burden becomes unbearable.
So what's the solution to our student debt problem?
First, students should carefully consider whether or not post-secondary education is a prudent choice. Would some students be better off better off getting a job and improving their job skills by working and earning money immediately, and have no student debt? Unless they can earn a lot more money later in life by getting a college education, this is the more prudent choice.
Second, students should carefully consider the future job prospects of the program they choose. A diploma program through a community college may be a better investment and still provide that needed post-secondary tick mark on a job application.
Third, where possible, parents should start to save early through programs like an RESP to help assist with their child's education. Even a small amount -- when combined with the government grant portion -- can make a difference in the amount of debt that the next generation begins their lives with.
Those are important steps, but I also believe we need to revisit how we deal with those deeply in debt for student loans that provide little to no value today. Under current federal law, even if you go bankrupt a student loan is only automatically discharged if you have been out of school for at least seven years at the time of your bankruptcy. There is no such rule for any other kind of debt. You can start a business, rack up massive tax debt, and your tax debt is discharged in your bankruptcy. Should student loans be subject to such punitive treatment?
At a minimum, our firm has taken the position that the waiting period to discharge student debt be reduced from seven years to a maximum of five years.
I have handled cases where a student enrolls in a for-profit college, gets a student loan, and then the college goes out of business before the student graduates. The student gets no value from their education, but is burdened with the student loan. The bankruptcy rules should be modified so that if the educational institution ceases operations, the student loan would not be subject to any waiting period in a bankruptcy.
I don't claim to have all of the answers, so I encourage a discussion between all interested groups: students, colleges, universities, employers, the government and taxpayers, since we all have a vested interest in promoting education, but at a reasonable cost.
In addition to reducing the bankruptcy waiting period, here are some other ideas for discussion:
- The bankruptcy waiting period could be scaled based on the length of the program. A three-year college program for example would have a minimum three-year waiting period. Graduates would still have to show they have made every attempt to repay their student debt based on their income.
- Should there be an employment clause? If a graduating student is not able to find suitable employment to allow them to significantly pay down their student debt in a reasonable period of time, their student loan should be reduced or forgiven. This may lead to reduced student enrollment in programs with limited job prospects because the government may be unwilling to guarantee loans if they know they may not be repaid.
- Education is a big business, which is one reason tuition costs have increased considerably over the last two decades. Perhaps we should take the position that our educators should also pay a price. Should we claw back a portion of uncollectible student debt paid for by our tax dollars if these institutions are unable to provide value for their tuition? Perhaps this would encourage educators to provide programs that meet the needs of students.
Here's the bottom line: too many students are burdened with excessive student debt and that hurts all of us, so a solution must be found, and the sooner the better.
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