Using Administrative Data

For more than thirty years, government-guaranteed loans from the CSLP have helped low-income students pay for their post-secondary education.See Human Resources Development Canada, Ensuring Opportunities: Access to Post- Secondary Education (Ottawa: Human Resources Development Canada, 1998) [hereinafter
Ensuring Opportunities ], online: Human Resources Development Canada va3_e. html> (date accessed: 11 September 1999), which states
that “[s]ince 1964, the federal government has provided over $15 billion in financial assistance to 2.7
million students under the Program.” Low-income students are “high-risk” borrowers—with limited labour market experience and limited access to collateral. Private institutions are usually unwilling to make unsecured loans to such borrowers. That reluctance, combined with the government’s desire to make post-secondary education accessible to all, regardless of family income, was the rationale for providing the government guarantee. The majority of student loan borrowers repaid their loans; the loans of the minority who did not repay fell into default. For loans negotiated before 1995, the government then made good on its guarantee by paying a claim for loss to the lender.Before a loan is formally categorized as in “default,” the lender must verify that the loan  has a number of characteristics. Similarly, defaulted loans must have a number of characteristics before the CSLP formally declares the value of a loan “lost.” In this article, however, I adopt a less formal notion of default and loss. A loan is in default if the lender has filed a claim for loss with the CSLP, and the CSLP has paid that claim. The borrower’s debt, however, was not discharged; “default” simply meant that the responsibility for collection shifted from the lending institution to the government. As late as 1980, student loan default was not perceived as a great problem in some quarters. At that point, about 9 per cent of CSLP borrowers had defaulted on their loans.See The Federal-Provincial Task Force on Student Assistance, Report of the Federal- Provincial Task Force on Student Assistance (Toronto: Council of Ministers of Education, 1981) at 141, where the Task Force asserted that “[t]he amount ultimately requiring write-off to date is about 1% of the value of default claims paid.” However, this number does not seem justified by the statistics included in the report. Nonetheless, the Task Force concluded, at 143, that “the existing default rates on the CSLP and on provincial loans were not unduly out of line and did not point to any particular weakness or problems with the concept or administration of the programs.” By 1990, however, the proportion of borrowers who defaulted on their Canada Student Loans had climbed to “one in six,”See Office of the Auditor General, Report of the Auditor General of Canada to  the House of Commons (Hull, Qc.: Supply and  Services Canada, 1990) at 701 [hereinafter Report of the Auditor General]. and the auditor general was quite concerned both about that rate and about the government’s efforts to reduce it. Combining estimates of the rate of default and the rate of repayment after default, Finnie and I estimate that between 10–12 per cent of the dollar value of student loans was lost through default. Changes to the CSLP in the 1990s have significantly changed the nature of the problem of student loan default. The federal government does not guarantee CSLP loans negotiated after August 1995. Lending institutions receive a payment of 5 per cent of the value of all loans entering repayment—a payment called the “risk premium.” In return for the risk premium, the lending institutions bear the losses created by the former students who fail to repay their loans. The loss rates on the student loans made under this “risk-sharing” agreement will remain unknown for some time yet. The role of student loans in personal bankruptcy is even less well documented. When Wayne Brighton and Justin Connidis studied those seeking bankruptcy protection in 1977, student loan debt was not an important element among the debts of those in their study sample. The increase in borrowing over time, however, had an impact on this extreme form of debt burden. According to the CSLP, the “cost to the federal government for student loans in bankruptcy, has vaulted from $30 million in 1990-91 to $70 million in 1996-97.”

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