Minister Solberg announces income contingent student loan repayment

Critics decry lack of interest rate cut


Repayment of Canada Student Loans will now be based upon the borrower’s income and ability to pay. The new policy will start next year and is part of wide-ranging changes announced by Minister of Human Resources and Social Development Canada Monte Solberg in Kitchener today.

“We know from our own research that young people from many low and medium income families don’t even consider post-secondary education because they think it will be too expensive,” said Solberg. “Today we are telling them and we are telling their families that a low income should not be a barrier to anyone.”

Currently, student loan borrowers in repayment are required to continue to making payments on their student loans regardless of their financial situation or how long ago their incurred that debt. Today, Solberg indicated that would change. Repayment will be tied to income and borrowers will only have to make payments equal to a maximum of twenty per cent of their income. There is also a time limit on repayment. Any debt a student still owes after fifteen years will be forgiven by the government.

“At that time it will be forgiven and we’re of the mind that if people are in the situation after 15 years where they are still struggling to pay, it’s not worth it for us to pursue it,” said Solberg. “Secondly, we want people to get on with their lives. It’s a lot of burden; no one’s going to choose to be pursued for fifteen years by the government in terms of repayment.”

Students will face less paperwork as well. Currently, students must fill out separate agreements for both their federal and provincial loans each year of their post-secondary education. Starting in 2009/10, students will only fill out one form in their first year which will be valid for each year they continue in their original program.

Solberg also highlighted the new Canada Student Grant Program that will launch next year. “If students are from a lower income family, they will receive a $250 upfront cash grant each month they are in school,” he said. “In other words, if you are a low-income student in a four-year program, you will receive eight-thousand in Canada Student Grants over the course of your education.” The government expects 240,000 students will receive grants each year.

To the disappointment of critics, the government didn’t announce any decrease to the federal student loan interest rate, presently set at 2.5 per cent above prime.

Julian Benedict of the Coalition for Student Loan Fairness said students need relief from high interest rates. “If they are going to income contingent loan repayment … the problem with that is that if there is no interest rate adjustment we’ll be expanding the time to which people repay their loans which means they’ll pay more interest at these high rates,” he said of the new Repayment Assistance Plan. He pointed out that most countries with income contingent repayment plans charge interest rates which are below the prime rate.

Solberg believes his changes will be more helpful to students than decreasing the interest rate. “The issue really isn’t student interest rates, it’s the ability of students to repay,” said Solberg. These changes “go a lot further than reducing interest rates a point.”

“Interest rates are only one aspect,” according to Solberg. “The changes we’ve put in place really help people no matter what their situation.”

When asked if he disagrees with interest rate decreases implemented by three provinces this last year, Solberg said, “It’s up to the provinces to decide how they want to do it, but we’ve taken an approach that we think is more universal, that captures all the reasons that people struggle to pay.”

Student lobbying organizations have expressed pleasure with the changes unveiled today. “Minister Solberg’s commitment to help improve access for low and middle-income students and the government’s new initiative to help relieve student debt is reassuring for those who are faced with the burden of such barriers,” said Zach Churchill, national director of the Canadian Alliance of Student Associations.

Students, parents, and graduates can find out more about these changes by visiting the government’s post-secondary portal at www.canlearn.ca

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Minister Solberg announces income contingent student loan repayment

  1. Has there been anything from the Canadian Federation of Students on the new Repayment Assistance Plan?

    My understanding is that the Federation has had a long-standing policy opposing the introduction of an Income Contingent Student Loan Repayment Plan.

  2. Yes…I’m very surprised that they aren’t upset about this plan….

  3. SOLBERG: “The issue really isn’t student interest rates, it’s the ability of students to repay”.

    This is a breathtaking statement by Solberg – of course the interest rates matters – especially when the feds are raking nearly half a billion per year in interest revenues. Of course they don’t want to reduce the rates! (They collected $483 million in 2006/2007 according to a recent ATIP).

    The question we should all be asking is this: why are we collecting millions in interest from borrowers who only qualified for student loans in the first place because they couldn’t afford to pay for their education up front?

  4. Joey, the press release clearly says this will be an optional payment plan. Was there some clarification at the press conference that changes the meaning of that? Say what one will about the program, the optional nature doesn’t come through your article at all and that completely changes what we’re discussing.

  5. Spencer,

    First of all, my apologies for the delay getting back to your comment.

    You make a good point. Yes, the new repayment plans is optional, students can pay more if they choose to remain with the old method.

    Some will be paying less than 20% under the old program, it all depends on their income.

  6. This is not Income Contingent as proposed in the 90s. It’s is income contingent but has an expiry date of 15 years and is much more flexible in order to reflect an individual’s circumstance.

    As is the case with the present system, only some graduates will require it.

    The motion opposing Income Contingent Repayment Plans is based on that entirely different concept.

  7. While the program is optional, student loan instigated economic hardship is often anything but optional.

    Having said that, on the surface it would appear that this new program is a) an improvement in comparison to the predecessor/existing programs; and b) an ICLRP model designed for only the most financially disadvantaged borrowers.

    Some student financial aid theorists have long contended that ICR in itself is not bad policy. Instead, it is the design of and, less so, the motivation for ICLRPs that are the primary causes of contention.

  8. If the system is anything like Interest Relief, it will not be a program that is easy to get. In any event, you shouldn’t have to be desperate to get a break from sky-high student loan interest!

  9. For more on income contingent or contingent repayment loans, and other forms of student loans, readers may wish to review Dr. D. Bruce Johnstone’s Higher Educational Accessibility and Financial viability: The Role of Student Loans. The article is available here in .pdf format.

  10. One important note is that this program replaces the Interest Relief and Debt Reduction in Repayment programs. I’m not sure why these programs are inconsistent with the income contingent repayment scheme being introduced. The release says that students with “very low” income won’t be required to make payments. It’ll be interested to see what is defined as “very low” and how it comes to the current Interest Relief thresholds. Also, whereas previously, students could be eligible for up to $26,000 in debt reduction 5 years after completing studies, they’ll now have to wait 15 years to have any kind of reduction. We’ll have to wait for the details, but it seems to me that the government actually stands to save money on this new program.

  11. Joey what does the CFS have to say about this issue? It seems to me to be incredibly sloppy journalism to suggest student lobby organizations support this move without referencing the Canadian Federation of Students. I know you have serious issues with CFS, but they are the largest student group in the country. Why should I look to Macleans for my post-ed information if you cannot even get comment from the most important players?

  12. Matt: “sloppy journalism”
    CFS: “sloppy journalism”

    Guess somebody received their talking points

  13. When I write news stories, I always work to contract the maximum amount of sources in the shortest time period possible.

    In the past, I’ve spent a great deal of time trying to get comment from the CFS national office. This is normally unsuccessful with repeated promises from them to return calls not kept.

    CASA responses to queries quickly and professionally. I wrote this story on a tight deadline. (I filed at 2:30pm and was offline after this point that day) There is no conspiracy against getting comment from the CFS, rather the demands of my deadline dictated that I didn’t have time to repeatly call them.

    If this were a provincial story (like the Ontario textbook credit story of two weeks ago), I would have contacted CFS-Ontario for comment as I know I would recieve an immediate response.

    Funny thing with student politics, somebody always gets upset when the rival lobbying organization is quoted. I get it from supporters of all the organizations.

    In terms of this being sloppy journalism, this story remains the most comprehensive to date. There are multiple sides in the story. I didn’t rewrite a news release and I actually went out of my way to be at the news conference to ask tough questions.

    The CFS was quoted in other media outlets as supportive of the change, that was enough to justify stating student organizations supported the change.

  14. Joey calls CASA “professional” while trying to change the channel on the their sham membership of the U of A student’s union.


    Will Joey admit that there is nothing professional about how the U of A students’ union joined CASA and actively stifled debate?

  15. Trying to change the channel?

    You may have noted the topic of this article are the changes made to the Canada Student Loans Program.

    Chad, if you were not at the University of Toronto, I would suggest signing a petition and trying to change the UASU position which you disagree with.

    In terms of not covering the story when it occurred, looking back at my calendar at that time of the year, I was fairly busy working at my summer job and researching for an engineering story.

    I’ve criticized CASA before, I will likely do so again. But hey, the truth interferes with the conspiracy theories you prefer to dismiss those who express opinions and facts different from those you believe are true.

  16. Joey while I understand it sometimes might be easier to just not bother getting CFS comment (it seems in this case you just didn’t try by your comment), I really think it is entirely inappropriate to suggest student lobby organizations in Canada are supportive without actually asking the largest and most influential student lobby organization in the country. Perhaps rather than making excuses, it would be best for you to actually get comment from CFS and add a note on your article.

    I have used Macleans as a source for post-ed issues for a long time, though this is my first time actually posting. The reason I did so for the first time is that I could not believe there was some sort of unity amongst student lobby groups in Canada on the issue of ICR loans. CFS has always been fundamentally opposed to ICR, so it would be a really surprise to me if they supported the governments’ push to increase ICR loans(and therefore student debt). In fact, to me it would signify a fundamental shift in national student politics in Canada.

    I have read other media which has repeated CFS support for the elimination of the MSF in favour of income-based grants, but not for the ICR`s which your article was about. If CFS has indeed switched to support of ICR I would appreciate you directing me to your source so that I can take the issue up with my own CFS-member student union.

  17. The CFS is taking the position this is not ICR. Instead they are using the government definition that it’s a “Repayment Assistance
    Plan” which is “complex” and not ICR.

    Ian Boyko (CFS National Government Relations Coordinator) sent this message to the CFS members’ listserv:

    “On Monday, Minister of Human Resources and Social Development Monte
    Solberg re-announced changes to student financial assistance included in the 2008 federal budget. Monday’s announcement added details to what was publicly available at the time of the budget. In particular, the Minister provided details on long-expected changes to Interest Relief and Debt Reduction in Repayment. Both programs have been replaced with what is essentially a graduated Interest Relief program, re-branded as the ‘Repayment Assistance Program’ (RAP).

    “Please note that there has been some sloppy online reporting of the
    details of this program, leading to some confusion. The program is
    relatively complex and if you have any questions, please do not
    hesitate to contact the national office. We have received several
    briefings from Canada Student Loans Program personnel over the
    summer, and can hopefully provide more details than what is possible
    in an email.”

    Prof. Dale Kirby stated in comments over here:

    Mr. Boyko’s position is intriguing; however, if it walks like a contingent repayment loan and quacks like a contingent repayment loan, I would be inclined to call it a contingent repayment loan.

    As I noted over here, anyone in doubt can review the relevant sections (pp. 8-11) in Dr. D. Bruce Johnstone’s Higher Educational Accessibility and Financial viability: The Role of Student Loans which is available here in .pdf format.

    In other news, we’ve always been at war with Eastasia.

    Personally, I believe the government is moving in the right direction by setting repayment to income. There is more to be done, but this is a positive step.

  18. It is odd that so much of the student movement appears to forget that being a student doesn’t stop when you leave school!

    If you have a student loan, you’ll be in repayment for up to 14.5 years after you leave school!

    With 510,000 borrowers in repayment across Canada, student groups must remember that these are voters, too – they are worth fighting for with policies and approaches that help protect them from abusively high interest charges.

    And they may well be students in the future again, if you believe that learning is a lifelong journey.

  19. Matt you’re right that the CFS opposes ICR, but as Joey noted they are unwilling to refer to this new repayment scheme as ICR. My guess is that would mean they would have to oppose the government and I am not sure why they would not want to do that.

    They could be avoiding the issue either because despite the fact this is ICR, the design is amenable to their goals, or perhaps, because they tacitly support Stephen Harper’s government and do not want to be overly critical.

    It will be recalled that the CFS declared victory and was full of nothing but praise when the CMSF was scrapped.

    And, it will also be recalled that prior to the budget a CFS press release stated that they were hopeful the federal government would hold to its promise, made a year prior, that new money for the Canada Social Transfer would be cordoned off for education. The Tories put forth no such conditions and the only group to notice was the Educational Policy Institute.

    The CFS made four press releases all full of glowing praise for the Tory government with respect to the millenium fund, but no mention of the fact the government put no extra strings on the CSF as it had promised to do, and that the CFS had stated as a priority.

    It seemed, as I noted at the time, odd that they were quiet on this, but perhaps not so odd given their peculiar position on the new repayment scheme. So does the CFS know something the rest of us don’t know, or has some sort of weird alliance been struck with the Harper government? Or have I missed something?

  20. I’m not sure if it’s even pertinent to make pronostics until they actually release a position about the RAP. But let’s just take one minute to ask ourselves if anyone could possibly take position against what the Tories announced. How can you be against payments being smaller and the debt being forgiven after 15 years?

    Smaller payments without forgiveness could be criticized (because if the repayment last longer, the student can end up paying more in the end). Actually, on almost every printed material I’ve seen at the CFS about this issue, there was the argument that: “ICR means the low-income graduates will make payments forever.” (because they could only afford small payments)

    So my theory is that the forgiveness after 15 years blocks the CFS from using their main argument against ICR. (Another argument could have been used if the ICR was tied with another thing, like tuition fee increases. But that’s not happening either.) It’s up to everyone to judge whether that or Carson’s secret-deal-between-CFS-and-the-conservatives theory is more reasonable.

  21. Philippe, you are right and I don’t deny that that would be a reason why the CFS would not oppose this scheme. However, Boyko seems unwilling to call it ICR, and I am begging the question as Joey and Dale have.

    Why wouldn’t they call it what it is and admit that the design is appropriate? Unless of course, they are worried that if they refer to it as ICR, given their strong opposition in the past, that they might feel obligated to oppose it.

    Perhaps my use of the words “alliance” and “struck” was too strong, but given positions they have taken elsewhere and their peculiar position here, I find it hard to come to any conclusion other than one that would see the CFS supporting the Tories either explicitly or implicitly.

  22. And if that is not their intention, it seems reasonable to see it as a result.

  23. Joey,

    Discussion threads are about digging more deeply into an issue. Sorry if I came off strong, but I was responding to your comment regarding your apparent preference for CASA over the CFS, which has become a relevant issue in this discussion thread. By your own logic in a previous thread, you should be be calling the UofA SU’s joining of CASA as nothing less than a sham.

    In your comment above you say:
    “There is no conspiracy against getting comment from the CFS, rather the demands of my deadline dictated that I didn’t have time to repeatly call them.”

    Just out of curiosity, do you consider yourself a “journalist” or a “blogger”. I think a journalist would try making a phone call, always. But maybe I’m just taking you and Maclean’s too seriously.

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  25. So I have a good income for the first time in my life – Now I can make “affordable payments” of up to 20% of my income (Probably before taxes)…..and they still want the interest? My payments will be much larger.

    Will interest-only payments still be available? Because I’m only too familiar with gov’t bureaucracy and the “optional” programs they coerce you into.

    Won’t have to pay for any longer than 15 years? That’s not too consoling when you retire in 12.

  26. I am breathing a sigh of relief for my son as he starts university this fall. However, what of the former students and graduates who have been stuck in the hamster wheel of the old system, thrown into two and three collection agencies because they didn’t “qualify” for interest relief or debt reduction for various arbitrary reasons (or ineptitude of the banks and government bureaucracy) and couldn’t afford to pay $700 month for 25 years?

    Will they continue to be spinning, called deadbeats and worse, while new graduates, just because of arbitrary law changes, are just “undergoing hardship”?

    I would also like to remind the press that not all students are “young”. Especially in this economy, many unemployed people may be looking to retrain after a job loss or other reason. And always have.

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  28. is it only for canadian citizens?
    because i am planning to study in canada but i wont be able to do that without a loan

  29. Yeah. What about us in default?

    I have had collection agencies chase me down when I was destitute. I have managed to get into a repayment scheme where I sent them post-dated cheques. After about 2 or 3 rounds of 6 months at a time cheques, they simply, arbitrarily, stopped cashing them. Then the person I was dealing with ‘left the company’ and I’ve been thrown to the wolves again.

    What do you have to do to get your loan ‘forgiven’? I can’t take this anymore.

    I also would like to return to university, but as I can’t afford it and don’t qualify for OSAP because of the default, I can’t.

    Can someone offer clear direction on how to take advantage of this new policy (that is, as we know, very long overdue)? (Oh and please don’t direct me to that financial wellness site. It’s less than uselss. Hasn’t been used since 2007 and now he just gets on forums and rambles. Very scary.)

    Is bankruptcy the only way?

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