Proceedings of the Standing Senate Committee on
Social Affairs,
Science and Technology
Subcommittee on Post-Secondary education
Issue 3 - Evidence - November 28 Meeting
OTTAWA, Thursday, November 28, 1996
The Subcommittee on Post-Secondary education of the Standing Senate Committee on Social Affairs, Science and Technology met this day at 9:00 a.m. to continue its inquiry into the state of Post-Secondary education in Canada.
Senator M. Lorne Bonnell (Chairman) in the Chair.
[English]
The Chairman: Before we hear from our witnesses, I would ask for a motion to adopt our travel budget, following which it will be sent to the full committee for approval, and then to Internal Economy.
Senator Losier-Cool: I so move, Mr. Chairman.
Senator DeWare: I second the motion.
The Chairman: It is moved by Senator Losier-Cool, seconded by Senator DeWare, that the travel budget for our committee be approved.
Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: We have with us today, from the Canadian Association of Student Financial Aid Administrators, Susanna Wiesner, President, and Judy Stymest, Vice-President. Welcome to the Subcommittee on Post-Secondary education.
Ms Susanna Wiesner, President, Canadian Association of Student Financial Aid Administrators: I am the Financial Aid Director at the University of New Brunswick in Fredericton, New Brunswick, and Judy Stymest is Director of Financial Aid at McGill University. We have both been working in the area of financial aid for over 20 years, and thus have a fair bit of experience in this area. We will address one of the major concerns of Post-Secondary education, and that is the issue of improving financial assistance for students.
CASFAA, our organization, represents financial aid and awards officers from post-secondary institutions across Canada. We have the unique opportunity to interact with a large percentage of the student population. Our clientele is diverse. They come from all areas of the country, are enrolled in all disciplines and are from varying socio-economic backgrounds; as well, many of them have parental responsibilities of their own. Not only do we deal with clients who are directly out of high school, but also an increasing number of mature students, some of whom are single parents who have financial obligations different from our high school clientele, or youth clientele.
We administer institutional financial assistance and provide financial counselling As well, we play a significant role in the delivery of government student aid. We assist students to unravel complex administrative situations; we provide financial options; and we provide information and counselling on financial planning and money management. We ensure that students receive the appropriate financial support, be it government loans, university assistance, bank loans, part-time employment -- anything associated with assisting the students to meet their financial obligations.
We establish a relationship of trust with the students, who confide in us their personal and exceptional circumstances. We feel that we are rather unique in our institutions in that regard. We do see a very large percentage of our populations. I probably see approximately 20 per cent of the population of full-time students at UNB in my office. We provide students with the support required to allow them to achieve their academic potential, and we feel that we are very much a part of the academic mission of our institution.
Financial anxiety is the number one non-academic stressor in our institutions currently. As such, we feel that we have a very important role in the area of financial assistance for students and certainly have major concerns currently about their levels of debt and their financial future.
Ms Judy Stymest, Vice-President, Canadian Association of Student Financial Aid Administrators: The other evening, after listening to the student presentations, my colleague and I reflected on how very different the situation is for university students of today in comparison to our university experience of the 1960s and 1970s. Times are certainly changing.
In the 1960s, tuition ranged from $400 to $800; today, it can go as high as $4,000, the least expensive being found in the Province of Quebec. Living expenses back then were less than $1,000 per double term; today, they are about $9,000. In the 1960s, we were able to earn enough money in the summer to cover our tuition fees; today, if a student is lucky enough to find a job, it will only cover living expenses for the summer, if you have to live away from home. It is much more rare now for students to be able to put aside enough money to pay for their fees from their summer savings.
Parental support was also a lot easier to come by back then, I think. Nowadays, in many instances, parents are in difficult financial situations themselves. Whether it is downsizing in the business place, early retirement, the breakdown of the family, all of these thing, as well as other factors, have contributed to a decrease in parental support. I don't think a lot of savings are being put aside for students to go through university.
As well, not only were student loans were fairly easy to come by in those days, but also, the process was quite simple. We would receive our loan certificate and walk over to our local friendly bank manager, who would then sign over a cheque. Of course, they did not tell us anything about being indebted, because it was not much of a problem then.
Today, student loans are processed through a central processing centre; thus, local banks have less of a role to play. The students can call 1-800 to get all kinds of information, but delivery is quite different from the way it was back then. Also we had bursary programs that were quite generous in the '60s and '70s and even into the '80s we all got a nominal loan and then anything beyond that was given in bursary money and, in addition, our institutions had bursary money which they could give to us as well. Nowadays bursaries are very much a thing of the past for the most part. And institutions are limited in how much they can help student because beyond a certain level the assistance is taken off the government source.
We estimate, rather unscientifically, I might add, that the average debt back then was about $2,000. Today, it is common for students to have a debt load of $30,000 to $40,000. I have seen one as high as $60,000 in my office, and have heard someone talk about a student who had an $80,000 debt load. The range is certainly more important than the averages in that regard.
In conclusion, we had very little difficulty repaying our government students loans because the job market was fairly advantageous. There were usually one or two job possibilities for us, whereas today, it takes longer for students to get that first job.
Ms Wiesner: I thought we would now move on to the area of debt load, which was discussed at great length the other night by the students. Currently, the combined federal-provincial student aid programs in most jurisdictions consist predominantly of loans, which is a change from past practice. That change to predominantly loans from loan-bursary programs occurred in most provinces in the 1990s.
Some post-secondary institutions, including ours, are reporting decreases in the proportions of the students on government assistance, since the emphasis has been placed largely on loans, with a small bursary component in some provinces.
Those of us who have been in this business for a long time predicted that this trend would ring alarm bells for students and their families. On a daily basis, we deal with students, prospective students and parents, or families, who are alarmed at the prospect of how they are going to repay these large loans.
For most of them, if the job situation and the job market were stable, they would be willing, prepared and hopeful to establish themselves, to get on their feet and become responsible citizens and taxpayers. But as it is, the job situation is an extremely alarming situation for students..
In the Province of New Brunswick -- and I use New Brunswick as an example, because I know it the best -- if a student were to receive the maximum federal-provincial support, the debt accumulated after four years of study, which includes a small $500 a year rebate for satisfactory performance, would be $31,300.
In addition, a large number of students require an additional year to complete their academic program because they are working part-time. I know of many students who are working up to 30 or 40 hours a week part time, not only because of insufficient funding, but also because they are concerned about trying to decrease their debt levels.
July and I were recalling the other night that we did not know anyone who had to work when we were at university in the 1960s. Quality of EDUCATION was important back then and one could obtain an EDUCATION without having to work the night shift at Tim Horton Donuts -- which seems to be the most popular one in my city.
The debt after five years of schooling would be in the $39,000 range. And in this regard, the current employment market certainly does not ensure the measure of income stability or earning power required for students to be able to service that kind of debt.
I received some figures yesterday from HRDC that I would like to share with you. If, for instance, you borrowed $30,000 and repay the loan over ten years, the payments would be $430 a month; over five years, they would be $667 a month. If you borrowed $40,000, over ten years, the monthly payments would be $574; over five years, they would be $890 a month. With a median graduating salary of $32,000 for an undergraduate, you can see that the ratio of debt-to-income would certainly be unmanageable.
It appears certain that increasing levels of debt will decrease accessibility for economically disadvantaged students and that high-cost programs will also deter students from continuing their EDUCATION to the graduate level. That is of great concern to us. We have seen many students who, for financial reasons, have decided not to go on to graduate school That is a major concern for all of us.
Then we have to look at the issue of debt management and what we can do about debt-management strategies. In my brief, I actually labelled this "Possible New Debt-Management Strategies" and was then reminded by my CASFAA colleagues that we have had several position papers on these topics over the years.
There has been a discussion of up-front grants, which was something that was mentioned the other night. We would agree with this as a good solution for a targeted population -- high-needs students and single parents, for example. In terms of accessibility, there is some American research that suggests that grants for first-year high-need students may be an effective method of ensuring accessibility. The study suggests that this group may be more willing to incur debt once they realize that they have the ability to succeed. That is something that we think should definitely be explored; it would also address the issue of debt load, as well. And I discovered, as CASFAA's archivist, that this was a proposal that we recommended in the early 1980s.
The second option we wish to discuss is that flexible repayment options should be made available to students to address individual financial situations. In our experience, the current repayment conditions are rigid and inflexible. And from our experience -- which is strictly with our student clientele -- the borrower for whom these create hardship has little recourse. We feel that any new repayment option should include some form of debt relief or loan remission for students who have made all attempts to meet their financial commitments but are unable to do so due to adverse employment situations.
There are several options being looked at this point. We understand that HRDC is looking at some options, and perhaps they will address that with you. Options to be explored -- after other avenues such as consolidation and federal interest relief have been explored -- should include some form of remission or rebate on a temporary basis to students who just are unable to meet their commitments. We are seeing many students who have been trying to meet their commitments. These are not the people that we hear about who disappear and are not making a attempt. These are students who really are making an attempt, but for a temporary period of time are just unable to make their payments. In light of the frustration and anxiety felt by many students about their future, an option such as this is one way to show students that we do believe in this generation and that we do believe they should be given an opportunity to get on their feet.
Another proposal is a federal work study proposal. We also suggested this in 1984 to the federal government. The CASFAA presentation alluded to some sort of work program. Work-study has been available in two of the provinces in Canada for some time and has been established in some institutions. Our institution does not have a program of this nature, but those institutions that do feel it is an extremely valuable tool. The students are hired on campus for a limited number of hours per week. This experience not only enhances their employment opportunities following completion of their EDUCATION, but also addresses the area of debt load. We are interested in exploring this area further.
Ms Stymest: Communication and EDUCATION are very important in the current context. Since rising debt appears to be inevitable in the current context of physical restraint, it is imperative that our students be given the tools to cope with managing personal finances and information regarding responsible borrowing. We must get students to a point where they borrow less money by, advise them on alternatives to relying only on loans.
We believe firmly that students want to be responsible borrowers. However, the current system of administration, where students may have a federal loan with one bank, a provincial loan in another second bank, and as many as six documents a year, makes it very difficult for them to realize the impact of the total debt accumulated.
Some students have also had to borrow additional funds to make up for the shortfall in government assistance from lenders who have their own student loan programs. A student may have three loans with different interest rates and inflexible repayment terms.
Upon graduation, students must choose a rate of interest before consolidation, a floating or fixed rate, often only with information provided over the telephone. Most students are not even familiar with the terms, let alone the impact the payment with have on their future. Financial Aid and Awards Officers are in the unique position of having a privileged relationship with our students. We provide a safety net; counselling students on money management, alternate sources of income and wise borrowing, in addition to providing direct intervention to resolving administrative problems. Our services are designed for the purpose of providing students with the support required to allow them to achieve their academic potential.
Financial institutions are also an important element in this process. Most students have little or no experience with credit or student loans. As consumers, it is vital that they fully understand the implications of borrowing -- debt-service ratio, interest rates, cost of borrowing, and the like. Also, they must be informed of their rights and responsibilities concerning the maintenance of their interest-free status.
Lenders should be providing students with information regarding government interest relief programs and repayment options for which they may be entitled. Service standards as defined by the federal and provincial authorities should be established and maintained to ensure that students receive individual debt-load and consolidation counselling.
All partners involved in student assistance have a role to play in this regard. Governments should not disengage themselves from postating students. They must set the standards for the lenders and the EDUCATIONal institutions to follow and ensure that information is adequate, available and appropriate for the student population.
The Chairman: You talked about up-front grants to high-needs students. Across Canada, how many students would this represent?
Ms Stymest: It is very difficult to answer that, because if they do not make it to our institutions -- we cannot really estimate how many people escape. However, we do know that in provinces where tuition fees have been raised, there has been a decrease in the number of students attending university. Therefore, we conclude that there is a relationship between the cost of EDUCATION and the number of students attending. How many we are losing as a result of that, we do not really know.
Ms Wiesner: Certainly our single-parent and mature student population has increased; but as to actual numbers, I do not have that information for you.
The Chairman: What would you call a high-needs student? How do you define "high need"?
Ms Stymest: It could be someone from a low-income background; it could be a student from a middle-class family that has several children being postated at the post-secondary level all at once.
However, for the most part, high-needs students are either from low-income backgrounds or students who have dependants -- single parents who have child care expenses and other expenses beyond those normally associated with a traditional student right out of high school.
Ms Wiesner: Also, that group of students has no safety net. A lot of the students I see in my area are suffering because their families have lost their jobs or there is chronic unemployment in their area.
Some of these students are actually helping to support their parents -- and this is certainly something new since I have been involved in financial aid. Some of these students help to support their parents through their summer earnings; and in some instances, a portion of their loan is used to help their families.
The Chairman: How large a grant would you be offering? Is $500 too little; is $2,000 too much? What is your opinion?
Ms Stymest: I would think that $500 is probably not be enough of an incentive to entice someone to take a chance and try university studies. It should probably be a sliding scale tied to tuition fees; somewhere in the range of $1,000 to $2,000 at present, I would think.
The Chairman: You also stated that $40,000 would be an unmanageable debt. What would you think would be a manageable debt?
Ms Stymest: Well, we have discussed this at length, and our conclusion is that there is no answer to that question. A debt load of $40,000 to a student studying dentistry or medicine, or engineering, may not be as onerous as it would be to a student in an area of study where the remuneration is not as great. Therefore, as to what figure represents a manageable debt load, that amount is tied not only into an individual's personal situation, but also the discipline of study.
Ms Wiesner: That is why we like the idea of any sort of debt relief being tied to -- once the student has consolidated the loan and once we know the employment situation of the student, that is when we look at whether the debt is manageable. It is manageable in relation to their employment situation, in our opinion.
The Chairman: You also mention work-study. Can you provide a copy of your 1994 proposal to us?
Ms Wiesner: Yes, definitely.
The Chairman: Could you leave a copy of it with the committee clerk, please?
Ms Wiesner: Certainly.
The Chairman: On page 7 of your brief, you state:
Service standards as defined by federal/provincial authorities should be established and maintained to guarantee that students receive individual debt load and consolidation counselling.
By that, do you mean that they are not now receiving any counselling?
Ms Wiesner: In my experience, there have been some students who have not been receiving the information that they need to make the judgments that are necessary; not in all cases, but in some cases. We feel that there should be a level of service that is available to all students, regardless of what institution they are dealing with.
Senator Forest: You talk about work-study program. When I was at the University of Alberta, we initiated the co-op program. A program of study would require an additional year, but the students, in effect, would be apprenticed to a certain company in their area of specialty and earn some income. As a result, they had some stability, less anxiety, and often came into permanent jobs.
Is that a big factor or not? I do not know what other universities have done, but it seemed to work. We started it in the business and engineering programs, but since then, I think it has spread into other programs. Is that a help to student?
Ms Wiesner: Yes, it is. At the University of New Brunswick, we have a large cooperative EDUCATION program, and it has been very successful. I do not have the statistics but, yes, a very large proportion of those students do end up obtaining permanent employment immediately upon graduation.
Senator Forest: But you would not have any idea of the percentage of students, nationally, who would be engaged in those kinds of programs?
Ms Wiesner: No. However, I think we may be able to find that information and forward it to you .
Senator Forest: You talked about the monthly repayment on a $30,000 debt, a $40,000 debt. Do you have, for a student acquiring that kind of debt load, a figure available as to what the interest paid on that loan amount would be? I know it would vary, depending on the term, the interest rate, and so on, but a general figure. What are they paying in interest? Is that $40,000 in fact costing them $60,000?
Ms Wiesner: According to this table, which was provided to us as I have mentioned by HRDC, on $40,000, over ten years, the total amount of the repayment would be $68,886.
Senator DeWare: Could you provide more details about the six-month loan repayment exemption -- for instance, when a student is trying to get into the work force or trying to establish a business? Also, I understand there is an 18-month relief if the student does not find a job, because of sickness, or whatever. Could you explain what is happening with the students that you are involved with?
Ms Wiesner: Yes. It is important to realize that the six months is a period of grace, but the interest is still accumulating. That is a change. In the past -- and I have forgotten the year it changed -- it was interest-free up to a certain point. It is no longer interest-free. You do not have to make payments until after the six months, but the interest starts the first day.
With respect to the Canada Student Loan program, you are eligible for interest relief for up to 18 months after you consolidate your loan. This is a good program, but we do not believe it promoted nearly enough. There are a awful lot of students who do not know that it is out there. However, interest relief is not available in some provinces. What we are seeing now is that some students are not only confused, but also upset if they live in a province where they can receive interest relief on their Canada Student Loan but not on their provincial loan. If they are in a position where they cannot make those payments, I am not sure what the answer to that is. Perhaps that would be a question for our banking colleagues later on this morning.
Senator DeWare: That provincial loan would be controlled by our provincial governments then?
Ms Wiesner: That is correct. Some of the provinces did not opt for an interest relief component in their contract with the banks.
Senator DeWare: Do you know how many provinces?
Ms Wiesner: Most of them have interest relief. New Brunswick does not. Alberta, Saskatchewan, Ontario, Nova Scotia and Newfoundland do have interest relief; B.C., Manitoba, New Brunswick and Prince Edward Island do not.
Senator DeWare: How do we coordinate the federal-provincial loans in the same bank?
Ms Wiesner: That would be a very question for the bankers.
Senator DeWare: It does not make sense for a student to have a loan with two or three institutions. As you say -- if they are confused, I can certainly understand why.
Ms Wiesner: I think that would be a good question both for our banking colleagues and for Human Resources Development. It is something that we are hoping can be streamlined in the future.
Senator DeWare: In applying for a student loan, do you find that any of the students are being discriminated against, say, because they may have worked or taken a year or two years off? Are they being penalized for that?
Ms Wiesner: If we are talking about the Canada Student Loan Program, that is part of a needs assessment for Canada Student Loan, and that would be a very good question for Human Resources Development. They would be able to explain the needs assessment to you. Certainly, in my experience with students who have prior financial obligations, prior debt, the single parent students, et cetera, those obligations are not taken into consideration in the needs assessment. We see a lot of first-year students who have tried very hard to get rid of their debt before they start university, and this is not taken into consideration in their needs assessment. In those cases, the institution tries to ensure that the students have enough money through institutional support.
Senator DeWare: Because that would show me that they are very responsible.
Ms Wiesner: Correct.
[Translation]
Senator Losier-Cool: My question concerns grants and loans. On Tuesday evening, we were told that grants have no longer been offered in the Atlantic provinces since 1992-1993. Are we talking about institutional grants or government grants?
Ms Stynmest: Institutional grants. Fewer provincial grants are awarded and the amounts have declined. The bursaries we once had are no longer available.
Senator Losier-Cool: If we look at the study conducted by the Maritime Provinces Higher EDUCATION Commission, we note that there are a few exceptions where students receive bursaries, as indicated on page 35.
[English]
Ms Wiesner: New Brunswick has retained a bursary program, that is correct. The other provinces have not. The other Atlantic provinces have not. After the federal loan and the provincial loan, the New Brunswick bursary kicks in. However, to access the bursary, your federal and provincial loans have to be at maximum. Therefore, those students would still have the same debt load. They do have access to some bursary money though, whereas some provinces have reverted all of their money to provincials loans.
Senator Losier-Cool: I was under the impression that even New Brunswick had removed the bursary in 1993, but you are telling me it is still there?
Ms Wiesner: No, they have not removed it -- and that is something that I wanted to clarify. The brief from the Canadian Federation of Students was incorrect on that fact. We do still have a New Brunswick bursary.
Senator Andreychuk: A number of years ago, there was a fair bit of concern, both by the government and the public at large, around abuse of the system -- defaulting on payments, and so on. What is your assessment of the present-day situation? Do you believe that there is a prevailing mood of responsibility for repayment?
Ms Stymest: The problems in the past were due partly to a lack of EDUCATION and a complexity inherent in the system. In many cases, it was not that students were irresponsible but that it was so difficult to get the information, so easy to fall into default, and as a result, the impression arose that students were irresponsible. Certainly, there is probably a percentage equal to the population at large that are irresponsible. However, it is not my conviction that students, in general, are or were irresponsible, but rather that somehow, there were things in the system things that made it very easy for student to fall into default -- repayment inflexibility, for example. If they did not have jobs but wanted to repay their loans, they went into default anyway, before interest relief programs were in existence. So I think a lot of is due to the period before interest relief.
Senator Andreychuk: So you think that interest relief has solved a majority of the difficulties?
Ms Stymest: Lessened, I think.
Senator Andreychuk: Would there be anything that would lessen it? Do you have a plan or a recommendation?
Ms Stymest: I think there are some instances where what is required is some post-graduation help to borrowers with high debt. I think there are instances where some students have taken on too much debt and will not have the opportunity to repay.
Senator Andreychuk: You assess financial need. Basically, what we are trying to do is to get money to the students who really need it. There has always been a feeling -- even in my time at university -- that some students do not make an extra effort to find alternate sources of funding and that some parents shield themselves from providing an alternate source of funding and, therefore, that those who get the loans are somehow being shown preference over those who make an honest, responsible effort or those whose families support them. How does one weigh that to get that criticism out of the system?
Ms Stymest: We meet students on an individual basis and thus are able to group them. The role of the institution in doing this is quite important and very useful in helping those students who really are inadequately funded.
Senator Andreychuk: Do you look at numbers and figures only, or do you take into account other factors?
Ms Wiesner: The government program is very stringent in terms of needs assessment, quite different than what we would do at the institutional level. The government program has very rigid rules and regulations about who would qualify, in terms of need, and they follow through on those.
Senator Andreychuk: I would argue the opposite, that if all you do is you accept somebody who says they have no money, nothing in their bank account, et cetera, that that may not be as stringent as looking into their capability, their responsibility to better their position.
Ms Wiesner: That may be true. I have been on the New Brunswick Review Board for many years, the appeals committee, and in a lot of cases, we see students whose parents have debt ratios of 60 or 80 per cent of their income. These students are being penalized because the assessment for the government program indicates that an amount of money must be included as a parental contribution. The student feels that he, or she, is being denied an EDUCATION because of his parents. In these situations, we have told the student that that is not fair and we attempt to help them rectify the situation. We see a lot of instances where that is a problem.
The Chairman: Senators, our next group is from Canadian Imperial Bank of Commerce Finance Inc. Please proceed, Mr. Lapointe.
Mr. Mike Lapointe, President and Chief Executive Officer, CIBC Finance Inc.: We have provided a detailed brief. I would like, however, to comment on some of the key recommendations.
CIBC Finance Inc. is a subsidiary company responsible for the bank's student loan business. What brings us here today, and the reason for our submission to the Senate subcommittee, is to share with you CIBC's experience and perspective in our role as a leading provider of government-sponsored student loans in Canada.
In addition to serving more than 350,000 student loan customers, issues concerning youth and youth employment are important in CIBC's business and community activities.
These hearings provide a timely and important review of post-secondary EDUCATION. We believe that a superior system of student aid and student loans is critical to the future economic development of Canada. CIBC is committed to working with government to resolve a number of serious issues which face the student loan program today.
In 1994, CIBC appeared before the House of Commons Standing Committee on Human Resources Development. We welcomed Bill C-28, which amended the Canada Student Loans Act, as the start of a new partnership between the federal government, students and the financial community. We believed and continue to believe that the partnership would represent a win for students, taxpayers and financial institutions.
For CIBC, participation in government-sponsored student loan programs provides us with an opportunity to establish strong relationships with young Canadians, relationships that will continue as they proceed with their lives and careers. Even before CIBC reached agreements with the federal government and several provincial governments, we recognized that student loans would be a marginally profitable business, but by applying our know-how, by investing in centralizing operations in a national facility devoted to processing student loans quickly and efficiently, we were confident that the cost of providing student loans would be very competitive.
Despite our investment, despite dramatic improvements in processing, and despite quicker and smoother service to students, early indications are that CIBC's experience with student loan programs will not meet our initial expectations. Delinquency and default rates in our student loan portfolio are higher than anticipated. The reasons for this may be attributable to a number of factors, including high rates of youth unemployment and under-employment, high student debt loads, changes to social programs which have changed the number and profile of people receiving student loans, and bankruptcy laws that permit individuals to avoid debt obligations. These developments have resulted in a significant shift in the risk profile of the student loans and the level of student indebtedness since the original agreement between the federal government and financial institutions was signed in 1995.
We have two key sets of recommendations for the committee to consider. The first concerns risk management.
Given our experience to date, it is questionable whether the current system of student loans will be able to continue once the contract between the government and financial institutions expires in 1999. To keep the Canada Student Loan Program viable over the long term, financial institutions and the federal government should begin working together to arrive at a more equitable sharing of the risks inherent in the administration of the program.
All options that can improve the management of the financial risk associated with the administration of the program by financial institutions should be considered. This should include provision of interest and debt relief to students unable to meet their obligations after completing their EDUCATION. The risk-premium structure and amount paid by the government to financial institutions should also be reconsidered.
Prior to implementing changes to social programs which encourage retraining and re-EDUCATION, government should conduct an analysis of the impact these changes will have on the Canada Student Loan Program. This will help assess the impact on the risk profile of the program and on the debt burden for the students. Participating financial institutions should be consulted prior to implementing changes. Governments and the private sector should work together to find new ways to rposte the rate of youth unemployment.
Those parts of Bill C-5, amendments to the Bankruptcy and Insolvency Act, which would make it more difficult for students to default on their obligations should be enacted. Bill C-5, as you know, is currently being studied by the Senate Committee on Banking, Trade and Commerce.
Students need to be better prepared to make sound decisions on personal finances and how they can use credit and student loans during the course of their studies. All stakeholders should sponsor financial counselling services, seminars and workshops directed at the entire student population.
Our second set of recommendations concern administrative issues.
The current student loan system is inefficient, inconsistent and unnecessarily complicated. For example, Mr. Chairman, it is possible for students who receive a provincial loan and a federal loan to have to sign as many as 16 certificates and an additional 16 loan agreements during their four years of study. These kinds of inefficiencies raise administrative costs and rposte students' satisfaction with, and their understanding of, the program. They also make the collection of loans more cumbersome and difficult.
We recommend, therefore, that government, financial institutions and EDUCATIONal institutions should work together to simplify the administration of the student loan programs in Canada. Federal and provincial student loan programs should be consolidated into one program which is cost-shared by the various levels of government. This would rposte the paper burden on students, simplify administrative requirements for students, financial institutions and EDUCATIONal institutions, provide savings for taxpayers and allow students with universal access to debt-management tools.
Eliminating red tape for students and improving their satisfaction with the Canada Student Loan Program should be one of the primary objectives of any of the changes made to the program. There should be better sharing of information between governments, financial institutions and EDUCATIONal institutions to streamline the administration of the program. Failure to address the risk-management and administrative issues will jeopardize the long-term viability of the student loan program, a program that is necessary to help ensure that Canadians have the EDUCATION and skills they need, not only for their own future but for the country's future competitiveness and prosperity.
CIBC is committed to serving the youth market and we are proud of our efforts to process and deliver government-sponsored student loans. However, the issues facing the student loan program require urgent attention if we are to continue to meet this challenge. We look forward to cooperating and contributing to a constructive discussion with government to resolve these issues.
Mrs. Ferguson and I welcome your questions on our student loan business and, indeed, on any other of CIBC's youth-related initiatives.
The Chairman: I read in the paper just the other day where it said that the banks should be doing more to help students. For example, if a student had a student loan with the CIBC, following graduation if they go into business, they use your bank again; when they start to make money, they deposit their savings with you; and then when they get married, they use your bank again. Because of the student loan, you have the first contact with this energetic young person, someone who has a better opportunity for employment and a higher income, and therefore a better client for your bank -- that you should be doing more. What do you think of that?
Mr. Lapointe: I think that is exactly what we are doing. We certainly recognize the future potential. We have been one of the most aggressive banks in the student business for two reasons. The first is that we want to develop a relationship with the youth of today, not only to meet our social obligations, but also for the future business prospects, there is no question about that; secondly, as many of our current customers want to avail their families to the student loan assistance programs, we very much felt that we needed to be a part of those programs to provide that service to the customers today.
We are not in the student loan business to make money. We are contributing towards the risk profile of the program. The risk premium that is paid to us is insufficient to cover the future losses associated with the program. That difference is being made out of our revenue streams. We have formed the National Students Centre for two years under the subsidiary company. We have not made any profit on student loans, and we are prepared to continue on that basis.
What concerns us is that there is a major demographic shift, if you like, in terms of unemployment and under-employment, coupled with the very rising debt loads, that make the original structure of the program uneconomical going forward. While we are prepared to contribute, and we feel we are doing much in this area, we are not prepared to accept an inordinate amount of the risk due to the social policy and structural objectives on behalf of our shareholders.
The Chairman: You stated in your brief that the value of Canada Student Loan claims resulting from bankruptcies has risen to $70 million. Do you have any corresponding figures for claims against provincial student loans?
Ms Sandra Ferguson, Vice-President, Student Product Management, CIBC Finance Inc.: We have a lot of data, but we do not have it with us right now. The trends are very similar in all aspects of the programs that we participate in.
The Chairman: Could you gather that data and send a copy to our clerk?
Ms Ferguson: Certainly.
The Chairman: In your recommendations I.(a), you talk with provision of interest and debt relief. Is this not already an aspect of the program? Or are you saying that there is a need for greater interest and debt relief, and that your bank must look into that right away?
Mr. Lapointe: There is absolutely a need for greater interest and debt-relief tools going forward. Simply put, because of the higher level of debts that students are now obligated to incur, and because of the rising and continued unemployment and under-employment factors, the current tools that exist, specifically the interest relief program, is not adequate to meet the needs going forward. That program is rather old, and quite frankly, not as many students can access that program because the income requirements on the program are such that it was designed to meet the debt loads of perhaps five or ten years ago, which were on average about $8,700. Today, a student is expected to leave school with $17,000 of debt -- I am talking on average -- and that is expected to climb to $25,000 over the next couple of years. The program has not kept up with that pace; not only interest relief, but also debt-relief programs must be developed and expanded to meet the future needs.
The Chairman: Have you any suggestions?
Mr. Lapointe: There are a number of proposals, and many variations of them, that are currently being considered by Human Resources Development Canada. Primarily, we do not pick one over the other. Our central issue is that the debt-relief tools should be applied post-graduation, dependent upon the needs of an individual student, given their debt load and relative to their earnings opportunity. They should therefore be assessed periodically on a needs basis. If the unemployment situation or under-employment situation is such that the student is just not able to carry their debt load within a reasonable period of time, then those debt- and interest-relief tools should be applied to bring debt levels down to a more meaningful level.
The Chairman: Will the bank make changes right away to those debt-relief tools, or will they wait until their new agreement is signed?
Mr. Lapointe: We would like to see those tools put in place immediately. Those tools are not part of our responsibilities; they must be mandated by the federal government. Indeed, we would like to see those tools harmonized and coordinated with all provincials governments, to avoid the confusion that exists today.
The Chairman: Under your recommendation I.(d), it refers to proposed amendments to the Bankruptcy and Insolvency Act. Those amendments that you mentioned would make it more difficult for students to default on their student loan obligations within the first two years after they graduate. Do you have any data on the number of students who have declared bankruptcy within the two years after they have completed their studies?
Mr. Lapointe: No, we do not.
The Chairman: You do not have anything?
Mr. Lapointe: No, we do not. We will undertake to provide some date. We deal only with government-sponsored student loans. What you are asking is a wider question. However, we will undertake, if it is available, to provide it to the subcommittee at a later date.
Senator Forest: You mentioned that the risk profile has grown considerably and that you have not made any money. Have you any indication or can you give us any indication of the level of your losses?
Mr. Lapointe: The new Canada Student Loan Program is a relatively new program. The amendments to the program, which included the government paying the banks a risk premium, were enacted two years ago. It is too early to tell. The first loans, to any real number, are only coming into repayment now. Over the course of the next year, we will be able to gain some better experience.
However, prior to the Canada Student Loan Program changes, we entered into a number of arrangements with various provinces. We believe that that experience with those provinces, is a fairly accurate reflection of what will happen on the federal program. Those experiences, in addition to the higher debt and unemployment issues that I have just described, lead us to the firm conclusion that the default rates will be much higher than originally anticipated.
Senator Forest: Your comment then was based upon future losses, not upon present ones?
Mr. Lapointe: That's correct.
Senator Forest: You speak about the need for streamlining and working together -- and I quite agree with that. You speak about better conditions or better regulations with respect to relief from interest and debt payment. There are three groups involved: the feds, the provincials and the banks. Are the banks prepared to take a proportion of that interest and debt relief?
Mr. Lapointe: We are. We believe that everything should be on the table, including the debt-relief and the risk-premium structures. As I mentioned earlier, the actual default rates are expected to be much higher than we are currently being compensated for, so we are presently subsidizing the program out of our earnings. We are prepared to look at the entire restructuring of the risk provisions, including our participation in interest and debt relief.
[Translation]
Senator Losier-Cool: At the start of the school year, representatives of the various financial institutions come to university campuses to postate, or at least to provide information to students on how to apply for loans and grants. I can understand there being different criteria for securing a loan. Students may look at interest rates, but the financial institution must also consider the parents' ability to reimburse the loan or their financial situation. That is what we were told earlier.
Is the student's chosen discipline a loan criterion? In other words, are students pursuing certain fields of study more likely to find a job in four years' time? It is often said that arts students may perhaps have a harder time paying back a loan. Is the selected academic discipline a loan criterion?
[English]
Ms Ferguson: The government-sponsored student loan programs are based on an assessment completed by the governments. The banking institutions are not part of the process. It is a needs assessment as opposed to a credit worthiness that banks are typically involved in. The HRDC can give you more details as to whether they look at disciplines within the EDUCATIONal process when they do a needs assessment. To my knowledge, it is not part of the assessment process.
Senator Losier-Cool: Yet you want that loan to be reimbursed as much as possible, and you want the security on that loan. In the loan process, do you ask the student his area of specialty?
Mr. Lapointe: No, we do not. We have absolutely no influence on which students qualify for a student loan or to what level they will receive a student loan. Once the government makes that determination, we are obligated to advance that level of funding. No discussion takes place. We do not even have that information. The government indicates to us that a particular student is authorized for a certain amount of money, and under the terms of our contract with the government, we are obligated to disburse that without asking any questions about credit background.
Senator Andreychuk: I want to go back to the Bankruptcy and Insolvency Act. You have made an eloquent case to say that students are in financial difficulties now because of how social programs have been administered by the federal government, and other governments, I guess, and by the lack of employment opportunities. Your recommendation seems to say that students are somehow availing themselves of bankruptcy opportunities in an inappropriate way.
Surely, if people are desperate, they should be able to use any tools legitimately available to them within the law to rposte their debt loads -- that is what the Bankruptcy Act is all about. Why do you believe there should be a change for students, and why do you believe that they are doing something nefarious, shall we say?
Mr. Lapointe: First, let me say that we absolutely do agree that if students are desperate, they should available themselves of bankruptcy protection. Let me just give a bit of background, if I could.
The old Canada Student Loans Program was a government-guaranteed program. Students who defaulted on that program did not affect their credit record. If a student defaulted on that program, the bank would be paid out by the government and that student's credit record was not affected. It never affected the student's ability to go out and obtain other consumer loans. That has changed now. In the new program, where the risk is passed to the banks, we apply our normal debt-management techniques, including reporting to credit agencies, et cetera, where the student is unavailable.
With that in mind, we have no specific statistics today to indicate that there are a high number of students proposing that. We want to say, first, that consumer bankruptcy rates in Canada for all segments are up dramatically, in the range of 30 per cent year over year. In cooperation with Human Resources Development Canada, our proposal is that we wanted to avoid what could be termed "strategic bankruptcies", where a student could come out of university directly, not attempt to honour their obligations -- entirely different from not being able do -- and immediately avail themselves of a law that was not intended for that purpose. It is for that reason that we recommended, if you like, a two-year moratorium that would prohibit the motivation for a student to use bankruptcy protection prematurely.
Senator Andreychuk: And has that been put into Bill C-5? I have not had an opportunity to study it yet.
Mr. Lapointe: To that effect, it has. The provisions are still under debate and discussion, as that bill has not been enacted.
Senator Andreychuk: So you are in favour of the amendments that Bill C-5 would provide?
Mr. Lapointe: Yes, we are.
Senator Andreychuk: You said that there should be more debt-relief tools, including wiping out a debt, if I can put it in those terms, and you thought those discussions should be with governments. Are you saying that they should be both provincial and federal?
Mr. Lapointe: Absolutely. Our recommendation again is that the myriad of programs between all the various levels of government are very complex for the students. Certain programs, as we heard earlier, have one form of debt management, for example, interest relief; others do not. A student in one province, therefore, does not have the same access to debt- and interest-relief tools because of the two programs. Our recommendation is that a common debt-management structure be applied and that both the federal and provincial programs be coordinated and streamlined so that the student can access a greater sense of interest and debt relief in both programs.
Senator Andreychuk: In your brief, page 7, you said that students need to be better prepared to make sound decisions on personal finances, et cetera, and I think that is obviously appropriate and very necessary, but you go on to say that the government should sponsor more financial-counselling services, seminars and workshops. Do not the high schools, the secondary institutions, need to play a role in this? When I was going through school, the banking system was very simplistic, but somewhere, within that four years, I learned what credit was all about, what my risks would be, and it was very helpful in the choices that I made because they were inculcated in my early enough. It seems to me that if those random workshops take place at the end of the process, it is almost too late to change patterns, attitudes, et cetera. Should we be pressuring for more at the secondary level?
Ms Ferguson: One of the things we did recognize, as we said earlier, is that we were one of the first banks to enter into at new risk-share environment. We have a dedicated team relationship with the people who work across the country. Last year, we recognized that the earlier you get to the client and to their parents, the better their knowledge about making decisions vis-à-vis whether they can afford an EDUCATION, and if they cannot, what is available to them to ensure access to EDUCATION.
Our team has developed high school preparations in high schools that have EDUCATION days, career days. What we have made available to those high schools is an opportunity for us to visit them, on a non-specific financial basis, and talk to both the parents, if they are available, and the students about credit -- what it is, what obligations it brings with it and what is available to assist them to avail themselves of an EDUCATION. We have recognized that and we have instituted a program.
Senator Andreychuk: I guess my point was: Should it not be part of the general curriculum, at the earliest age?
Mr. Lapointe: We would support that very much. We believe we are making some progress here. For example, last year we conducted 300 such seminars. But it is not enough; we certainly agree that more must be done in that area.
Senator Losier-Cool: In your brief, it says "government"; but when you talked about it, you said all the stakeholders -- you included yourselves?
Mr. Lapointe: Absolutely.
Senator Losier-Cool: I felt that it was not only a government responsibility, but also the responsibility of everyone.
Mr. Lapointe: Yes. We accept our responsibility. As indicated, we are taking steps, and we plan to do more. But in other areas, as well, we feel that more should be done -- for the total population, for example.
Senator DeWare: In terms of debt relief, I believe that it is 5 per cent now that the government assures you -- and you are looking for a larger percentage than that. If everybody worked together -- as you say, you are losing money , so if you give your percentage of the debt relief, plus the governments', maybe we could rposte the debt load. They are losing it on student loans, but not on the overall picture of banking.
Senator Losier-Cool: They get it somewhere else.
Senator DeWare: Do we need HRDC to be more involved in terms of talking about job creation for students?
Mr. Lapointe: We have a very close relationship with the HRDC, and we are quite impressed with the various proposals that are under consideration. They have a good statistical database. They are certainly very much aware of the issues and are very supportive in our discussions along these lines.
Senator DeWare: How long does it take to get this in place?
Mr. Lapointe: I cannot answer that.
Senator DeWare: The students are struggling.
Mr. Lapointe: That is a matter of governmental policy.
Senator DeWare: I was going through their book and looking at student eligibility, where they fall into categories of dependent student, dependent student living at home, away from home, independent student. If a student has been independent, has worked for a couple of years and has been able to put some money into RRSPs in your bank, or in the money market, but does not want to use that money, when they come to you for a loan, the government is saying they will take that into consideration and will rposte the amount of money to that student because he or she is financially independent. Is that student supposed to cash in his or her RRSPs? This student is a reliable citizen in the community and you should be very anxious to have him or her your rolls for the years to come.
Mr. Lapointe: Again, we have no influence over which student get students loans. Those rules are set by the government. Let me also say that we make student loans to students and their families who do not qualify for government-sponsored loans.
Senator DeWare: On an independent basis?
Mr. Lapointe: Absolutely. What we have been talking so far is our role in government-sponsored loans. We have special programs available to students and their family to access loans outside of the government programs on preferred payment terms and fees basis, and we are very active in that market as well.
Senator DeWare: What if a student independent of his or her family comes into your bank for a student loan?
Mr. Lapointe: It is based to some extent on credit worthiness, where we take into consideration future earnings potential, et cetera. But again, the terms of that are more liberal than we would apply in our normal credit criteria and pricing structures. So, indeed, when we have a relationship with a student such as the one you have described -- that is, a case where a student does not qualify for a government loan -- indeed, we are very much interested in helping that student on a one-on-one basis.
The Chairman: Do you people in the bank feel that you should be involved in the assessment criteria process?
Mr. Lapointe: We do not believe that it is our role, if I can be blunt about it, to set social policy. However, to the degree that the assessment process ultimately affects the risk profile of the overall program of which we are a partner, we believe that we should be consulted and, therefore, make recommendations to government in terms of restructuring programs to accommodate that reality. The changes to the program are a matter of government policy, but the program itself and the risk sharing and the profile should be considered, and perhaps changes have to be made on that basis.
The Chairman: Can you not make a recommendation to the government at any time on anything at all -- they do not need to accept them?
Mr. Lapointe: Yes, I suppose that is true.
The Chairman: Do you make any recommendations to the government?
Mr. Lapointe: We make recommendations, as we have outlined here, specifically in the changes we are recommending to the government. We have no specific recommendations to make on the needs-assessment process.
Senator Forest: I just wanted to get back to the counselling, because I think that is very important and I am pleased that some initiatives have been taken. Also, because I was involved with various school systems for many years, high school curricula usually involve some counselling, but I do not think it is adequate.
My question is: When a student comes in to your bank for a government loan, do you do any sort of counselling with that student, if you have concerns about the debt becoming unmanageable, or do you not feel that that is your role?
Mr. Lapointe: We are not doing that to the extent that we would like. Again, the needs-assessment process is entirely outside of our process. By the time the student comes to us, they have already decided how much money they want, how much they need, and they have already been authorized. We do not feel that we are involved in the process, if you like, early enough to provide that level of counselling.
Senator DeWare: When the provincial EDUCATION ministers get together, do they ever ask you people to come before their committee?
Ms Ferguson: We participate regularly in discussions; however, they have regular meetings with the federal government to discuss a lot of different student loan components and we are not part of that process. We have asked to be.
Senator DeWare: What about the second level, deputy ministers -- do they ask you to come before them when they have their meetings?
Ms Ferguson: No.
Mr. Lapointe: I would just like to qualify that. We do have close working relationships one level down from there, at the program director levels of all the programs, where we have ongoing consultations and are very much part of a dialogue at that level.
The Chairman: Thank you very much, Mr. Lapointe and Ms Ferguson.
Honourable senators, we have with us now Ms Jane Weatherbie, Vice-President of Personal Lending Services, Bank of Montreal.
Ms Jane Weatherbie, Vice-President, Personal Lending Services, Bank of Montreal: My remarks today will summarize the brief that we have already provided to the clerk.
Post-Secondary education is something that involves more than schools and governments, we believe. A third partner is the private sector, and it is my pleasure to talk to you today about Bank of Montreal and the role we see for ourselves in Post-Secondary education. Obviously we are a bank, so students represent a very important and core line of business to us; but also, as a major employer, we have a commitment to life-long learning within the bank. As well, we have a commitment to supporting Post-Secondary educational institutions in the communities where we do business.
EDUCATION has certainly changed over the past several years. In 1993, we at Bank of Montreal changed the way that we deal with students. When we launched our student loan and our student banking plan, we were the first Canadian bank to offer proprietary products aimed directly at the student market. These products evolved over the next couple of years into what we call "Brain Money", a special package of financial services and products which we launched in August of 1995 as an alternative to our participation in the Canada Student Loan Program.
The cornerstone of Brain Money is the student line of credit. Our brief provides some highlights to the student line of credit program, but I would just like to draw your attention to a few. One of the things that distinguishes this product from many others available in the market is that it is a revolving line of credit. What that means is that students only draw down money against a predetermined limit as they need it, as they need the funds, as opposed to sort of a lump sum advance of the money. Students can repay amounts at any time. As well, those who are fortunate enough to have, say, part-time employment or summer employment can use those moneys to minimize the debt load that they are carrying. It is not always additive.
By having a line of credit product, we believe that that helps students to minimize their debt load, but also helps them to manage their financial picture. So, as I have said, student line of credit is a revolving credit product. It has a maximum credit limit per student of $5,000 per academic year, up to total of $20,000 for a standard undergraduate degree. When we designed our student line of credit, what we had in mind were the approximately 70 per cent of students who either do not qualify for government assistance or need a top-up to government loan programs.
Our student line of credit is available to full-time and part-time undergraduate and graduate students enrolled in Canadian and non-Canadian universities, colleges and other post-secondary institutions. In other words, the product is available to students studying here in Canada or studying abroad, those on a full-time basis or a part-time basis; as well, it incorporates many Post-Secondary educations that are more directed at technical or vocational skills, ones that are not necessarily a part of the provincial loan programs. We see a wide range of students applying for other than strictly a university-type EDUCATION.
Students must meet the bank's usual credit criteria, and in many cases, that does mean that a co-signer is required. Students draw down only as much money as they need, when they need it, and they make only interest payments while they are in school and up to one year after graduation. At no time are there any fees for students to access their line of credit. As well, we provide the students with a monthly statement on their line of credit, showing the transactions, the outstanding balance and the interest payment due.
At prime-plus-one, we believe that our student line of credit provides a low cost of borrowing and affordable payments for student. In many cases, students can save money relative to other student loan products because they pay interest only on the amount of money they draw down and not on the entire amount of credit available. Like government student loans, we do provide a hardship-relief facility, but our hardship relief is slightly different. Student loan credit allows students to pay interest only during difficult times, whereas most of the federal or provincial programs require that principal payments remain and the government steps in and helps with the interest payments during difficult times.
Appendix A to our brief provides some details, statistics, on our student line of credit product.
With our student services programs, we are trying to build relationships with students and in some cases, with the schools themselves. Through our monthly statements, et cetera, to students, as well as personal contact as they desire it, we are building a relationship which we sincerely hope lasts beyond the full repayment of the loan.
For the schools, we can create flexible, private label loan programs to suit their needs and the needs of their students. Our role in that case is to adjudicate and administer the loan. For example, we recently provided a unique financing product for both the Career Development Institute's College of Business and Technology and the Information Technology Institute. This helped the school by providing financing directly to their students; it also helped the bank by building relationships with a number of new customers.
These programs are designed to reflect the needs of those particular institutions. I talked about a maximum limit of $5,000 per year as our standard program. Some of these technical schools have higher tuition costs, but the programs are of shorter duration. For these EDUCATION institutes, we set limits of $15,000.
Much was said earlier about the importance of providing students with training, EDUCATION and understanding about the importance of financial management and credit. We have a role to play in that. We sponsored the development of a booklet entitled "A Student's Guide to Financial Survival", a copy of which I have here. We distribute this to graduating high school students across the country, as well as first-year university students. It provides a range of tips on how not to live on pizza alone, how to manage their debt load and understand their financial obligations. It includes information on government student loan programs, as well as our own Bank of Montreal product.
Our branch managers across the country go to local high schools to speak to graduating classes and make a presentation to them entitled "Surviving the Costs of Post-Secondary education" -- similar to what our colleagues at the CIBC do. This presentation is also being given at Orientation Week to first-year university and college students.
Looking at the issue from the role of an employer, we strongly believe that corporations should make a commitment to learning and EDUCATION that extends beyond formal EDUCATION and into the workplace. The Bank of Montreal's Institute for Learning fosters a culture of life-long learning for all levels and employees of the bank. Last year, Bank of Montreal spent $62 million on training at our Institute for Learning. Translated, that means that on average, every employee received almost six days of paid training, dedicated training. In addition to that, we spent approximately $1.4 million on our Tuition Refund Program for our employees <#0107> we subsidize their tuition costs as they pursue personal EDUCATIONal opportunities outside the bank.
Corporations also have a responsibility to support the communities in which they do business. The post-secondary institutions in many of those communities are an important part of that. In 1996, Bank of Montreal had a total financial commitment of more than $7 million to Post-Secondary education institutions in Canada. Our brief outlines a few examples of the partnerships that we have with post-secondary institutions, not only partnerships that involve funding, but also partnerships that involve working with students and professors in developing curriculum. However, I would like to draw your attention to one such example a little more fully.
Earlier this month, Bank of Montreal committed $3 million for a scholarship program that will allow top students from high schools across Canada to attend the University of Toronto. Our donation is comprised of a $2 million direct gift and $1 million gift which is a combination of employee and director contributions matched by a special bank program. Our $3 million donation is in turn matched by the province's Ontario Student Opportunity Trust Fund and the University of Toronto's own match funding program, thus creating the $9 million Bank of Montreal National Scholar Program at the University of Toronto. The scholarships will be offered beginning the 1998 academic year and will carry an annual value of between $7,500 to $12,500 per student, depending on the need of the student. What this contribution has meant is that there will be triple the number of students that will be able to be part of the National Scholar Program at the University of Toronto.
In summary, Bank of Montreal endorses the review of the subcommittee and strongly believes in the importance of the issues which are being addressed in these proceedings.
The Chairman: Does you bank involve itself in other universities across Canada, in Saskatchewan, for example?
Ms Weatherbie: I took the opportunity to highlight one example. However, our brief outlines a number other. We write cheques and contribute to the capital campaigns of more than 40 institutions coast to coast, including, for example, Memorial University, University of New Brunswick, Laval, U of T -- which we talked about -- Humber College and Capilano College, to name just a few.
The Chairman: Yes, but with the biggest program, worth millions of dollars, was set up for the University of Toronto.
Ms Weatherbie: The National Scholar Program at U of T, I gave you that example, yes.
The Chairman: Do you have scholarship programs like that for Capilano, for example, in British Columbia?
Ms Weatherbie: I just chose that one as an example, but I could certainly give you more details on the type of scholarship programs that we do have with other universities.
The Chairman: Could you get that to our clerk so that we can have it available?
Ms Weatherbie: Absolutely.
The Chairman: During your presentation, you held up three or four sheets of paper -- one of them was entitled "Brain Money". Could you send ten copies of each of those to our clerk so that the other committee members could see what great things the Bank of Montreal is doing for our students?
Ms Weatherbie: Absolutely.
Senator Forest: I believe I understood you correctly when you said that the student pays interest during their years of study on the Bank of Montreal's student loans..
Ms Weatherbie: Yes.
Senator Forest: It is not like the others where they are not required to pay?
Ms Weatherbie: No, it is not a part of the Canada Student Loan Program or the provincial programs, where the government in fact subsidizes the interest while the student is in school. With a Bank of Montreal student loan, the student does make interest-only payments while in school.
Senator Forest: You have mentioned $7 million, $3 million, for a total of $10 million. In view of the recently reported profits of the bank, do you think that for a large corporation like the Bank of Montreal, that is an adequate level of money going back into the community?
Ms Weatherbie: We are proud of the fact that Bank of Montreal is one of the ten largest corporate donors in all of Canada and that we donate more than $10 million annually, not only to schools, but also to other charities or community support groups.
Senator Andreychuk: Do you not believe that you are in a preferred position to other corporations because every scholarship and every contact you have is an investment in your future as well as the student's future and Canada's future? You are making contacts and getting preferred customers, if you handle them correctly and if they have the opportunities. Surely the bank should be reconsidering whether the level of investment in Canada's youth is sufficient, given the position of the banks in Canadian financial circles.
I am saying that because there is a debate about the preferred position our chartered banks are in vis-a-vis other offshore banks. Do you believe that Canada should give the edge to the chartered banks if they are not reinvesting a corresponding amount into the future of our youth?
Ms Weatherbie: A portion of this is not my direct responsibility, however I would respond in two ways. I think what you are touching on are two distinct but complementary issues. One is our corporate philanthropy -- and again, I can only repeat that we are one of the ten largest Canadian corporate donors. That level of philanthropy is separate from the idea of building relationships with students. In terms of corporate philanthropy, it is not necessarily transparent that it is Bank of Montreal dollars that went to support a particular computer lab or science research project.
The other issue is that of addressing the student market with our student lending program and our student services package. We are a business and we do look at it as an investment in the future. For that reason, the programs and the services we provide to students are deeply discounted from normal costs. The student banking plan is 70 per cent discounted when compared to normal banking services packages.
Senator Andreychuk: While there is a discount, and that is helpful for the student, you nonetheless come out with a fairly break-even position on all of your operations in that area, it is not true to say that it is a drain on other financial services.
Ms Weatherbie: To be honest, I do not know if we make money on our student services banking plan or not.
Senator Andreychuk: My question is not about whether you make money, but you do not lose on it?
Ms Weatherbie: I do not know whether we lose money either. Clearly, we have had a great year and I will not be claiming poverty on behalf of the bank. If I were to isolate the student services, I do now know whether we break even or not. But clearly, students are our future; if they are in fact a loss-leader, it is a good investment decision that we have chosen to make.
Senator Andreychuk: I think the Bank of Montreal has been very innovative in its philanthropic endeavours. I am well aware of the recent donation to the aboriginal program at the University of Regina. That was one of the best initiatives I have seen, to the credit of one of vice-presidents. It will go a long way in ensuring aboriginal EDUCATION. I am pleased that many similar programs have grown out of it. That is philanthropy, and we can argue whether it is generous or not and whether you have a capability.
But given the times, do you not believe that if we do not invest in Canadian youth, given the situation they find themselves in, all of Canada will be in jeopardy, including our chartered banks? I am looking for some innovation from the banks in a scholarship program that goes beyond the University of Toronto program. Is there any thinking in the bank, any feeling of responsibility, that we are at a critical point with students, with the youth of this country, and that we all must devise and develop some way of ensuring their future, and thereby ensuring our future? I think the time is critical -- and I am not just pointing a finger at the banks. I hope we get at some other industries and some other institutions. The banks come to mind because of their seemingly stable position. I will not say they are making exorbitant profits, but I will say that they are probably surviving best in today's market.
Is there any innovative thinking and some responsible attitude coming out of the banking system to support Canada's youth?
Ms Weatherbie: I agree very much with the focus of this committee, which is clearly addressing this issue, and that is why we tried to respond to the issues raised on three fronts: (1) what we are doing for students as a line of business; (2) how we look at EDUCATION in terms of our role as a major employer -- the fact that EDUCATION is not solely the responsibility of government or EDUCATIONal institutions; and (3) how we look at it as a major corporate donor.
I think I am at liberty to mention that Bank of Montreal will announce something innovative on Friday of this week related to the issues of our youth and EDUCATION. All I can say is that there will be an announcement on Friday, and it revolves around an EDUCATION foundation. The announcement will be made by our Chairman, Mr. Barrett.
The Chairman: Would you send a copy of that press release to our clerk when it becomes available, please?
Ms Weatherbie: I would be pleased to do that.
The Chairman: The Bank of Montreal is not part of the federal risk-sharing agreement, is it?
Ms Weatherbie: No.
The Chairman: Why is that?
Ms Weatherbie: We chose to focus on the 70 per cent of students that did not qualify for government assistance or needed a top-up. It was a matter of focus and prioritization. We thought we had an opportunity to develop something completely new in the market, that is, the line of credit facility. Our student line of credit program is not in competition with government student loan programs. We view it as complementary; it serves a niche in the market that the government programs were not necessarily reaching.
Senator Forest: The students who receive these line of credit loans and pay them back will have a good credit rating, too.
Ms Weatherbie: Oh, absolutely.
The Chairman: In the Brain Money program, if a student receives a maximum loan for four years, how much of that money will be paid in monthly interest?
Ms Weatherbie: We did a couple of back-of-the-envelope calculations earlier today. The average amount that we have right now in outstanding balances with our student line of credit is $4,771.
The Chairman: Of the $5,000 loan, that will be interest?
Ms Weatherbie: No, that is the approximate outstanding balance. When a student is in school, they pay interest only. Therefore, at today's rate, that would be about $23 a month in interest payments. It is not too much more than the average pizza.
Senator DeWare: Ms Weatherbie, may I ask where you live?
Ms Weatherbie: Toronto.
Senator DeWare: The reason I am asking that question is that I know of a potential student who called the Bank of Montreal and asked if they would be eligible for a line of credit. They were told that if they had a job, the bank would be assured that they could pay down the interest. That was the only way they could get a line of credit.
Ms Weatherbie: I am sorry if that was the response they got. In some respects that is correct, but that is not the whole story.
Senator DeWare: That was here in Ottawa.
Ms Weatherbie: Unfortunately, that is not the whole story. As I mentioned in my presentation, students require a co-signer -- because we use our normal credit-granting criteria -- if they have not had part-time employment and cannot demonstrate the ability to keep the payments current.
Senator DeWare: In the case to which I refer, the potential student would only be eligible if he or she had a job that would guarantee they could pay down the interest.
Ms Weatherbie: In those cases, we would look to a co-signer who would be prepared to stand with the student in terms of payment of the loan. It sounds as though the student to which you refer did not get the complete answer; instead, they got the short form.
Senator DeWare: Another thing I would mention -- and I meant to mention it to the CIBC -- is that in many cases, students are not getting the sort of direction and information they need when they call the banks about a student loan. They are being told, in some cases, that they should be contacting government officials with respect to student loans. They are not getting the proper information, and it is discouraging for them. I am aware of that having happened, and it disappoints me. Your people should be beefed-up with respect to your student programs.
Ms Weatherbie: Perhaps you can give me some details about these issues following the committee meeting so that I can follow up on them for you.
Senator DeWare: I do agree with you that learning is now a lifetime investment. As a former Minister of Advanced EDUCATION in the Province of New Brunswick, I recognize that learning and training goes on forever. The youth of today will have three or four jobs in their lifetime. It is important that upgrading and retraining be available to them, especially the way technology is advancing today. They will have no choice but to retrain and to upgrade themselves; it is a life-long experience, even for people my age.
Ms Weatherbie: For all of us.
The Chairman: What puzzles me is that as Vice-President of Personal Lending Services, you do not know whether or not your student loan program is making money. If your President becomes aware of you saying that, you may find yourself unemployed, like a lot of other people.
Senator DeWare: She is not at liberty to say, Mr. Chairman.
Ms Weatherbie: I will trust your discretion.
The Chairman: Is that because you did not feel it is your place to disclose either the profits or the losses on that program, or you really do not know?
Ms Weatherbie: I can clarify that.
The Chairman: I think that would be a good idea.
Ms Weatherbie: From a personal lending perspective, I do know that we are very pleased with the operation of our student line of credit. While it is a fairly new program, we are not experiencing delinquency. In fact, I can say that it would appear that we are breaking even, or making a modest profit there.
What I cannot comment on, though, is the complete range all student services, including, for example, banking plans, which are priced at 70 per cent below normal prices. That is not my area; do not look after deposits. Therefore, I am unable to say whether or not, if all of the student services stood on their own, we break even.
The Chairman: But the things that you do look after, the student line of credit program, do you know if that is making money or losing money?
Ms Weatherbie: To date, we appear to be on the right side of the balance sheet. It is a fairly new program, but to date, so far so good.
The committee adjourned.