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Q&A with Human Resources Canada

Spokesperson Murray Gross answers questions about the Canada Student Loan Program


 

Maclean’s On Campus spoke with HRDC spokesperson Murray Gross earlier this week in regard to the annual report of the Canada Student Loan Program. Read the full article about the report here.

Maclean’s On Campus: The annual reports have been coming out more often, but the program is still behind. What steps are being taken to get the annual reports out quicker?

Murray Gross: The accusation that these reports are behind schedule is wrong. These reports are on time and 2005-2006 is the last year for which complete data and analysis is available. At present we’re working to analyze data generated following the last student loan year, which ended on Aug 31, 2007. A more standardized layout, printing and translation process has helped to speed up the actual publishing time after the data is generated and analyzed.

MOC: What steps have been taken to implement the recommendations from the student loan review? Can you give anything more specific about what will be done with the money ear-tagged for “modernization”?

MG: Canadian students and their families need simple, effective financial assistance programs. The complexities and gaps in the current system are preventing students from obtaining financial help and affecting their decision to pursue post-secondary education.

Budget 2008 commits $123 million over four years starting in 2009-10 to streamline and modernize the Canada Student Loans Program.
– $23 million over four years for a new service delivery vision that will expand online services and enable students to manage their loans online from application through repayment.
– $26 million over four years to narrow the gap between contributions from spouses and parents of students by reducing the expected spousal contributions, and to make federal student loans more attractive to part-time students.
– $74 million over four years to make the Canada Student Loans Program more responsive to the economic circumstances of borrowers, including those with disabilities, by providing greater assistance for those experiencing difficulty in repaying their loans.

Over the next year, the Government will work with provinces and territories to implement these new measures and ensure effective coordination with existing programs.

Budget 2008 is also launching a new consolidated Canada Student Grant Program to take effect in the fall of 2009, to coincide with the wind-down of the Canada Millennium Scholarship Foundation. All federal grants will be integrated into one program that will provide more effective support to more students for more years of study, assisting Canadian families who struggle with the cost of higher education.

MOC: There were 1,000 fewer borrowers assisted with the debt reduction program this year than last. Why?

MG: In 2004-2005, a major change in Debt Reduction in Repayment was introduced so that a student can receive DRR more than once. That meant that many former recipients became eligible and applied for a second round of debt reduction. That caused the numbers to increase dramatically. The following year, the numbers of recipients levelled off. In total, over the last 3 years, there was a significant decline in student loan default rates (from 28.0% in 2003-2004, to 15.2% in 2005-2006). Also, Interest Relief recipients have decreased by 13% over the last 3 years. This decline suggests that fewer students are having difficulty repaying their loans, so that they are less likely to need interest relief or DRR.

MOC: It was widely believed in the PSE sector that the interest rate on student loans would be reduced in the last federal budget. Any idea why it wasn’t?

MG: Interest rates are not the major contributor to the cost of debt repayment. The Government of Canada is committed to making federal student financial assistance more effective by adapting programs to meet the needs of Canadian students in a modern economy.

Budget 2008 commits $123 million over four years starting in 2009>-10 to streamline and modernize the Canada Student Loans Program. Measures will be put in place to improve service for students through a new service delivery vision, more equitable supports for part-time and married students, and a new in-study interest-free period for reservists. It also more responsive to the economic situation of borrowers by providing greater assistance for borrowers experiencing difficulty in repayment, including those with disabilities to ensure that their payment options remain manageable.

Further information on interest rates can be found at: http://www.hrsdc.gc.ca/cgi-bin/hrsdc-rhdsc/print/print.asp?Page_Url=/en/corporate/facts/index.shtml#cslp

MOC: Can you explain the current interest rate?

MG: When borrowers begin repaying their Canada Student Loans, they have the option of choosing either a fixed rate of interest (bank prime + 5 per cent) or a variable rate of interest (bank prime + 2.5 per cent).

For full-time students, interest on student loans does not accumulate and no payments need to be made. When repayment begins, the interest that borrowers pay on Canada Student Loans is tax-deductible. The tax credit on this interest is roughly equivalent to a 1.5% reduction in interest rates.

Canada Student Loans are provided without security or guarantee. Rather than collateral, student loans are based on a student’s current financial need and are made available to students who may not otherwise qualify for a private loan. Interest rates offered reflect the higher risk associated with unsecured loans. Unlike most commercially available loans, the interest on Canada Student Loans is simple interest (not compounded interest).

Currently borrowers who face financial hardships while repaying their loans can apply for interest relief and the Government of Canada will absorb the interest portion of the loan payment for eligible borrowers. In 2005-06, over 100,000 borrowers received interest relief worth $60.5 million.

In addition, Budget 2008 announced new measures, which will be in place for the 2009-2010 school year to be more responsive to the economic situation of borrowers by providing greater assistance for borrowers experiencing difficulty in repayment, including those with disabilities to ensure that their payment options remain manageable.

MOC:
There was a 12% jump in revision of terms last year. Do you think that this trend suggests that borrowers need more assistance from debt reduction and interest relief programs?

MG: The increase in revision of terms does not suggest more assistance from debt reduction and interest relief programs. About one-third of the revisions of terms in any given year are done by borrowers who decrease their length of repayment. In fact, Relief recipients have decreased by 13% over the last 3 years.

MOC: Why do you think more borrowers are extending their repayment period?

MG: Revision of terms is designed to allow borrowers to adjust their loans to fit their income and financial situation. They can lower their monthly payments by extending the length of their loan term, or increase their monthly payments so that the loan is repaid faster. Over time, we expect more students to be aware of this option, and to take advantage of the flexibility that it offers to adjust their loans term to suit their particular financial circumstances and repay their loans in a way that makes the most sense for their situation.


 
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Q&A with Human Resources Canada

  1. “Canada Student Loans are provided without security or guarantee. Rather than collateral, student loans are based on a student’s current financial need and are made available to students who may not otherwise qualify for a private loan. Interest rates offered reflect the higher risk associated with unsecured loans.”

    The government does secure the loans in a much different manner that real “higher risk” loans. Whereas a bank loan can be ‘forgiven’ as part of the bankruptcy process, CSLs cannot.

  2. Not to mention that the government is not a private bank and therefore when it considers the “risk” involved, it should take into account that students who succeed in post-secondary gain the ability to pay more taxes, be unemployed less often, use fewer health-care services, start more successful businesses, and provide more to charity in time and money than they would otherwise — all things that add to the government’s coffers.

  3. “Interest rates are not the major contributor to the cost of debt repayment” This is simply NOT TRUE…Don’t insult me – I pay over $5,000 yr in interest only payments.

    “$23 million over four years for a new service delivery vision that will expand online services” – and that’s about all that will be – another expensive government “vision”…

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