On December 8, 2014, the Ontario Ministry of Training, Colleges and Universities announced some changes to Ontario student loans. The most notable of these changes were indexing the monetary amount of Ontario Student Assistance Program (OSAP) loans available to inflation and providing a plan for loan rehabilitation for those who have defaulted on their payments. Both of these plans are good steps, but they do not solve bigger issues prevalent in student education borrowing.
Indexing OSAP availability to inflation does not entitle the government to a pat on the back — it is common sense and should not be touted as a brilliant new idea. Inflation increases the cost of goods and services every year, but in this case, university tuition costs have increased well beyond the rate of inflation. Refraining from indexing them would simply be unsustainable.
The debt rehabilitation program will certainly allow students to get back on their feet after failing to repay crushing loans. However, for rehabilitation to be a policy suggests that students are naturally having a hard time repaying their loans. In fact, 17,000 such students default on their loans every year.
Default rates among students and the difficulty of repaying debt in good standing indicate that there are still other problems left to grapple with. Primarily, something should be done about the length of the six-month grace period on loan payments afforded to students post-graduation, and interest rates charged.
Specifically, the grace period should be lengthened and the interest rates lowered. A short grace period is simply not enough time for students to receive a well-paying and career relevant job when they are facing bleak employment prospects.
Interest rates for OSAP are also somewhat high — at two-and-a-half or five per cent plus the prime rate, you are looking at rates higher than borrowing from the private sector with a student line of credit, albeit the payment structures are different. Ontario also remains one of the only provinces that does not provide students with a comprehensive guide to their student loans, so the process remains complicated and heavy on paper work. Student loans are the first major financial decision that many students make. As such, it is in the government’s best interest to give them all of the information they need to receive and service these loans properly.
These issues matter. Overbearing student loan financing can hamper the ability of Canadian youth to succeed later in life. A study by Statistics Canada shows that students who take student loans spend, on average, seven years paying them back. By that time, they have had significantly less wealth than their non-borrowing peers ($17, 500 vs. $61, 900 respectively), had far less savings and investment than their non-borrowing peers, and were less likely to own a home.
It is clear that the financial burden of student loans hampers a young person’s ability to become financially mature for quite some time after graduation. The economy needs well-educated youth to take on new jobs and innovate, but it also needs them to consume more and become stable and financially self-reliant — a tall order for a generation steeped with debt.
Allowing students to become financially mature is simply good economic policy. There is now a significant difference between the time it will take our generation to purchase homes and accrue meaningful savings and the time it took our parents to do so — and a difficult loan repayment process is a big part of that.
There are simple and innovative solutions, all of which should be discussed and considered instead of just a couple of small fixes. A potential plan getting some attention in the US, based on Australia’s student loan model, would see a three per cent deduction from student’s yearly salaries as soon as they find a job and start working. There are ways to lessen the burden and there are ways to get youth spending and saving sooner, so let’s see policy makers talk about genuinely innovative solutions rather than quick fixes.
Christian Medeiros is a third-year student at Trinity College specializing in international relations.