The term “grace period” as it applies to student loans is misleading and confusing and should be scrapped, an advocate for the rights of borrowers said Thursday after filing a formal complaint against Human Resources and Skills Development Canada.
The term has come to mean two different things depending on which federal policy is looked at, argues Mark O’Meara of Canadastudentdebt.ca.
According to new credit card rules adopted by Ottawa this month, “grace period” means banks can’t charge interest on new purchases for 21 days.
But O’Meara has been fighting with the Human Resources Department for months over its use of the term as people with student loans are still on the hook for interest during the six-month “grace period.”
The term merely means students don’t have to make payments for six months after graduation while they look for work.
“Here we have one legislation using grace period as one thing and another legislation using this term inappropriately,” he said.
O’Meara said grace period “implies” an interest-free/no payment term and meant that up until the early 1990s with regard to student loans. The government has since changed its policy and, as such, should change the name of the provision as well.
“(They should) use something that’s more appropriate,” he said. “Something like payment and interest deferral period. That would be clear.”
Shuffled through various government departments over the last few months, O’Meara finally lodged a formal complaint Thursday with the Financial Consumer Agency of Canada.
But spokeswoman Sylviane Desparois said the regulatory body oversees regulations governing the cost of borrowing as they pertain to federally regulated financial institutions like banks.
She admits the organization has received “some calls” about the student loan program, all of which are relayed to Human Resources and Skills Development Canada.
It’s where O’Meara first filed an informal complaint in early February. About a month later, the federal department updated its student loan website to clarify the fact students will be charged interest during the six-month period.
“We have revised the definition as per your suggestion and the site was reviewed to ensure that all sections that make reference to the term grace period denote the accrual of interest,” Barbara Glover, director general of the Canada Student Loans Program, said in an email response.
Still, O’Meara insists that doesn’t go far enough.
Politicians, he said, regularly bandy the term around without proper explanation and many students have reported speaking with student loan officers who never even mentioned the interest component.
O’Meara said many students are surprised to learn interest starts accruing immediately after graduation and some say they would have started paying back their loans right away had they known.
In one posting to his website, a borrower dubbed Broke4Life questions the system.
“Why do they call it . . . grace period? Interest still accrues but you just don’t pay it until after the period is over,” the borrower said.
In another posting, a subscriber named pacalis writes:
“The loan starts interest at graduation but it’s carefully advertised to suggest that interest starts after the six-month grace period. There is no ‘grace’ period, only a ‘no payment period.’ By the time a student first notices, they have already accrued several months of interest at (a) high interest rate – a deliberate and nasty tactic by the banks.”
According to a 2007 Canada Student Loan Program client satisfaction survey, 64 per cent of borrowers said they were unaware that interest was charged during the six months.
– The Canadian Press