The Economic Situation of Bankrupts With Student Loan Debt

The survey asked respondents to state their pre-tax annual household income. Bankrupts with student loans had even lower incomes than the already low incomes of all bankrupts. Not surprisingly, the $24,000 median income for all bankrupts was considerably lower than the median for all Canadians of $37,130. The median income for those with student loans among their debts was only $14,000, while the median income for those whose student loans were critical to their bankruptcy was still lower, at $12,000. Indeed, 80 per cent of the latter group had household incomes lower than the $24,000 median of all bankrupts.

On their Statements of Affairs, bankrupts report their monthly income and expenses. As was the case with annual income, those with student loans were worse off than the group of all bankrupts. The median total monthly income of the full sample was $1,400, while those with student loans had a median of $1,200, and those whose student loans were critical to their bankruptcy had a median monthly income of
only $1,071.

It may be useful to compare these median levels of monthly income to the eligibility thresholds for the federal CSLP Interest Relief Program (IRP), which is available to CSLP borrowers with low incomes. The lowest Interest Relief monthly income threshold is $1,472, and applies to a single person, living alone, whose monthly CSLP payment is less than $25. The eligibility threshold is higher for those with larger families or larger CSLP payments. Two-thirds of those with student loans among their debts reported total monthly incomes of less than $1,472; if family size and the size of CSLP loan payments could be factored in, that
proportion would undoubtedly be much higher. The Statement of Affairs contains the occupation of those
seeking bankruptcy. If the person is not working for pay, that information is reported in the space provided for the occupation. For the majority of the sample, occupational information was therefore available, and can be compared to that reported for Canada as a whole. Occupational information is often summarized by scales that attempt to measure “occupational prestige,” with “self-employed professionals,” “employed professionals,” and “high-level managers” at one extreme, and with unskilled workers near the other extreme. A common scale used with Canadian data is called the Pineo-Porter- McRoberts scale. This scale has sixteen categories, ranging from selfemployed professionals to farm labourers. For the purposes of this article, I have collapsed the upper three categories self employed and employed professionals, and high-level managers into a category labelled “high prestige.” The lower three categories unskilled clerical workers, unskilled manual labourers, and farm labourers are collapsed into a single “low prestige” category. The remaining categories are
combined into a “medium prestige” category. In the full survey sample, 33.4 per cent were in the low prestige
category (see Table 1, below). Despite their greater education, those with student loans among their liabilities, and those whose student loans were critical to their bankruptcy, had even higher proportions in unskilled occupations (37.6 per cent and 34.8 per cent, respectively) than either the Canadian population or the group of all bankrupts. In the full sample, 4.7 per cent were employed in occupations at the top of the occupational prestige scale. In the two groups with student loans, the proportions employed in these more prestigious occupations were higher, at 6.8 and 7.6 per cent, respectively.

TABLE 1

OCCUPATIONAL PRESTIGE OF DEBTORS
FILING FOR BANKRUPTCY

                    Occupational              All            Full         Those With        Those Whose
                 Prestige Category    Canadians    Survey     Student Loans     Student Loans
                                                                    Sample    Among Debts      Were Critical
                                                     (%)           (%)               (%)                      (%)
                High Prestige                12.5           4.7               6.8                       7.6
                Medium Prestige           66.5          66.8             62.4                     57.7
                Low Prestige                21.1           33.4             37.6                     34.8

One of the striking findings by myself and Leigh Anderson was the extent to which those seeking personal bankruptcy had been reliant on government transfers at some point in the two years prior to filing for bankruptcy. As Table 2, below, shows, 27.1 per cent had received income assistance within the two previous years. Those numbers are even higher for the sub-group that had student loans. More than 40 per cent of those with student loans had been on income assistance within the past two years—41.2 per cent for those with student loans among their debts, and 44.8 per cent for those whose student loans were critical to their
bankruptcy. In addition, about 30 per cent of all three groups had received unemployment insurance benefits.61 In the full sample, 47.6 per cent had received either income assistance or unemployment benefits.

The corresponding percentages for the two groups of student loan borrowers were 56.5 per cent and 61.7 per cent, respectively. We might consider participation in these programs as an independent indication of economic difficulty. Another such indicator is whether the person had sought further credit and had been turned down, presumably because the lender felt that the potential borrower lacked the ability to repay a new loan. Almost one-third of the full sample had been turned down for credit within the past two years (see Table 2); a slightly higher proportion of those with student loans had been turned down for further credit.

TABLE 2
OTHER INDICATORS OF ECONOMIC DIFFICULTY
WITHIN THE PAST TWO YEARS

                                                   Full Those        With Those             Whose
                                                      Survey        Student Loans      Student Loans
                                                     Sample        Among Debts      Were Critical
                                                       (%)                  (%)                      (%)
    Per Cent Receiving
    Income Assistance (IA)               27.1                 41.2                      44.8

    Per Cent Receiving
    Unemployment Insurance (UI)    30.3                  29.8                      32.2

    Per Cent Receiving
    Either IA or UI                           47.6                 56.5                      61.7

   Per Cent Turned Down
   For Credit                                   31.8                 35.5                      38.3

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