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Indebted to higher education

Canada's mishmash of student aid programs is working up to a point but has failed to close the gap in university participation rates between the rich and poor


The university career of Ottawa native Sarah MacKinnon has been both a blessing and a curse. The years she spent enrolled in the international development studies program at Trent University brought her some of the best experiences of her life, including an eight-month stay in Ecuador, part of the time living and volunteering in a small village high in the Andes Mountains.

But those experiences came at a steep price. During the course of her studies, Ms. MacKinnon accumulated a debt of $27,000 in federal and provincial government loans. She racked up an additional $13,000 on her credit card to pay for her time spent abroad. Then, in her final year, her academic performance faltered due to family troubles, and she finished the year one course shy of a degree. Unwilling to take on any more debt, she returned to Ottawa and has worked in various government departments, mainly at entry-level jobs obtained through a temporary placement agency. Now 30 years old, Ms. MacKinnon still owes $25,000 in student loans which she figures will take her another 10 years to pay off. While her friends are settling down, buying new cars and homes, she continues to share an apartment with two roommates.

“It’s quite a burden,” she says. “You don’t do all the things you would like to do.” But coming from a family of modest means that couldn’t afford to pay for her education, she had no alternative but to foot the bill herself.

The federal government had students like Sarah MacKinnon in mind when it launched the Canada Student Loans Program in 1964, a program designed to make postsecondary education more affordable for young people from low-income families. Since then the student financial aid system has grown into a mishmash of programs delivered – some jointly, others not – by various departments of the federal and provincial governments.

The CSLP remains at the core of the student financial aid system, distributing some $2 billion a year in loans and grants. Then there’s the Canada Millennium Scholarship Foundation, an independant agency established in 1998 to dole out $2.5 billion in scholarships and grants over 10 years. In addition, most provincial governments run their own financial aid programs. All told, federal and provincial governments spend a combined $6 billion a year on student loans, grants, scholarships and tax credits, all aimed at easing the cost burden of higher education.

Lately, though, there’s a sense that things aren’t working as well as they should, and the calls to reform the system have been growing louder. The federal government launched a review of the CSLP last year and is expected to announce changes to the program in its 2008 budget. It is also expected to announce whether to extend the mandate of the Millennium Foundation, set to expire in 2009.

Sylvain Ségard, director general, program policy and planning, with the Department of Human Resources and Social Development Canada, says the government is considering measures that “span the full life-cycle of the student-aid experience,” from the time a young person considers attending a postsecondary institution to when he applies for a loan to when he starts repaying it. The measures could include improvements to the way the program supports those who are having difficulty repaying loans, he says, but he wouldn’t comment on specific measures under review.

Provinces, too, are considering reforms. A commission on postsecondary education in New Brunswick recom- mended substantial changes to the province’s student aid system, including placing a cap on individual student debts, among the highest in the country. Nova Scotia just announced a review of student financial aid and recently adopted measures that allow eligible borrowers to have their loan payments reduced if their debt-to-income ratio is too high.

As Shelley Clayton sees it, there is much about the system that works well. The director of financial aid at the University of New Brunswick and president of the Canadian Association of Student Financial Aid Administrators, Ms. Clayton knows that without the system, thousands of students wouldn’t be able to finance a postsecondary education. And, she says, governments are making improvements to the system year by year. “But does it need to be fixed? Yes, this is also true,” she says.

Critics point to a number of areas where the system falls short. For one thing, it leaves some borrowers – like Ms. MacKinnon – struggling with very high debt loads. A number of analysts are also concerned about a shift in funding policy in recent years that has funneled most new government spending into tax credits, which mainly benefit the upper and middle classes. Finally, observers point out that despite years of tinkering and adjustments, the system has failed to attract in substantial numbers those groups that are under-represented in the postsecondary system, particularly in universities: low-income Canadians, Aboriginal students, first-generation learners (students whose parents don’t have postsecondary education) and, in some provinces, rural students.

One of the most vocal critics of the student financial aid system to emerge recently is the Coalition for Student Loan Fairness, a fledgling group which claims to represent the interests of one million student-loan borrowers. Julian Benedict, the group’s co-founder, says that unless the system is substantially changed, “we are going to end up with a legacy of students who are educated but in too much debt to be able to start their lives.”

After nearly doubling in the 1990s, average debt levels have remained stable since 2000. Still, debt burden remains a concern. Among students who borrow, the average amount owed is about $24,000. And there are some indications that the proportion of students who borrow may be increasing, notes the Millennium Foundation.

“The government tells us all the time that this is a knowledge economy and you have to make lifelong learning your commitment to be successful, and yet the program actually deters people from moving forward with their lives,” argues Mr. Benedict.

So are students being sold a false bill of goods? Yes and no, answers Saul Schwartz, a professor in the school of public policy and administration at Carleton University. Study after study has shown that students with postsecondary education earn more over the long run than those without a diploma or degree and, by and large, that’s true, says Dr. Schwartz. What students aren’t told is that this isn’t true for everyone, he adds. Not every student who starts a degree will graduate, and not all those who graduate will find lucrative work. Investments in postsecondary education are risky, he says. “You are investing your money and it’s not certain that you will succeed.”

Dr. Schwartz says it’s up to society to ensure that students who don’t succeed aren’t unduly punished for their efforts. In this respect, he says, the financial aid system is too onerous and punitive. He and other policy analysts have long advocated replacing the current “mortgage-style” loan system with one based on income-contingent loans, similar to those in place in New Zealand, Australia and England. Under those systems, loan repayments are set as a percentage of income, and if income falls below a certain threshold, borrowers aren’t required to make any payments.

A comprehensive and well-designed student financial aid system should also include a generous loan-forgiveness program, low interest rates and enhanced loan remission and repayment assistance programs, adds Dr. Schwartz. The federal government does offer assistance to students who are unable to meet their loan payments, by way of interest relief and debt reduction. But in order to qualify for these programs, borrowers must not be in default – a major stumbling block. What’s more, a government study found that more than half of eligible borrowers don’t take advantage of the government’s interest-relief program because they’re unaware of it. Dr. Schwartz says Canada’s bankruptcy laws compound the problem, by not allowing borrowers to discharge their student loans by declaring bankruptcy unless they’ve been out of school for 10 years.

Some studies suggest that students may be taking on too much debt without regard to future earnings, even though it may seem like common sense that some degrees hold more economic potential than others. Everyone agrees that education has an intrinsic value beyond a future economic payoff. Still, students should be warned of the pitfalls, says Connie Gibbs, acting coordinator, client operations, at the British Columbia Institute of Technology and a participant at the Millennium Foundation’s fall conference on student aid. Why, asks Ms. Gibbs, are students offered “zero debt counseling” when they apply for student loans? The current program functions like a social program at the application stage, she says, but when it comes time for repayment, it hits borrowers “like a ton of bricks.”

Universities, too, must do a more effective job of helping students develop financial plans and manage debt, says David Turpin, president of the University of Victoria. “Many young people come to university and have never received any sort of guidance on what it means to acquire debt,” he says.

The student financial aid system has also come under sharp criticism for the amount of money governments have poured into non-refundable tax credits. Over the past decade or more, successive Liberal and Conservative governments have introduced new tax credits for students and families. Provincial tax spending on student aid also increased during this time, and some provinces have now started to offer post-graduation tax rebates as a means of enticing skilled workers to remain in the province. By some estimates, tax expenditures have quadrupled since 1993 and are now almost double the amount that governments spend on grants. Critics argue this shift has made the student aid system less effective, since it funnels a substantial portion of aid dollars to students from middle- and high-income families.

“These aren’t benefits that are trickling down to the people that need it the most,” says Sean Junor, former manager of knowledge mobilization at the Educational Policy Institute, a research group. Tax credits weren’t cause for concern when governments spent substantially more on grants and other measures aimed at low-income students, he adds. But over the last decade or so, the situation has reversed.

Many voices have called for governments to repeal tax measures in favour of grants and other forms of need-based aid. But governments have shown little proclivity for doing so, mainly because of the political appeal of tax credits, some suggest. “It’s being done in a politically opportune way,” says Denise Savoie, the New Democratic Party’s postsecondary education critic. “What will get votes with middle-class parents?”

But for most critics and policy analysts, the biggest failure of the student financial aid system has been its inability to close the gap in access to postsecondary education for low-income youth. “The student loan program is part of a program that is supposed to make access to university more like access to physician and hospital care, and I don’t think anybody would argue that we are there,” says Richard Shillington, senior associate at Infometrica Ltd., an economic research firm.

University participation rates have increased for all social classes in the last decade, but the gap between the rich and poor hasn’t narrowed: young people from high-income families are still twice as likely to pursue university studies as those from low-income families. The Millennium Foundation reports that in some years it has difficulty allotting the full value of its bursaries to low-income students because there aren’t enough of them in the system.

As Dr. Shillington sees it, no financial aid system can undo all the injustice and inequality in society. But he suggests that governments could focus more resources on primary school students, to try to eliminate social inequalities at a younger age, as much as possible. And governments could lower tuition fees, a move that he believes would go a long way to reducing the “sticker shock” that many low-income families experience when they look at the cost of a postsecondary education. Others argue that reducing tuition fees across the board unduly benefits the well-off, and the key to making higher education more affordable is up-front grants.

Ian Boyko, government relations coordinator of the Canadian Federation of Students, sees a place for both. “We’d like to see something comprehensive that overhauls the entire loans-based approach to financial assistance … to one that is primarily based on grants,” he says. The CFS is calling on the federal government to reallocate what it spends on tax credits to grants, to work with provinces to lower tuition fees and to create a federal department of postsecondary education. The Canadian Alliance of Student Associations and several other student groups are urging the government to renew the mandate of the Millennium Foundation.

Some observers point to recent studies that suggest it’s not just lack of money that’s holding back low-income students. Other factors at play include academic performance, parents’ education level and a general belief that the benefits of higher education don’t outweigh its cost, says Ross Finnie, a professor in the graduate school of public and international affairs at the University of Ottawa. While financial aid may play a role in improving access to postsecondary education, Dr. Finnie says it isn’t the whole answer.

It’s just recently that researchers have turned their attention to this question. The Millennium Foundation is funding several pilot projects in the hopes of finding some answers (see “Early intervention may increase participation” below). It’s clear that any comprehensive reform of the student aid system must be part of a broader effort to improve access, says Andrew Parkin, associate executive director of the foundation. “We know that there are groups of students that are facing significant barriers and we cannot just sit back and assume that one day they will show up in postsecondary education.”

Students like Ms. MacKinnon’s younger brother, who, after watching her struggle with her debt load, has opted for a secure job at Sears instead of pursuing postsecondary studies, at least for the time being. As for Ms. MacKinnon, she doesn’t regret investing the time or money in her university education.

But she sometimes wonders if she ought to have done it differently, perhaps working longer before enrolling or completing her studies part-time. Despite her setbacks, she hasn’t given up hope of getting her degree. Since leaving Trent, she has transferred her credits to Carleton University and is now working towards finishing her degree part-time. And she just landed a permanent job with the federal government. “My confidence has waned over the years but now I think I’m on an upswing,” she says. “I’m hopeful.”

Student aid facts and figures

  • Outstanding debt held under CSLP: $8.2 billion
  • Number of CSLP debtors: 990,000
  • Annual support by Ottawa and the provinces to student financial aid: $6 billion
  • All government (federal and provincial) aid spent on tax credits: $2 billion
  • All government aid spent on loans: $2.7 billion
  • All government aid spent on grants and remission payments: $1.2 billion
  • Percentage of university undergraduates who graduate with debt: 59
  • Average debt among students who borrowed: $24,047
  • Average annual tuition fees for a full-time university undergrad: $4,524
  • Average total annual costs for a full-time university student: $16,000
  • Sources: The Price of Knowledge (Third edition, 2007), Statistics Canada and the Report of the Auditor General of Canada (2007)

Early intervention may increase participation

A pilot project of the Canada Millennium Scholarship Foundation underway in New Brunswick and Manitoba aims to shed more light on what factors can help broaden access to postsecondary education. The project, launched in 2004, involves 4,400 randomly selected high school students in New Brunswick and 1,050 students in Manitoba.

The project explores whether providing students with information about postsecondary education options and career choices can make a difference in their decision to pursue higher education. In the New Brunswick pilot, it also asks whether giving money – up to $8,000 – to students from low-income families if they enrol in a postsecondary institution affects their decision to attend.

As part of the program, students in the project from Grades 10, 11 and 12 attend workshops that help them explore their career aspirations as well as the postsecondary options available to them, including university, college, vocational training and apprenticeship programs. They discuss the benefits and costs of postsecondary education and financing options. Parents are invited to attend some of the workshops.

In New Brunswick, the students are placed in one of four groups. One group attends the workshops. A second group receives a promise of financial assistance at the end of Grade 9. A third group receives both the workshops and the financial assistance. A control group receives neither. (The Manitoba program is testing the workshops alone.)

Project organizers don’t yet know whether the program has had an impact on participation rates and if so, which aspect of the program – information sessions or the promise of financial aid – is having the most influence. But Margie Layden-Oreto, the New Brunswick project manager, says she “100 percent believes” it’s making a difference. Some students started the program assuming they weren’t going on to postsecondary studies and later changed their minds, she notes. As for which factor has the most influence, Ms. Layden-Oreto says her “gut instinct” tells her that it’s the combination of the two that holds the most promise.

Rosanna Tamburri
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