Canada is one year into a pandemic recession that’s hitting students and marginalized groups particularly hard, and the end is not yet in sight. It’s preventing many graduates and young people from finding employment.
It has also hindered their ability to save for tuition and pay off existing student loan debt. While the federal government has provided some debt relief for students, many people with student loans will fall deeper into dire straits before the economy returns to normal.
But what’s less widely known is that these two issues are connected: student loan debt can also prevent students from securing a job. Accumulated debt — such as due to a late or missed Ontario Student Assistance Program (OSAP) payment — a poor credit score, or a maxed-out credit card can negatively impact your chances of getting hired.
Knowing what employers are looking for in your financial history — and how to refurbish your credit if there are blemishes on your record — can be key in not letting debt control your life.
Credit checked careers
An increasing number of employers, including the Government of Canada and many in the financial services sector, are interested in a potential new hire’s credit history. Requesting credit reports — or ‘financial inquiries,’ as they are often referred to by employers — has now become a common practice.
Under Ontario’s Consumer Reporting Act, employers have “permissible purpose” to request an applicant’s credit report. However, employers are only permitted to request a candidate’s credit history if they present a conditional offer of employment contingent on a credit check and have obtained informed and signed consent.
Pre-employment credit checks must be done in good faith, be relevant to the position a candidate is applying for, comply with all privacy laws, and must not be used in a discriminatory manner.
Companies that request a candidate’s credit history are not only interested in verifying an applicant’s identity, address, and employment history, but also in reviewing total levels of debt, the type of debt incurred, payment history, and any delinquent accounts that may have been recorded on the credit report.
Recruiters are looking to maximize talent and minimize risk. Some hiring managers view a poor credit history as a sign of disorganization, mismanagement, or a failure to honour contractual agreements. Employers also recognize that personal financial stress could interfere with an employee’s performance and productivity.
Excessive debt can also be interpreted as a form of financial distress that can lead to employee theft or fraud, including the misappropriation of cash or credit, the theft of merchandise, payroll fraud, and internal data breaches.
A new study by Ontario debt relief consultancy Hoyes, Michalos & Associates Inc., found that 20.4 per cent of all insolvent debtors in 2020 possessed some student debt. This figure has been steadily growing, increasing from 19 per cent in 2019, 17.6 per cent in 2018, and 15.1 per cent in 2017. Additionally, the study found that a growing number of young borrowers, particularly those aged 18–19, are taking out high interest, high fee, and high-risk payday loans.
Similarly, a 2019 study by Credit Karma that examined the credit reports of more than 170,000 Canadian Credit Karma members found that average student loan debt among Toronto residents was nearly $21,000 — the highest average in all of Ontario.
Regarding University of Toronto graduates specifically, the average alumni default rate in 2018–2019 on federal and provincial government student loans was 2.2 per cent. However, the rate was higher in certain programs.
For example, graduates of U of T’s forestry program experienced a default rate of 9.1 per cent, graduates of the fine and applied arts program experienced a 3.9 per cent default rate, and graduates of other Faculty of Arts & Science programs experienced a default rate of 3.7 per cent.
These numbers are only expected to worsen due to COVID-19.
How do I fix my credit?
The bottom line is that today’s employers are thinking about their bottom line when evaluating a new graduate’s employment candidacy. Be prepared for a credit check, make sure you know your credit history, and make sure that the information on your credit report is accurate.
You can contact Equifax or TransUnion — Canada’s two major credit bureaus — to request a free credit report. The Government of Canada recommends that you check your credit history with more than one credit bureau as each may have different information and methods of tracking your credit.
If you’ve defaulted on your OSAP debt, you may be eligible to apply for the Ontario Student Loan Rehabilitation Program. If your Canada Student Loan payments exceed your means, you may qualify for the Government of Canada’s Repayment Assistance Plan.
Pandemic or not, how you manage your student debt is important to prospective employers, regardless of whether it’s a government loan or a personal bank loan. If you’re struggling with payments, be forthright about your credit history with a prospective employer and explain that you’re taking steps to rebuild your credit. Your potential employer will appreciate your good old-fashioned honesty and make note of it.