Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 12 - Evidence - Meeting of March 13, 2008
OTTAWA, Thursday, March 13, 2008
The Standing Senate Committee on Banking, Trade and Commerce, to which was referred Bill S-205, An Act to amend the Bankruptcy and Insolvency Act (student loans), met this day at 10:50 a.m. to give consideration to the bill; and to examine the present state of the domestic and international financial system (bankruptcy and insolvency).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: I am calling to order this meeting of the Standing Senate Committee on Banking, Trade and Commerce. We are gathered here this morning to deal with Bill S-205. We are not only here in person, we are also on the CPAC television network and the World Wide Web. There is a webcast of these proceedings.
I have six senators with me this morning: Senator Tkachuk from Saskatchewan; Senator Gustafson, also from Saskatchewan; Senator Eyton from Ontario; Senator Harb from Ontario, from the Ottawa region; Senator Ringuette from New Brunswick; and Senator Biron from Quebec. Also here are our loyal clerk, Dr. Line Gravel, and Ms. June Dewetering, from the Library of Parliament.
Our witness today is the esteemed vice chair of the committee, Senator Goldstein, who has left the chair because he is sponsoring a private member's bill, Bill S-205, to amend the student loans portion of the Bankruptcy and Insolvency Act.
As a committee, we are almost at the end of a study of the provisions contained in our bankruptcy, insolvency and restructuring legislation. In the process of studying Bill C-12 and the bill it amends — former Bill C-55, which is enshrined in the Statutes of Canada, 2005, Chapter 47 — we are looking at Canada's student loan program, including the consequences in the management and administration of the loans in the event of insolvency, hardship, bankruptcy and the like.
There has been a history of changing this legislation over the years to meet particular circumstances. Senator Goldstein feels that further changes are necessary. It seems timely that his bill has come to our committee because of the other study we are engaged in. While they are, in Senator Goldstein's words ``mutually exclusive,'' a case could be made that the provisions of Senator Goldstein's bill fit naturally into Bill C-12 or the other framework legislation. If we come to a meeting of minds within this committee, our report might so recommend.
Senator Goldstein has come with overheads and is prepared to talk about his bill. Also present today are representatives from Human Resources and Social Development Canada, Canada Revenue Agency, Industry Canada, and Resolve Corporation, which is a student loan organization. They all are prepared to talk to us later.
In recent weeks, witnesses have raised questions about the student loan program. Therefore, we were having these government representatives come today in any event in relation to our study. However, they are also prepared to talk specifically about Bill S-205.
The critic of the bill, Senator Tkachuk, is with us as well. He stated his reservations, on behalf of the government, in his speech in the Senate. Senator Goldstein, I do not believe you are surprised by that as you were there.
Without further ado, it is nice to have you on the other side of the table. We will treat you as you would expect, with respect, kindness and interest.
Hon. Yoine Goldstein, sponsor of the bill: Thank you very much, Mr. Chair and thank you for the opportunity to discuss with you the bill I am sponsoring. For the record, I will not be assuming the vice-chair's role while we are actively dealing with this particular bill. However, I will continue to act as vice-chair when we are dealing with the bankruptcy legislation generally.
In order to make what I will be saying easier to deal with, I have brought some slides, which were prepared by Marion Laurence, who has done an extraordinary job, and Paul Thomas.
The Chair: Are they your own staff?
Senator Goldstein: Yes, they are both from my office and their job, which they do with great success, is to make me look good. I know that that is not a unanimous opinion among my colleagues, but that is how I feel about it. They do a bang-up job in terms of research.
The Chair: Ladies and gentlemen, for the record, two other senators have joined us — Senator Massicotte from Quebec and Senator Moore from Halifax.
Senator Goldstein: Bill S-205 will amend the Bankruptcy and Insolvency Act so that student loans can be included in bankruptcy proceedings after two years from the end of the student's post-secondary education. I will go over that history later and reflect on the current status of the treatment of student loans under the act as it has been amended. This would be a further amendment to the act to reduce what is now five years to two years.
The bill will also create a new provision to allow young people who are experiencing long-term financial difficulty to apply for a court order to relieve them, in whole or in part, from their student loans at any time after completing their studies, where they are encountering extreme difficulty in repaying them. This change is required because some former students are unable to repay their loans because of unexpected accident, illness or disability or, in some cases, inability to find a job in the field of endeavour for which they have been trained.
The Chair: If you will forgive me for interrupting, Senator Goldstein, you are telling us what it will do in the first slide — the two-year provision and the other hardship circumstances. It would be helpful if you could quickly tell us how that changes the present situation.
Senator Goldstein: That is the next slide. Let me give you some background.
Various changes have been made in the Bankruptcy and Insolvency Act in the past ten years that affect the manner in which student loans are dealt with in bankruptcy proceedings. In 1997, a prohibition was introduced for the first time precluding students from getting a discharge from their obligations under the student loans for at least two years after they had graduated from school. In 1998, that prohibition was extended to ten years in a piece of legislation that was not bankruptcy but income tax law. That effectively made it impossible for students to ever get a discharge from their student loans and, in my view, created significant hardship.
In 2003, the Standing Senate Committee on Banking, Trade and Commerce suggested that the ten years be reduced to five years. The legislation we have at the moment, assuming that Chapter 47 will be proclaimed, will reduce the prohibition to seven years and, in the case of hardship, to five years. Bill S-205 proposes to reduce it from five years to two years and, even within the two-year period, to allow for a student who is experiencing undue hardship to obtain a discharge from all or part of the loan that is due.
The changes made in 1998 were justified on the grounds that the federal government did not want former students declaring bankruptcy shortly after graduation to escape their student loan obligations. For the record, the amount of federal student loans in bankruptcy rose from $30 million in 1990-91 to $70 million in 1996-97. That more than doubling of loans of students in bankruptcy caused the government to increase the two-year prohibition to ten years. We have the following set of times: two years until 1998; ten years from 1998 until the new law will be in force; five years and seven years when Bill C-47 and Bill C-12 come into force; and two years if the Senate and the House of Commons choose to adopt Bill S-205.
Although there was a spike in bankruptcies from 1990 to 1996, it is not clear that the level of bankruptcies was the result of overly lenient bankruptcy legislation. This spike took place at a time when the cost of post-secondary education was rising rapidly and when the Canadian economy was experiencing a downturn, making it more difficult for students to find employment. Professor Saul Schwartz, from whom we will hear in due course, will tell us that, on the basis of his research, it is not the case that students simply wait around the corner for the waiting time to be reduced so that they can come out of school, get their diplomas and flip their student loans to zero the moment they have a chance to do so. That has not been the experience, but we will let him testify to that.
Bankruptcy provides a way of dealing with debts that cannot be repaid and helps society to cope with the risks inherent in business and the credit system. It provides, as it is intended to provide, a fresh start for people whose investments do not turn out as planned. As well, it provides creditors with payment of a portion of the indebtedness of the bankrupt when there are realizable assets available after payment of fees.
Bankruptcy also provides creditors with an incentive to provide loans only to those who are considered good business risks. There is always the risk that the debtor of a loan or other kind of obligation will go into bankruptcy. In many ways, borrowing money to finance post-secondary education is like borrowing money to invest in a business.
The changes made to the Bankruptcy and Insolvency Act in the late 1990s changed the distribution of risk between students and government. The changes essentially forced students to assume the lion's share of the risk, such as illness, disability or change in the job market, for a long time when they ``invest'' in post-secondary education. The shifting of that risk to the recent graduate precludes them, under the present legislation, from having a fresh start at a very key point in their lives and results in a disincentive to pursue post-secondary education. That remark is supported by research to which I will refer later.
The recent reduction of the prohibition period from ten years to seven years, and possibly to five years through Bill C-47, is a welcome step in the right direction, but I suggest that it is not enough and I will tell you why. The cost of post-secondary education has risen dramatically since the late 1980s. The average undergraduate pays about $4,000 per year in tuition fees. Let us look at the tuition fees and the cost of those dollars for a moment.
Average tuition costs have more than doubled during that period of time, and other costs, such as living away, transportation, clothing, et cetera, have also risen significantly. This puts pressure on students to borrow larger and larger amounts of money to finance their education. Towards the end of the last century, costs started to increase more significantly and there was a general increase in the cost of education in Canada without, to all practical purposes, corresponding help for students. Therefore, they are obliged to borrow more than one would expect and more than is probably healthy. Government support for post-secondary students takes a variety of forms, but, proportionately, government loans today make up the second largest source of funding at 19 per cent. Of the total cost of an education, 19 per cent on average is financed by student loans.
It is also true that governments actively contribute to post-secondary education. For example, there are grants of $1.2 million per year through various levels of government either in direct payments to students or in debt forgiveness. There are also tax credits amounting to $1.6 billion per year. I should say that tax credits really benefit high-income families the most because they are the ones who have the most income to offset. Low-income families and many recent graduates see little benefit from tax credits because they have much less income to offset or no taxable income at all. Since these are not refundable tax credits, if you do not pay tax you do not get the benefit. These tax credits are benefiting the children and the parents of the more affluent families in Canada.
Let us talk about student loans specifically. Most students do not have the credit history required for banks to want to lend to them. From 1964 to 1995, the federal government guaranteed 100 per cent of the risk for loans to students from commercial banks. Banks were perfectly happy then to make the loans because they did not have to worry about credit risk. Essentially, their debtor was the Government of Canada or the Government of Quebec or the Government of Nunavut or the Northwest Territories.
In 1995, the system changed and banks and the federal government moved to the risk-shared system, whereby the government and the banks assume the burden of a loss jointly. Since 2000, the federal government has operated directly the Canada Student Loans Program, which exists in all parts of the country except Quebec, Nunavut and the Northwest Territories, which have their own programs. To give you an idea of its magnitude, in 2005-06 the program loaned $1.9 billion to 350,000 students. It is an integral part of our economy and the post-secondary education system. According to our last figures, which are about a year old, the Canada Student Loans Program portfolio totals $8.2 billion owed by 990,000 students. It is a significant program and is fundamental to the availability of post-secondary education for our students.
The most recent budget contains aid for students. A new Canada student grant program will replace the Canada Millennium Scholarship Foundation and, I hope, will provide a similar level of grant funding.
Grant criteria under the new program will be based on income instead of purely need. The number of students covered will hopefully increase, but it would appear that the individual award amount will decrease. The government has allocated $123 million over four years at the rate of $30.8 million per year for the Canada Student Loans Program to improve service, to reduce expected spousal contributions and to make the program ``more responsive to the economic circumstances of borrowers.''
Although I am not accustomed to praising this government, this is a salutary position on its part. It is not clear how the Canada Student Loans Program will be made more responsive to borrowers, but the intention on the part of the government is there. We will wait to see what the government has planned. We should know within the next three or four weeks. It should be noted, however, that $30 million per year is not a terribly large investment, considering that the Canada Student Loans Program portfolio totals $8.2 billion. That is not to criticize the program that the government is suggesting, which I think is a good program, but is to indicate to you that much more help is needed. This is not a partisan or political issue. This is a Canadian issue that we will have to deal with in one way or another because the availability of post-secondary education to Canadian young people is fundamental to our welfare. Provincially and federally, independent of whatever colour of government you may be talking about at the moment, we are not doing what we ought to be doing by way of post-secondary education, and we have to look at that.
Despite pressure from many stakeholders, no changes have been made to the student loan interest rates. I will talk about that important point in a few minutes.
In addition, there was no move to create a Canada Student Loans Program ombudsman, which was another priority sought by stakeholders. This means that students who encounter problems with the system have little recourse beyond the system if they feel they are being treated unfairly. That is not covered by my bill but we ought to consider it and try to find solutions.
Let us talk about funding sources for post-secondary students. Proportionately, as I said earlier, government student loans are the second-largest source of funding for post-secondary students, at 19 per cent. It is hard to see the pie chart, although you have it in the deck, for those of you who are looking at the deck.
Senator Tkachuk: Is there a deck? I do not have one. I do not think any of us do.
Senator Goldstein: It is better to look here, actually, because it is in colour and is easier to see. Can you see the individual items and how much comes from employment?
Senator Tkachuk: Barely.
Senator Massicotte: These old guys over here cannot.
Senator Goldstein: I will just tell you quickly, and you can get into details if you choose to do so later.
The proportion of loans to the total proportion of cost is 19 per cent, which is very significant. There is some help. Students help themselves from their employment. Many students make loans on a private basis. Many of them benefit from grants. Many of them are helped by their parents. A variety of sources is available to the students.
The Chair: Senator Goldstein, do you have a problem with us having a copy of the deck?
Senator Goldstein: No.
The Chair: It is available.
Senator Goldstein: I am sorry that it was not distributed. I am happy to have it distributed. We can do that as we go along. It is there, and copies were made.
There has been a significant growth in debt. Rising costs have led to rising levels of debt among more and more post-secondary students, and it is also true that certain groups of students are more affected by rising debt levels than others. Let us talk first about the undergraduates.
In the 15 years or 16 years from 1990 to 2006, the proportion of undergraduates graduating with debt rose from 45 per cent to 59 per cent. During the same time period, the average amount of their debt more than doubled. It rose from $11,600, on average, to $24,000 per student.
Senator Tkachuk: Is that in adjusted dollars?
Senator Goldstein: That is in adjusted dollars. The next graph will show that it is in adjusted dollars.
There are regional variations. For instance, debt levels are highest in Atlantic Canada, where 66 per cent of undergraduates finish with an average of $29,700 in debt. Senator Moore addressed that issue locally some months back, and I saw the press on it.
Nationally, one in five undergraduates has over $30,000 worth of debt at graduation. That is a meaningful amount of indebtedness with which to start one's earning life.
The Chair: Is Quebec the lowest because of the cap on fees and so on?
Senator Goldstein: Yes. Quebec does well because of the cap. However, there is a cost to that. Quebec universities are starving. As you know, one of them is on the verge of bankruptcy. Like everything else in life, there are balances and equilibriums.
The Chair: I refer you to the speech given on Monday of this week by Heather Munroe-Blum of McGill University. She addressed this subject.
Senator Goldstein: I have not had a chance to see that text. She is an absolutely outstanding educator and administrator, as you know.
Let us talk about the rising level of debt. The current slide shows the level of debt from 1990 to 2006. You can see that when the debt is measured, either by way of current year dollars or in 2006 dollars, to answer your earlier question, Senator Tkachuk, in cost in dollars, adjusted, the level of debt is rising very significantly. It is rising more quickly than the pace of inflation.
The debt distribution is also radically different. Debt levels are rising faster among college students than amongst university students, and the proportion graduating with debt there is now at 55 per cent.
Women are disproportionately affected. They are more likely to use student loans, particularly if they are part-time students, and they are more likely to use interest relief for loan repayment.
Middle-class families are the largest users of student loans. Students from households earning less than $50,000 per year are twice as likely to use loans as those from families with incomes between $50,000 and $75,000. The table on the screen reflects the use of government loans by income brackets and the usage of different loan types amongst post- secondary students by family income. It shows, in a nutshell, that middle-income families use government loans the most. The burden of the loans, by and large, is shouldered in a very disproportionate way by students who come from middle-class families.
Let us talk for a moment about loan repayments. The current program reflects that no interest accrues while the borrower is in school, but it does start immediately upon graduation, although for the first six months after the student has finished school no repayments are required. However, interest starts accruing, and at rates that I think you will find startling.
Let me move backwards. The student is allowed to choose — and it is a one-shot choice — between a variable rate and a fixed rate. If they choose the variable rate, it is prime plus 2.5 per cent. If they choose the fixed rate, it is current prime plus 5 per cent. In either event, that translates to 7.75 per cent and 10.5 per cent respectively.
The Chair: Senator Goldstein, I would like a clarification on this program, although I know it is second nature to you. We understand it used to be that the student loans were made by banks, guaranteed by the government. Would I be correct in understanding that the banks are no longer involved?
Senator Goldstein: With some exceptions, because it took 10 years to phase them out, but effectively, they are no longer involved. It is de facto the Canadian taxpayer that is making the loan.
The Chair: Directly. Is it sometimes federal and sometimes provincial?
Senator Goldstein: It is federal everywhere except for Quebec, Nunavut and the Northwest Territories.
The Chair: It is federal everywhere except for those three?
Senator Goldstein: Yes.
A student with a loan of $25,000, for instance, would be paying, if he or she opts for the variable rate, $10,400 of interest over the standard term of the loan, or $14,200 of interest if he opts for the fixed rate of interest. Our student loan interest rates are the highest in the developed world.
The next slide shows the rates for student loans. Canada's fixed rate and Canada's floating rate are the highest. The U.S. is next at a significantly lower rate. The U.K., again, is at a significantly lower rate, with Sweden and then the Netherlands lower still. Some countries have no interest at all.
Every program is different, but in the United Kingdom, the student loan repayments are determined as a function of the income of the student. They do not bear interest, or not significantly. They are widely variable, but they are geared to the ability of the student to repay the loan. With respect, that is a very healthy system that Canada might want to consider at some point. However, I am not here for that reason today.
Interest rates have dropped recently in Canada, so interest rates on student loans have dropped as well. The previous slide reflects rates from 2007, but it provides a useful illustration as to where our student loan interest rates stand relative to other developed countries. As you can see, a very large gap remains.
Let us talk about student loan problems. Seventy-five per cent of defaults occur within the first three years of graduation. The Canada Student Loans Program considers a borrower to be in default if he or she is in arrears for more than nine months on their monthly payments. Different types of students who attended different types of institutions have very different default rates. I think it is important for us to understand that.
We do not differentiate in our student loan program between students who are attending university, students who are attending college and students who are attending private institutions, provided that they are all pursuing post- secondary education. By and large, those who attend private institutions are less trained for the job market than those who attend college. Those who attend college are, in turn, less trained for the job market and less able to get jobs than university students. The result is that for private institutions, almost half of the loans, 45 per cent, are in default. For college students, 26 per cent, one quarter, are in default; and for universities, there is an 18 per cent default risk.
Frequently, students are trained by different institutions to do different things. I will use a silly example to make the point, but the point has to be made nonetheless. Some students are being trained to be beauticians, and they are post- secondary students; but the training as a beautician will not necessarily permit the student in the private institution that trains beauticians to be able to get a job as one. Therefore, the default rates are very high.
In another time and place, we might want to consider the extent to which the Canada Student Loans Program should be geared to have different kinds of loans for different kinds of post-secondary education. That is a very difficult thing to do because it requires some value judgments to be made, and it is not easy to make those kinds of judgments in our open society. We should be grateful for that. Nevertheless, I think we have to take a look at that at some future time.
The greatest single predictor of default is the level of salary after graduation. Professor Schwartz, who will be one of the witnesses on this bill, has done a significant study on this issue. That study may well lead to a consideration on your part, or on the part of some other body in the Senate, as to whether we should be looking more toward the English system of gearing reimbursement rates to the salary levels of the students who did the borrowing.
The recent declines in default probably reflect the improving job market more than improvements with the program. Before I go much further, let me say that I am not here to criticize the program, nor the people who run it. They run it on the basis of a statute that enables them to do so. They follow the terms of the statute. They are competent, skilled and sincere people; they work well and efficiently, and they do what the statute requires them to do.
The issue is not with the people who run the program. The issue is with the statute that enables them to do what they are supposed to be doing. If we want to fix the problems that have been created, we have to fix the statute, not the people.
The statute provides, and the program administers, a variety of debt relief programs. Debt relief programs were created to help students manage their debt when the ten-year prohibition on bankruptcy was introduced in the late 1990s. There are now four different kinds of debt relief programs: interest relief; debt reduction during repayment; renegotiation of terms; and permanent disability benefit, when an unfortunate student becomes permanently disabled.
The main flaw in all four programs, according to student organizations from whom you will hear, is that the programs require students to apply for this relief before the students are in default. That means that many of those who are most in need of assistance, borrowers who are in arrears, are not able to access any of these debt relief programs. The door is shut for people who are in arrears and not able to get back on track with their payments on their own.
There are other problems with the debt relief programs. Again, I am not faulting the people who administer the debt relief programs or the loan program, because they are doing an excellent job with the tools and the legislation they have.
The Auditor General has found that many borrowers lack awareness of the debt management program. Between 40 per cent and 50 per cent of those trying to use the programs report difficulty proving that they are eligible. Of those who applied for the permanent disability benefit between January 2005 and May 2007, 66 per cent were rejected.
An EKOS study of the CanLearn.ca website found that it is very difficult to navigate. I can make that study available to you.
There are problems with the debt relief aspect of this program.
The Chair: Senator Goldstein, what year was the Auditor General's report that you referred to?
Senator Goldstein: Last year, 2007.
The Chair: The Auditor General's 2007 report would refer to the previous year.
Senator Goldstein: Yes.
There are a variety of reasons why the Bankruptcy and Insolvency Act provisions must change. First, faulty assumptions underlie the longer prohibition. The studies reveal that, with rare exceptions, students do not go bankrupt to avoid repayment. By and large, students want to repay, and they are not cavalier about their obligations. Of course, there are exceptions as in any situation.
Professor Saul Schwartz, of Carleton University, conducted research in this area and found that defaults are virtually exclusively salary-related. For every 1 per cent drop in post-graduation income, there is a 0.8 per cent rise in the default rate. That suggests a strong link between the earnings of former students and their ability to repay the money they borrowed to finance their education.
According to the statistics, people with student loans who declare bankruptcy are worse off than the general population of bankrupts. On average, 61.7 per cent of students who declare bankruptcy have accessed welfare or Employment Insurance in the previous six months before their bankruptcy, compared with 47.6 per cent of all bankrupts. Therefore, more than 50 per cent more students find themselves on the dole and unable to pay than do ordinary people in bankruptcy.
Of great importance from a public policy perspective, a repeat survey of high school graduates in Alberta, Manitoba, New Brunswick and Saskatchewan found that debt aversion is the single largest financial reason why high school students did not continue and why those in university dropped out. I suggest that we should avoid legislation that creates a disincentive for students to commence or to continue their post-secondary education.
Among students receiving loans in British Columbia, Ontario and Quebec, degrees were finished by only 8 per cent of those who were more than $10,000 in debt, compared with almost 60 per cent of those with debt of just $1,000. The level of indebtedness is a direct and immediate disincentive to completion of post-secondary education. Those borrowing less than $1,000 per year were twice as likely to finish their degree as those borrowing more than $3,000 per year. There is an immediate and direct correlation.
I have a graph of the probability of degree completion to money borrowed wherein we see an immediate and direct correlation between the amount of money borrowed and the inability or lack of desire either to commence the education or to finish the education.
On the matter of student loans versus business loans, we have been operating under the assumption that student loans are generically different than business loans. I would suggest that we rethink that model. Student loans are like business loans in many ways. Borrowing to attend post-secondary education can be seen as an investment that pays dividends in the form of higher earnings for the student and higher productivity for the country.
Like business loans, student loans are subject to risk from external factors, such as the change in the job market with the 2001 crash in the technology sector, which resulted in significant increases in default. Hardship, including illness, disability and family emergency are obvious causes of default. The debts of entrepreneurs who start an unsuccessful business are discharged, with rare exceptions, at the end of the bankruptcy process. Students who start an unsuccessful education, having borrowed just as businesses borrow, currently have to wait seven years or five years in the case of hardship before their debts are discharged. There is a disconnect with such a devaluing of the perception of education as an investment.
I would suggest that the current system is discriminatory. Forcing former students to use poorly functioning interest relief programs instead of giving them access to the bankruptcy system has caused significant hardship. The Ontario Supreme Court ruled that the provisions of the Bankruptcy and Insolvency Act governing student loans discriminate against those pursuing post-secondary education. The provisions also discriminate against other creditors whose debts may be discharged. For example, if a student owes $5,000 in car repayments, $10,000 in credit card debt and $10,000 in student loan debt, there is no philosophical or policy reason to discharge the credit card or car loan indebtedness on bankruptcy and not the student loan indebtedness on bankruptcy. Allowing former students to deal with all of their debts through the bankruptcy system will ensure equal treatment for all Canadians.
Our system shows a lack of compassion. There will always be former students unable to pay their debts due to some unexpected accident, illness or disability and, while there is a disability benefit program, it is difficult to access and applies only to those who suffer permanent disability. Some diseases might cause serious impairment for several years without being permanent and therefore not qualify for the disability relief.
I am sure colleagues have observations and questions that I will try to answer in a moment.
Bill S-205 will restore the balance and the redistribution of risk between student loan users and governments. It will ensure relief for those experiencing hardship. It will reduce the fear of debt among prospective students and, therefore, increase the incentive to commence or complete post-secondary education, whereas the present system operates as a disincentive. It will provide the government with an incentive to improve and raise awareness of interest-relief and other debt-management programs. It will put student loan users on a more level playing field with other borrowers. It will end special treatment for government loans, which is salutary.
Honourable senators, I listened carefully to Senator Tkachuk because he always has a great deal to add in terms of observations in respect of legislation. I listened carefully to him when he spoke as the government critic of this bill. One legitimate concern he raised was a certain reality: where Canadian taxpayers provide their children with the opportunity to continue their post-secondary education and graduate with the ability to make a better living and earn more money, some portion of that must be ascribed to repayment of loans made to them by society. That is a legitimate concern and a correct observation philosophically and from a policy perspective. It is also true that some students simply cannot do it. If, like the U.K., we had a program of reimbursement that geared the rhythm of reimbursement to salary earned, it would be much easier to say that the bankruptcy process to rid themselves of loans they find impossible to pay would be unnecessary, because former students would not be paying until they were earning a living.
Given the nature of the program at the moment, it is inhuman in many cases to force these students to remain in a position where they cannot raise a family, cannot get married, cannot buy cars or cannot get a mortgage because they are in default. They cannot buy a home and they cannot live as Canadian citizens ought to be able to live because of the burden of their debt. I urge you to give consideration to this.
In the course of informal discussion with the representatives of the minister who is involved in this, I suggested that, in order to give the government and other critics some comfort about ensuring that there was no rush on obtaining bankruptcy relief by students and that the relief would be used only when it is really necessary, when we submit to the court the problem of a student who cannot repay his or her loan, we should not rely solely on the discretion of the judge. With a view to making the position of judges uniform across Canada, we should provide certain criteria or guidelines for judges to apply when they are considering whether to grant relief in whole or in part from a loan. One of those guidelines could and perhaps should be the extent to which the borrower has availed himself or herself of existing debt relief programs and has exhausted them. Another criterion could be the borrower's prospects for future employment and their future earning potential. Another criterion would be family, including whether the borrower has any dependents. I am trying to find a way to grant relief to people who need it and deserve it, on the one hand, and on the other to not encourage those who do not need the relief to take advantage of it to the detriment of Canadian taxpayers.
The Chair: Thank you, Senator Goldstein. You have done a lot of work on this. You made a clear presentation, and you deserve to be congratulated.
You have used the full hour that we had allocated for your presentation, which raises an issue because I know colleagues on this committee would like to question you. I have a substantial list here. I say this so that the next witnesses will hear. We are watching the clock, and it may well be that we will have to shorten or postpone some of the other evidence. Given the thoroughness of your presentation, I would like our colleagues to have full questioning. I think you understand what I am saying, Senator Goldstein.
I have two points of clarification. First, is it fair for us to assume that you have checked with the officials in the concerned departments in the hope that they would bring in the changes you have argued for without your having to go to a private member's bill?
Senator Goldstein: That would not be a fair assumption. I had communicated in a very informal fashion with relevant departments before the bill came in. It was clear to me when I was communicating with them that with all the good faith they have, and they do, unless there was some incentive for them to be responsive, we would not make any progress. I assumed that the only way to create that incentive was this way, and I succeeded.
The Chair: Second, in your first slide about the two years, is that number negotiable? Could you achieve the same end with perhaps five years?
Senator Goldstein: Your legal training is showing, Mr. Chair. I am not fussy about the two years or five years so long as the discretion of the judge and the ability of the judge to relieve suffering remains intact at any point in time.
Senator Tkachuk: Thank you very much for that thorough presentation, Senator Goldstein. I have a few questions.
I am trying to focus on the five years and the two years rather than on all of those other things that have to do with different programs. Will that cause a spike in the amount of liability that will be left being paid for by the government rather than the students?
Senator Goldstein: That is an important question, senator. I think it will cause a spike, but it will be a brief spike. It will be exactly that — a spike. Many people are subject to the ten-year rule. If this were to be amended, they would suddenly be subjected to a two-year rule or a no-year rule under some circumstances and would therefore seek relief and presumably obtain it if they are qualified for it.
However, it is also true that once that spike is terminated, on the basis of the research that has been done, properly administered, five years or two years or seven years or ten years will make no difference. If it is reduced to two years, aside from the initial spike, there will not be a long-range spike because, by and large, students want to reimburse their loans. However, if it develops that there is a long-term spike, it is very easy to amend this piece. If we go from two years to five years, which was something we threw out in the course of our conversation, I do not think that part is as relevant as allowing a judge to give relief to young people who need it, whether it is one, two or five years.
Senator Eyton: To follow up that, we are now talking prospectively ten or seven years down to two years. What was the effect of going from two years to ten years in the first place?
Senator Goldstein: It had a chilling effect.
Senator Eyton: I am talking about cost and incidents.
Senator Goldstein: The program people can tell you that, but they obviously collected more money. How much more, I do not know. I do not know that the increase to ten years really did a great deal, because we are in a ten-year system at the moment. As we speak, we have default rates ranging from 45 per cent, at worst, to 18 per cent, at best.
Senator Eyton: You were suggesting that we go from ten years to two or from seven years to two, and it seems to me relevant to know what happened when we went from two years to ten years.
Senator Goldstein: I am looking up behind me, and I am told that my staff have those statistics and can give them to you. My suspicion would be obviously that bankruptcies went down considerably. I am not sure losses went down considerably.
Senator Tkachuk: The government went to the ten-year period because of a massive number of bankruptcies from 1990 to 1997. That caused a problem because there was a tremendous cost to the government.
Senator Goldstein: That is the position that the student loans people have taken. That is not the position that is reflected by the empirical research, which shows that the spike at that time resulted from the confluence of two factors. The first was a significant downturn in the economy and, relatively speaking, a massive amount of unemployment, which affected young employees more than senior employees. The second was the level of indebtedness of these students because the cost of post-secondary education by then had doubled from the previous decade.
Senator Tkachuk: What was the average debt of a student bankruptcy?
Senator Goldstein: I do not know. You are not talking about the loan debt; you are talking about total debt.
Senator Tkachuk: It seems the average debt of the student was $24,000 for a student loan; that is the price of a Camry or an Impala. To me, it is not exactly high, considering the kind of salaries that university students and college students will receive and the benefits they get from society — 80 per cent of the cost of their education is already paid for by taxpayers. All they are expected to pay is 20 per cent of the cost of their education.
They are receiving a fairly good income and they have an average debt of $24,000. That does not seem to be a great burden. Certainly, it does not seem to be an obligation that students should not be able to handle.
Senator Goldstein: We are ad idem on that. I am not suggesting that a $24,000 indebtedness in exchange for a useful diploma is a meaningful amount of money. It is meaningful to them, as they see it at that point; but in the larger scheme of things and from a policy perspective, it is not a huge amount of money. You are correct that on top of the $24,000, another $80,000 has been paid indirectly by society to finance that education. I agree with you.
The issue is not for those who are also able to buy a Camry. The issue is for those who cannot get work and do not have the money to pay back the loan. They do not have a loan averaging availability, as exists in the U.K., where if former students are not earning anything for the first two years, they do not pay anything for those years. If they are not earning anything appreciable for five years, they do not pay for the five years. If they start earning a great deal of money in year six, seven, eight, nine or ten, they pay. That is the point.
We do not have that. We say you must pay. It is a policy option. I am suggesting it may not be a good option, but that is for another day. I am trying to say that for those who are really in need and cannot pay, let us cut them loose and give them a chance to become useful citizens.
Senator Tkachuk: How many of them are there?
Senator Goldstein: Many of them.
Senator Tkachuk: Are there 500?
Senator Goldstein: There are thousands out there. I do not know the latest figures, but surveys have been done of students who cannot afford to make the payments. They consider that they are being harassed by commercial collection agencies, because the government farms out the collections to commercial collections agencies when a student has gone into default.
I am not blaming the government for doing that. They have to get somebody to do it, but a commercial agency is not a daddy or a mommy.
Senator Tkachuk: In your presentation, you talked about former students not being able to pay their loans because they were not able to find work in their own field of endeavour. Is that necessary? Finding work is important, but not necessarily finding work in your own field. That person still has an obligation to find a job to pay the debt, because other taxpayers and other moms and dads, who have children of their own that they are saving money for, are making that loan possible for that student.
Senator Goldstein: I do not disagree with you on that. If they are earning money, they should pay. The problem is where they are not earning money or not earning sufficient money.
Senator Tkachuk: The comparison to a business is difficult, because it is rare that a person starting out would be able to get a loan just on the basis of a signature. There would have to be some assets given up, whether parents signing for them, a piece of property, or machinery and equipment. Yet students are able basically on their own signature to obtain cash to pay debt.
In other words, if we make it too easy not to pay debt, then maybe parents should sign their assets to back that student up. Perhaps requirements like that might be necessary, since that is what many people do. They save money to ensure that their kid has enough money to go to university or college.
The Chair: They even contribute to an RESP.
Senator Goldstein: Maybe with tax-deductible contributions.
The Chair: You never know.
Senator Tkachuk: I do not think that is a fair comparison. A young person who goes into business is not getting cash at the bank on his own signature, at least not in that amount.
Senator Goldstein: That is a valid point. Let me try to make a different point. The young person starting out in business, and hiring two or three employees for the little commercial shop he or she is running, incurs liability for deductions at source to the same government that administers Canadian student loans. When that businessman goes bankrupt, the money that he or she owes to the government for deductions at source unremitted, or Employment Insurance premiums unremitted, gets discharged on bankruptcy; so why is that different from student loans?
In both cases, the government is de facto supporting the Canadian citizen — one who is doing business and one who is studying. In one case, the loan gets discharged freely; in the other case, the loan does not get discharged at all.
Senator Tkachuk: Are you advocating no time at all?
Senator Goldstein: I am not advocating that. It is important that students understand that society has standards that they are expected to meet. It is urgent that students have standards imposed by society for reimbursement of their loans. I am not arguing that; I think they have to pay back. I borrowed money to go to school. I paid it back. I think all of us did. That is the way it works.
One part of the system we will have to deal with sooner or later though is that I got a masters and a doctorate in France almost 50 years ago. I went to school for three years and I paid an aggregate of $11 for it. France has free education and a lot of other places have free education. This student loans situation would not arise if our education system were different. That is for another day.
I do not have any great sympathy for people who do not want to pay back their loans. I think they should. I have a great deal of sympathy for young people who cannot.
[Translation]
Senator Biron: Would you agree that, when banks approve loans, the debtor's ability to repay the loan is more important than any assets he or she has as a guarantee? After all, banks and other lending institutions are not asset brokers; they make their profits from interest payments.
Would you not agree that a student's ability to reimburse the loan — an ability which will increase as a result of his studies — is more important than the assets he has to guarantee the loan?
Senator Goldstein: I would imagine so. I take it as a given that lending institutions and banks will first evaluate the debtor's ability to repay the loan. That is a standard criterion.
They are more interested in the debtor's ability to repay the loan than they are in any assets, which essentially constitute a fall-back option for debt recovery. Their primary interest is in recovering their money and they request guarantees simply as a means of ensuring or encouraging repayment.
There is, however, a presumption that students will be better able to repay their loans thanks to the studies that they undertake.
[English]
Senator Massicotte: For clarification, are you saying that the argument of financial hardship should apply at any time, not only after five years compared to the proposed bill, and that they should have the right to declare bankruptcy after two years as opposed to the seven years being proposed?
I note, after reading the material and hearing your presentation, that you have two principle motivations in your objectives. One is the argument of a fresh start, and the other is fairness among citizens of our country to give people a chance to start over again, as the Bankruptcy and Insolvency Act motivates.
You also mentioned public policy. Inherent in your arguments, you think that the government should be more generous to provide incentive to start or continue higher education. On that last note, I have a bit more difficulty. I am not saying we should not provide an incentive, but it would deserve a much greater study. We have all kinds of education credits, such as grants and deductibility of tuition fees. You compare our system to that of the European countries, where tuition and schooling are often free. If we are to pursue that angle, I would suggest that we scrap all the programs we have that cost billions of dollars and come back with an entirely new system. However, that would require more study than what we can do in this committee under its current mandate. On that note, I do not disagree with you but I do not have enough information to say that our public policy should be reoriented to assist students more in their education efforts.
Let us deal with the fresh start argument and Senator Tkachuk's question. I would say in response that it is not a typical loan and it is not a business going bankrupt, but it is a social contract between society and the student. Society thinks it is in their interest to incite higher education among the citizens for selfish, national reasons and for individual reasons. I do not think it is a normal contract. They are buying a significant asset: education, greater knowledge, higher learning and the ability to earn higher pay. I do not think it is appropriate to compare it to a business loan contract.
Any borrower and any lender would say that the benefits to this thing are long term — it is not cashable the next month. Therefore, it deserves special rules, which you acknowledged because you are not suggesting zero years but two years. That is how I would answer Senator Tkachuk.
Certainly, I accept that there has to be a fresh start or some equity consideration. I am not the expert, but from the witness testimony that we heard, the existing legislation, as amended, has some coherence. The coherence is that for five years there is a program of delaying payment and being treated fairly until you cannot pay. After five years, if the financial hardship still applies, provisions in the proposed act are such that you can get special treatment and, after seven years, you can declare bankruptcy. Five years — deferral; five years to seven years — hardship argument; and seven years — declare bankruptcy. It seems to fit. While this is supposed to work in theory, you are saying that in practice it does not work well.
Senator Goldstein: That is exactly right.
Senator Massicotte: We heard some testimony to that effect and we heard some contradictory testimony. Some said it is not working and is not clear. Some said that if you default, there are many quirks in the system to be dealt with.
Would it not be a better expenditure of our efforts to make it right as opposed to changing the policy and changing the Bankruptcy and Insolvency Act? You are saying that the bureaucracy does not work so we should change the act because it is such an urgent issue, that we have to create fairness for the students, and that the change should be from five years to two years. Could you respond to that?
Senator Goldstein: Yes, senator, thank you for the fair question. The Canada Student Loans Program has been in the process of bettering itself for as long as it has been in existence. For whatever reason, it has not responded to the fundamental needs of some students. Unless and until it does so, we have to find a way to relieve students who cannot otherwise get relief. If the Canada Student Loans Program were functioning ideally, then perhaps some of these proposals would not be necessary, because students who truly cannot afford to repay their loans would not be required to repay. However, that is not the reality. We can wish as much as we want to wish that the Canada Student Loans Program would be perfect, but it is not perfect and it will not become perfect.
Incidentally, this suggested amendment will help to make the program more perfect because it will create an incentive for real change. We have surveys done by third parties that say that the programs are not as accessible as they should be. We have surveys by objective third parties that say that most applicants for the permanent disability provision are refused. The criteria for disability mean you have to be dead but still walking in order to qualify; and we will hear about that from others. The programs are not perfect, and until they are perfect, we need something else to help these young people.
Senator Massicotte: If they were perfect and if we had testimony from people who said they are not perfect but they are working on it, would you withdraw your bill?
Senator Goldstein: No, I would not, because there are always situations where people fall between the cracks in their inability to repay or to start repaying and then lose their jobs. What do you do with them?
Senator Massicotte: I do not know enough about it, but the proposed plan as it exists today is for five years. If it were working well, it would be fair consideration to exceptions. After five to seven years, students would have the hardship provision and then after seven years would have bankruptcy. Your principal argument is that it does not work.
Senator Goldstein: That is not true. We have been waiting for 15 years for it to work. We have acknowledged that in many cases it does not work because we have permitted students to get discharges after seven years. That tells us that in some instances it does not work. As a public policy decision, we have made the decision by the passage of Bill C-12 that some of it does not work and will not work because it is not perfect.
Senator Massicotte: Nothing is perfect, obviously.
I would move on to the public policy side but it is too heavy and we do not have enough information on it. However, it was odd to note that the default rate for college students is somewhat higher than it is for university students.
Senator Goldstein: Yes.
Senator Massicotte: It is unusual, because college is usually a shorter term and, therefore, repayment can begin sooner. You talked about default rates as they relate to income level. I would like to know the income levels of students admitted to universities and to colleges.
From what we heard two or three years ago in this committee, income is not the principal determinant in attending university. That determinant is tied more to sociological factors, family history and culture. If that is the case, I would be most interested to see that information.
Senator Goldstein: I believe that Professor Schwartz can generate the data. I do not have it.
Senator Massicotte: What is the amortization period on repayment of student loans?
Senator Goldstein: I believe it is still 10 years.
The Chair: Senator Tkachuk, do you have a question?
Senator Tkachuk: I am finished, thank you.
Senator Ringuette: As I listened to your excellent presentation and the comments from my colleagues, I could not help but think, boy, no wonder we seem to be going around in circles. We seem not to be able to think outside of the box and look at the premises we are dealing with.
When we look at the statistics of the countries that are most productive, we see that these countries have free post- secondary education. The future of our economy is knowledge-based. We want to increase our productivity, but we seem to be putting all the stress and strain onto our young people. I will give you an example.
For the last five years, we have heard the business community and government saying that we need more tradespeople. The highest rate of default, according to your presentation, is from colleges and private institutions. For a person coming out of a trade school, in the first and second years of apprenticeship, the industry pays only 50 per cent of the average income for a trade; in years three and four, 60 per cent of the income; in year five and six, 80 per cent; and then it goes to 100 per cent. It takes a tradesperson seven years to get to 100 per cent of the average income in that trade.
The statistics that you have brought to us are extremely valuable. We have to look into this and stop the short-term perspective we seem to be taking. Instead, we must look at where we want to go in the next 10, 20 and 30 years in regards to the future of Canada and our children.
You mentioned interest rates. In information we received from Canada Revenue Agency, the industry tax to be repaid to CRA was at only prime, and yet for students we are charging prime plus. As you say, there is a major unfairness in how we deal with student loans and industry loans that have to be repaid to the Government of Canada.
Mr. Chair and colleagues, Canadians are listening to what we are doing at this committee. I received a document from a student who listened to our committee through CPAC. I will not give the name, but the story and the information that he has provided to me is exactly the situation that has been described: harassment from the private collection agency, the lack of information. This person with a post-secondary education is probably an example of what we are dealing with here and what should be done.
Senator, I congratulate you, and I will support you on this bill.
The Chair: I wanted Senator Ringuette to be able to give her testimony, and she has done so.
Senator Massicotte: I have a supplementary question. She made an observation.
This week we all received Statistics Canada's latest report about the labour force from 2001 to 2006. In that, we can note that Canada has the highest level of college and university graduates of all the countries in the Organisation for Economic Co-operation and Development. Does that not suggest that something is going right in our country?
Senator Goldstein: I am certainly not suggesting that everything is going wrong in our country. It is true that the country is going right, if you understand what I am saying.
The Chair: We understand.
Senator Goldstein: Seriously, Senator Massicotte, the student loan program is a pretty good program. I just want to make it the best it could be. Our education system is a pretty good system. Canada is not only graduating the highest quantity, proportionately speaking, of students of all the OECD countries, but from what educators tell me, and I have no expertise in this, we are graduating them with a better education than most of the OECD countries. I saw figures as recently as last week or two weeks ago comparing Canadian university graduates with American university graduates in mathematics proficiency, and it made me very proud to be Canadian. There is no question that we are graduating tremendously well-equipped students at an excellent rate. I would like more, but it is a very good rate.
[Translation]
Senator Biron: During the course of our study of Bill C-12, a number of witnesses have expressed their concern about the high level of interest charged on student loans. Indeed, in your presentation, you mentioned that students currently pay either 7.25 or 10.25 per cent. You also said that students who borrow less than $1,000 per year are twice as likely to finish their studies as those who borrow more than $3,000 per year, pointing out that interest rates contribute to the total amount of a student's overall debt. In your opinion, what should be done to counter the negative effects of the high interest charged on student loans, while recognizing that we want to use student loans to promote education, thus ensuring the future well-being of the country?
Senator Goldstein: That is an excellent question, senator. The fundamental principle of the program, as it stands at the moment, is that it has to be cost-neutral; in other words, the revenue generated by interest payments has to be enough to cover the costs of the program and allow for it to continue. I have had the opportunity to examine the statistics. If we want the program to be cost neutral, our only option is to fix the interest rates above the cost of money. It boils down to political philosophy and, while I do not wish to enter such a debate at this time, we must nonetheless ask whether the government should insist upon a cost-neutral program or whether, for reasons of principle, it should accept that «losses» will have to be incurred in administrating the program to allow students to pay lower rates. I should point out that Canadian students pay higher interest rates than do students in other countries.
Senator Biron: I have another question. Under the current legislative framework, what options are open to a graduate who is unable to repay his loan and is already defaulting on his repayments?
What assistance does your bill offer a graduate in this situation?
Senator Goldstein: Where it is manifestly obvious that the graduate will never be able to repay his or her loan, there is no point in burying our heads in the sand — we have to discharge the debt and free the graduate from this burden. I am not purporting that this be a regular occurrence. Those who can pay must pay. Those who cannot pay, however, should not be harangued.
[English]
Senator Eyton: This is more a comment or an observation, thinking back to my own experience coming out of high school and going into university. There is some reference here to surveys that have measured the aversion of students who avoid a higher education because of the fear of debt. I do not know whether it was just my buddies and I, but that never crossed our minds. I never once heard it discussed.
You are young, you are energetic, you are full of fun and frolic and looking forward to learning. I cannot imagine a conversation with two or three 17-year-olds saying, ``We have to worry about the provisions of the bankruptcy act, or we are averse to debt at the rate of $3,000 a year.'' In our day, it was probably $2,000. I cannot even imagine that scenario, so I wonder about the survey and the way it was phrased.
Senator Goldstein: It is counterintuitive, you are right. I too was 17 years old at one time. I borrowed, and it never occurred to me that I should not go to college because I had to borrow.
You are perfectly right in the observation, and the figures I gave you are counterintuitive. Nevertheless, they were done by a very respectable survey house. I will supply them to you and you will come to your own conclusions.
Senator Eyton: I would like to see the questions.
In the same humorous vein, you have a category called ``parent loans.'' My father and mother gave me loans over a number of years. They may have said it was a loan, but they kissed the money goodbye the moment it went from their hands to mine.
Senator Goldstein: My father used to tell me in Yiddish that a father is a banker provided by nature. I suppose there is some truth to that.
Senator Eyton: We had a nice little column, and I thought, gee, there is a lot of outstanding money there which you may never see.
Getting more serious, what you are really talking about is the time in which people can apply; but I take it you are not proposing any change to the considerations that go into granting an application for debt relief.
What percentage of graduates in any year might you expect to apply for relief under the current debt relief programs?
Senator Goldstein: I do not have the answer, but I think that the next witness will have one.
Senator Eyton: What percentage of those applications would be successful?
Senator Goldstein: I do not have specific statistics on what percentage would succeed in getting relief. I am told by the student representatives, who will come with statistics, that it is hard to get debt relief. It is easier to get interest postponement. There are two kinds of debt relief: interest relief, interest postponement.
Senator Eyton: You have listed four: interest relief; debt reduction and repayment; renegotiation of terms, which is a variation of that; and permanent disability. That is the whole ball of wax.
Senator Goldstein: I have heard that the majority of applicants are not succeeding in getting the disability benefits; I gave you the percentage. I do not have statistics for debt relief, but debt relief is harder to obtain than interest postponement.
Senator Eyton: I was looking for the number of successful applications, leaving aside the result of the relief. Overall, though, what is the relief?
Senator Goldstein: I understand the question. Regrettably, I cannot give you the answer because I do not have the statistics.
Senator Eyton: In your materials, you look at the possible grounds for relief. One is the job market. I can see that that is kind of calculable; it is something you can work with. Others include illness, which you can determine fairly readily; disability, which you can measure; and personal crisis, which includes the phrase ``undue hardship.'' That last is very broad — essentially what people want to make of it.
Are you not worried by this soft language, which would allow any arbiter looking at this to come to a conclusion in a random way? Two people might make very different decisions regarding the same set of circumstances.
Senator Goldstein: I was conscious of that legitimate concern when I suggested that we provide criteria for judges to apply so that decisions are not random. That way, criteria will be applied systematically to determine that there is undue hardship.
``Undue hardship'' is not an unknown legal term. You also have a legal background, so you know that ``undue hardship'' is used in a variety of statutes in a variety of ways. There are by now judicial interpretations of the term ``undue hardship.'' Nevertheless, I am suggesting that we should provide criteria so that decisions are not totally discretionary and random, as you put it. I think there has to be some encadrement, as we say in French.
Senator Massicotte: Are regulations involved?
Senator Goldstein: No. If it is your will, I am ready to put it into the proposed statute as an amendment. I do not have a problem with that. Again, I am seeking just to find relief for people who deserve it and need it.
Senator Eyton: Have you an estimate or any measure of the costs that might be involved on a running basis if we go from ten years or seven years down to two years?
Senator Goldstein: No, I cannot give you that.
Senator Eyton: We are talking about a program that is putting out a couple of billion dollars a year to a fairly limited number of students; and we are talking about a program that is now around $8 billion. Therefore, any percentage is significant. Five per cent of $8 billion is still a lot of dough.
Senator Goldstein: It is indeed.
Senator Eyton: You have to worry about that. It seems to me that you should have a pretty good measure of where that will take you. Some estimate of that is important. It is hard to deal with the bill until there is a fix on how it will impact the treasury.
The student loan, by its terms, is a pretty good deal — particularly, as Senator Tkachuk pointed out, because it relates only to the small part of the education costs that are borne by the beneficiary, the guy getting the education.
Senator Goldstein: I have mentioned the research done by Professor Schwartz at Carleton University, who will be here to testify. I respect his position. He has concluded that aside from an initial spike because of people who have been waiting and who have been unsuccessful in obtaining relief, this change will not have a long-term effect. He has done economic modeling to establish that.
On one extreme, there is authority for the proposition that it really does not have any meaningful cost. On the other extreme, one is necessarily concerned — as am I, as much as you and Senator Tkachuk — that there may develop a tendency among students to consider this an appropriate termination of the college sports program and use getting rid of student loans as a final sporting event.
I do not think that that will happen. I have tried to construct the bill in such a way as to make sure it does not happen. Students cannot just get rid of their student loans. There has to be a reason to get rid of them and there has to be a judge to say that the reason is valid. I am building in some mechanisms to ensure that it does not become a college sport.
Senator Eyton: As an observation, the student loan is an attractive opportunity. We provide student loans because, first, they are needed to fund education, from which we all benefit, and second, because it is a pretty attractive financial package. Unlike small business loans or any other kind of loan, there is no interest paid while the student status continues and for a grace period after graduation. If a student can get money with no costs attached, it is an attractive deal. That is the incentive to borrow, and I am trying to measure that against the need to borrow. I am not sure how you distinguish that and whether the measuring process we have in place could identify that.
Senator Goldstein: From a policy perspective, I am not sure we should do that, because it could establish a kind of means test. Someone would have to establish whether a student needs a loan, and only if a student needs the loan would the student get it. That is a different philosophy from accepting the proposition that it is a proper societal obligation to supply loans to those who wish to get them and, concurrently, that there is an obligation to repay those loans because they got them. I accept both sides of the equation. That is the equilibrium. I am talking only about victims, not about perpetrators.
Senator Moore: I am interested in your comment that the Canada Student Loans Program's interest rates are the highest in the developed world. That surprised me. What is the rate in the U.K., Sweden and the Netherlands? Is it at prime, which seems to be lower than Canada's prime rate?
Senator Goldstein: I am not sure, but I believe that Canada's program is the only one with a variable rate of interest.
Senator Moore: Are we talking about central bank prime rate?
Senator Goldstein: Yes.
Senator Tkachuk: To clarify statistics about the highest interest rate, do other countries allow the deductibility of their interest rate against income, as we do in Canada for students?
Senator Goldstein: I do not know the answer to that question, but I would suggest that for a student who is just starting out and who is not earning a senator's salary, but rather $25,000 or $30,000 a year, the interest deductibility is not a meaningful saving. That is because the rate at which they pay income tax is not 40 per cent to 45 per cent but is more in the range of 18 per cent to 20 per cent. The deduction is not that meaningful for them, but it is a deduction.
Senator Tkachuk: It is 17 per cent, at minimum.
The Chair: They do not pay interest on the student loan while they are still in school.
Senator Goldstein: Even though they do not pay interest while at school, the moment they leave school, the interest starts accruing. They do not have to make a payment for the first six months after they graduate, but the interest accrues.
Senator Tkachuk: I had forgotten about it. You were allowing me to catch up on that. Is the interest rate in other countries charged in the same way that it is charged here? Are students there charged interest during the time they go to university? We do not charge interest until they finish university.
Senator Goldstein: I understand that the generic practice in Western countries is to not charge interest during the time that the students are in school. I do not want to assert that with certainty because I am not positive, but my recollection is that they are not charged interest while they are actively pursuing their education.
Senator Moore: It would be nice to know for certain and to impart the information to the committee.
Are the interest rates in these other countries at prime?
Senator Goldstein: The graph shows the rates charged under their programs, but they might or might not be at prime.
Senator Moore: They are all less than 4 per cent, after Canada and the U.S., and some are nil, such as Germany and New Zealand. Do they not charge interest?
Senator Goldstein: They do not charge interest as long as the student is not in default.
Senator Moore: Once you graduate, as long as you make your scheduled payments on the agreed-to sum, there is no interest?
Senator Goldstein: That is a substantial cost to the state.
Senator Moore: You mentioned that in the U.K. repayments are geared to the ability of the student to repay, and you mentioned their interest rate. When does the interest begin to accrue in the U.K.?
Senator Goldstein: I do not know.
Senator Moore: Is it upon graduation, like in Canada?
Senator Goldstein: I do not know, but I will find out.
Senator Moore: I would like to know because the model is interesting and more information would be helpful.
In 2003, when we looked at these statutes, the evidence we heard was that the period should be five years, which the committee recommended. I believe we also recommended that the hardship category be available at any time.
You are now recommending two years. I do not know what has happened since 2003 to justify the proposal of two years. How married are you to that proposal as opposed to five years? Five years was the evidence that we heard. Of course, some students wanted nil. It is not unusual for them to make that request, but all the credit rating agencies and the financing institutions said five years. Can you live with that today? Would you consider five years, provided that we have consideration of hardship cases available?
Senator Goldstein: Yes, sir, I would. Whether it is two years or five years in the case of real hardship is symbolic. The writers who speak of the delays, because most countries have some sort of delay, although some have none, speak of it as a guideline or a societal signpost to remind students that they cannot rid themselves of the obligation tomorrow morning but rather have to make arrangements to make payments.
Senator Moore: In your analysis of the interest rates, did you learn what their time frames are? Do they have bankruptcy provisions in their statutes?
Senator Goldstein: I do not know the answer, but one witness on the list has done a study of the regimes in other countries and will inform the committee about that study.
Senator Moore: I would like to know because it would show how we stack up.
The Chair: Colleagues, we have reached the point where everyone who had indicated an interest in questioning Senator Goldstein has had a kick at the can. We have demonstrated, maybe better than ever before, what the Senate looks like when it is carrying out its functions. I think this exercise with a private member's bill has been a good discussion.
We had arranged to have the people from the departments involved, plus the service provider that we heard so much about the other day; they are all one leg or another of the system. We had planned to hear the four of them as a panel.
The service provider is here from Toronto. We have two options, because it is almost 12:45 p.m. We could adjourn now until April 2 — we have other things planned then but we could defer them — or we could start with the service provider. I think the department people are all here. I am wondering if they are mutually exclusive or not. Do you feel we should start now?
Senator Massicotte: Sure.
The Chair: The other option is that we could start with everyone.
Senator Tkachuk: They will make a presentation and then we have 15 or 20 minutes before we are out of here. It would be better if we had an hour with them because this was very good. If the service provider would not mind taking a day off — or if it is a hardship for him, perhaps we will hear just from him. He can visit the museum and be a tourist for a day. Are we paying his way?
The Chair: The service provider comes from Toronto. I thought we could have that individual start now. We had many questions, especially Senator Eyton, arising from Bill C-12. That bill kept talking about a service provider, but we did not who it was; they did not even give us the name. Now we know the name.
Do we agree to go with the service provider now? Okay.
Here for Resolve Corporation is Mr. Ralph DeJong, Vice-President, Student Loan Operations. Resolve Corporation is contracted by the Department of Human Resources and Social Development Canada, represented here by Ms. Rosaline Frith, Director General, Canada Student Loans Program.
Ms. Frith basically runs the whole Canada Student Loans Program. She will give a brief introduction and outline the role of the service provider.
Mr. DeJong has come here from Toronto today. We feel we can have another session with all the government folks on another day when it will not be necessary for Mr. DeJong to be here. If it turns out that it will, that is fine too.
Rosaline Frith, Director General, Canada Student Loans Program, Human Resources and Social Development Canada (HRSDC): I would like to take this opportunity to update the committee on two Budget 2008 initiatives that impact on the issue of bankruptcy.
Two measures that were announced will help student loan borrowers to better manage their financial situations. The Canada student grants program will invest an additional $350 million in non-repayable assistance to students from low- and middle-income families in 2009-10. That will grow to $430 million in additional investments by 2012-13. That will help to keep the student debt levels down.
An additional $74 million over four years will be invested to make the Canada Student Loans Program more responsive to the economic circumstances of borrowers, including those with disabilities, by providing greater assistance for those experiencing difficulty repaying their loans. That answers many of the concerns raised earlier today.
More details on the new initiatives will be available as the federal government finalizes legislation and regulations, as well as works with the provinces, the territories and other stakeholders, including our service provider, on the implementation plans. That is a big challenge we will be facing over the coming year.
Resolve Corporation is under contract with the Government of Canada to administer the Canada Student Loans Program and integrated student loans with Ontario, Saskatchewan, New Brunswick and Newfoundland and Labrador. The federal government provides guidelines to Resolve Corporation for their delivery of the program, although Resolve Corporation has some latitude in using their financial market expertise to establish and maintain a relationship with borrowers in order to facilitate the management of their loans while they are in study and then while they are in repayment once they have completed school.
The program has been delivered by a private sector service provider since we moved to direct loans in August 2000. Until then, our program was delivered through banks. Resolve Corporation and other corporations have been administering student financial assistance, from the cashing of the borrower's loan documents through to repayment. If a borrower is experiencing difficulty repaying their loans, the service provider uses tools to assist the borrower in managing their debt.
After they finish school, borrowers have six months before they are required to start making payments on their loans. Four to six weeks before the month in which their first payment is due, Resolve Corporation advises them in writing that repayment is about to begin and what the required payment amount will be. The first payment is due at the end of the seventh month after the end of studies.
The primary goal of our program remains to avoid delinquency, to prevent defaults and to protect the borrowers' credit rating. Resolve Corporation has to contact high-risk borrowers pre-consolidation to explain to them how to begin loan repayment. That is the most important thing we can do to help people get on the right track from the beginning.
Resolve Corporation contacts borrowers by phone and in writing when a payment has been missed. If the borrowers are not in school full time, Resolve Corporation explains the debt management tools available to them, including extending the repayment period and a six-month interest-free period that can occur at any time. They are entitled to that interest-free period for 30 months, but that 30 months could happen anywhere. People can graduate, get a job, go to work, do really well, and then all of a sudden lose their job, but they are still repaying their student loans. They can apply for interest relief and not have to make any interest payments. The interest would be deferred as the payment would be deferred, so they can get that interest-relief period at a later point in their career, not just in the first five years. That is a misunderstanding.
The Chair: It is deferred.
Ms. Frith: Interest relief means you are not paying any interest during that period, and after you start making your payment after that six months, interest starts accruing again. There is no interest. The government pays the interest during that period. The borrowers do not have to make a payment on the principal. The principal is deferred. The interest is picked up by the government.
After they have used up their interest relief or any time beyond five years after they have graduated from school, they can apply for debt reduction and repayment, which can reduce their debt by up to $26,000 over three allotments.
The Chair: Just writing off part of the debt.
Ms. Frith: Exactly. Borrowers who are in arrears and do not contact Resolve Corporation receive letters from Resolve Corporation at 30 days, 60 days and 90 days. At 90 days in arrears, Resolve Corporation, under our direction, places a restriction on the student's account, and they complete a full review of the file at 200 days in arrears. They try to ensure that all strategies to assist borrowers have been used, including attempts to contact them and provide assistance in understanding what programs and instruments are available. The borrowers call in, and Resolve Corporation counsels them.
About two months before a loan is sent to the Canada Revenue Agency for collection, because that is our last resort, Resolve Corporation sends the borrower one last letter to articulate clearly the implications of not entering into a repayment arrangement. Resolve Corporation will manage the borrower's delinquent account for up to 270 days before we return it to government for collections, which means we send it to the Canada Revenue Agency.
Even once a student's loan enters into collections at the Canada Revenue Agency, we still offer a loan rehabilitation program that would enable a defaulted borrower to regain good standing and consequently have access to all the program, tools and benefits to try to keep him in good standing thereafter.
Depending on when they declared bankruptcy, borrowers have access to different benefits and measures. As of May 11, 2004, bankrupt borrowers can continue to avail themselves of debt management measures in order to keep their loans in good standing. The pity is that there are people before 2004 who were not able to use debt management measures once they had gone into bankruptcy. That does not apply to people since May 11, 2004.
Borrowers who are in study can receive additional loans and interest-free status for up to three years while they complete their program of studies. People can go bankrupt while they are students at school, and I think we have approximately 400 students who are bankrupt. We should be clear that they are not bankrupt because they are students or because of student loans. They happen to be bankrupt. We are not charging them anything. They are in interest-free status. They have a loan, they are interest free and they are going to school. Those people remain in good standing and are still in interest-free status and can complete their studies. When they come out of studies, they get their letters and phone calls and they are told what they have to do to repay the money.
In my world, they would start to make their payments and remain in good standing. If they were really in bad shape when they graduated from school and did not have any income, they would apply for interest relief and go on interest relief for six months. At the end of the six months, they would reapply for interest relief if they still did not have jobs. Someone who has gone through bankruptcy will not have many assets and will rely only on his or her income, so a program and a system are in place, and Resolve Corporation would continue to provide them with advice on how to be able to have reasonable payments.
I do not want to take up all of your time, but there are a few other things. The normal amortization period is 10 years. People have up to 15 years to repay, and 10 per cent of the people repay within the first two years; 50 per cent have repaid by five years. Over all, about 80 per cent these days are repaying. That is where we stand. About 20 per cent have problems.
You asked how many people are applying for interest relief. A little over 100,000 people apply for interest relief, which would be 10 per cent of the total portfolio.
I would turn now to any questions you might have either of myself or Mr. DeJong, who can give you more detail on the specificity of how he delivers the program.
The Chair: You were clear. You got a bit more in than I was allowing you, because the idea was to let Mr. DeJong do his thing, under your close supervision, and then go back to Toronto.
Mr. DeJong, we have heard about you in the euphemistic language of service provider. We see you have a company. Tell us about it and what you do, and then we will have questions for you.
Ralph DeJong, Vice-President, Students Loan Operations, Resolve Corporation: Resolve Corporation is a publicly owned organization on the Toronto Stock Exchange. We are a business process outsource company with a specialty in financial administration and general data administration. Our clients range from the federal government to financial institutions across the country. The organization has 5,000 employees across 38 locations in North America. We are a Canadian-owned company.
We are contracted to manage the National Student Loans Service Centre, which is the program under the Canada Student Loans Program. The actual service is the National Student Loans Service Centre. We have 800 employees in our site.
The Chair: Is that in Toronto?
Mr. DeJong: It is a Mississauga site. Shortly, we will have an Ottawa site. We administer the Canada Student Loans Program through the National Student Loans Service Centre, from disbursement of funds, to maintaining the loan in school status, to grace period and then repayment. Repayment can either be regular payment cycles or the delinquency portion of the loan, up to 270 days.
There are lots of questions about the delinquency side. We have a full delinquency management team or repayment counselling arm of our actual service that starts much earlier in the loan life cycle than at the point when the loan goes into repayment. It is all about borrower awareness. It starts up front on the disbursement and on building the relationship.
We have a full, in-bound service centre that takes all in-bound calls. We also have a multi-channel environment for our borrowers, whether through our website, by voice mail, by phone or in person. We have multiple channels. That is how we manage that key relationship through the in-study and grace periods. It is all about awareness and building relationships. We have a very active protocol in moving the borrower through the awareness cycle of their repayment.
I can go into more detail on that, but perhaps I will stop now and let you ask some questions.
The Chair: Yes. We have only 15 minutes before the bells will start to ring.
Your presentation was very interesting. Obviously, the government is not your only client; your corporation was already in operation. They gave you a mandate. You probably had an RFP, and if the system ran correctly you applied. The guidelines were then set, as Ms. Frith said, and you perform your services in accordance with the strict guidelines that were given to you.
Mr. DeJong: Yes. Absolutely.
Senator Massicotte: Thank you for being here with us. Resolve Corporation is also a public company. Is there any principal controlling shareholder?
Mr. DeJong: There is one controlling shareholder: Mr. Bob Conconi.
Senator Massicotte: This is a private enterprise; he started this business?
Mr. DeJong: Correct.
Senator Massicotte: He is a Canadian, I presume?
Mr. DeJong: Yes.
Senator Massicotte: How is Resolve Corporation paid by the Canadian government? Are there any special incentives regarding how you perform?
Ms. Frith: We have just entered into a new contract, which will come into effect on March 17. It is a performance- based contract. There are fixed costs and variable costs, depending on the volumes we are dealing with. The performance-based measure is client satisfaction; that is, ensuring that the program is satisfied that each and every student borrower is getting a good service and that the default rates are kept as low as possible. The two go hand in hand.
Senator Massicotte: Is the default rate incentive a significant part of the compensation?
Ms. Frith: I think it would be significant enough that the company has a clear interest in taking their dealings with the client very seriously, yes.
Senator Massicotte: I want to get into the question of default. What percentage of students do not pay or ask for forgiveness or for some kind of relief?
Mr. DeJong: ``Default'' would be defined as ``delinquent after 270 days.''
Senator Massicotte: How many accounts are transferred back to the Canada Revenue Agency?
Mr. DeJong: Correct. It is based on dollar value.
Senator Massicotte: In the criteria, is there any consideration of satisfaction? In other words, are the students happy with the process? Are they adequately notified?
Mr. DeJong: Yes. There are three components. One is the actual default rate. Another is borrower satisfaction rates. Real-time, random surveys are done about our service in both the in-study and repayment areas. You must be able to balance our effective management of the file with both the borrower and the client. They are well-proportioned to ensure you are doing them all.
Senator Massicotte: Given that your compensation is somewhat related to the default rate, would that not explain, perhaps, why some of your clients think that your practice is very aggressive in the area of getting collection and avoiding default and therefore not considerate enough in providing relief?
Ms. Frith: Again, two things are being mixed up. If someone is on interest relief, then that is great. That is very positive for both that person and us. Interest relief, debt reduction, repayment and extension of terms are not default.
Senator Massicotte: There is no disincentive at all for Resolve Corporation to grant those provisions? Your compensation is not affected at all?
Mr. DeJong: No.
Senator Massicotte: Within the compensation structure, there is no disincentive at all to cooperate and to assist the student to get through it and to avoid what you call default?
Mr. DeJong: There is incentive to be cooperative.
Senator Massicotte: We have heard from other witnesses. We are receiving comments from third parties about the website, the cooperation and the phone calls. There is a sentiment of harassment, non-cooperation and non- communication. How do you explain all that? Why are we getting conflicting information about how well this program is working for the 20 per cent of students that need help? We have heard that once you default, you cannot get relief. How do you explain what we are hearing about this program?
Ms. Frith: First, with the website, I can understand people saying that it is difficult to deal with. That is true. It is difficult to deal with, which is why we are coming out with a new version.
Mr. DeJong: Yes, on Monday.
Ms. Frith: This coming week, we are coming out with a new website. We have a new search engine. We have done a lot of work over the last year. We have been out speaking with students and trying to figure out how to get it right. That is a valid concern. Hopefully, we will have addressed it.
The Chair: You have been listening.
Ms. Frith: Yes, we do listen.
Concerning your second issue, how we deal with the students, I think there is a mix-up with respect to the feedback. Students complain bitterly about private collection agencies that work for the banks, but they do not distinguish that it is still a Canada Student Loans Program. They got a Canada student loan. If they got a Canada student loan through a bank and they went into default and are dealing with a bank that has hired a private collection agency, the government has no control over that. I have no way of dealing with it.
The Chair: Basically, that is runoff from an old system.
Ms. Frith: Yes.
Senator Massicotte: You are saying that a bad reputation is not merited. It is some old transactions that give you this reputation.
Ms. Frith: It has nothing to do with Resolve Corporation. It is completely separate from Resolve Corporation.
For the current direct loan system, when there are defaults, those go over to the Canada Revenue Agency. The Canada Revenue Agency has been dealing with private collection agencies, but with very clear roles. When you have our colleagues from the CRA at the table, they can explain to you the kinds of roles they have in place to manage those people.
Many of the complaints we get are not related directly to Resolve Corporation or to the program itself but to the private collection agencies.
Senator Massicotte: You said that you do an independent survey of client satisfaction.
Ms. Frith: Yes, we do.
Senator Massicotte: May we have a copy of the latest report on the surveys?
Ms. Frith: Yes, I can send that to you.
Senator Tkachuk: When a loan goes to the Canada Revenue Agency — that is, when Resolve Corporation has difficulty collecting — does the Canada Revenue Agency then contract out a private collection agency?
Ms. Frith: In some cases they do. I would prefer that we save those questions for when my colleague from the Canada Revenue Agency is at the table. He can explain all that very clearly.
Senator Tkachuk: I understand that. I wanted to know whether they also hired. We have two sets. One from Canada Revenue Agency and one from you.
Senator Massicotte: There are very clear guidelines, because you are a third-party manager, of how to provide relief. Is there written documentation saying that if a student wants some sort of debt relief, he or she must satisfy these criteria? Can we get a copy of that documentation to understand more how the system works?
Ms. Frith: Yes.
Senator Eyton: The banks ran the business until 2000. What happened? My memory tells me that the banks were unhappy with the arrangement, and perhaps they took the initiative to exit that business.
Ms. Frith: I would assume that the banks were probably quite content with the guaranteed system because they did not take any risk at all. The government was not so happy. Then we lined up a risk-shared system, which made the government happier, made the banks less happy, and when it came time to say, ``Do we continue in this risk-shared system,'' the banks were not interested in continuing to do risk-shared loans.
The banks feel that the clientele of the Canada Student Loans Program is the worst-risk students, which to a certain extent is true. We target the low-income students and people who have permanent disabilities. We target the people who have the least ability to go out and get a loan in the first place. They do not have the collateral. In many cases they do not have parents who can put up assets and help them get loans.
Senator Eyton: That kind of more difficult relationship went on for a bit, and then there was almost a mutual determination that this had to stop. There was a transition period, and then I presume the business was out to a competitive bid.
Mr. DeJong: Yes, twice.
Senator Eyton: You were successful in that bid. Do you have a contract?
Mr. DeJong: Yes.
Senator Eyton: For how long does the contract run?
Ms. Frith: The current contract expires March 31, but the new contract starts March 17.
Senator Eyton: Will that also be competitive?
Mr. DeJong: It already has been.
Senator Eyton: I am curious, because listening to your exchange with Senator Massicotte, it seemed there was no sort of special recognition or compensation for anything, and so the question is how do you get paid. What is the measure? There must be some component that says this is how I get paid, something you can work with.
Are you able to let us know how you are paid?
Mr. DeJong: The payment in the contract is based on borrowers in a status. If a student is in study status or in repayment status, that loan being serviced garners a fee per month.
Senator Eyton: There is a fee per month on each file.
Mr. DeJong: That is for each file in status. As it changes status, the fee would then also change.
Senator Eyton: How important is this contract for Resolve Corporation? I assume it is much larger than that, but would it represent 10 per cent or 15 per cent of your business?
Mr. DeJong: For the total of our business, it represents about 22 per cent of our revenue.
Senator Eyton: I suppose I could get your annual report.
Mr. DeJong: You certainly could.
Senator Eyton: I probably will do that.
Senator Tkachuk: According to the testimony of Senator Goldstein, there are two kinds of students who have trouble paying their debt. There are the ones that you finally end up with a resolution to. Are they part of that 20 per cent, or does that 20 per cent go to the Canada Revenue Agency? I want to be clear about who goes to the CRA. What percentage of your clientele goes to the Canada Revenue Agency?
Ms. Frith: Do you mean how many people are in collections?
Senator Tkachuk: Yes. What percentage of your total client base is in collections?
Ms. Frith: I would have a little difficulty answering that.
Senator Tkachuk: You can answer it next time. It does not matter.
Mr. DeJong, of the students or former students you are assisting who are having trouble paying their debt, how many of them have jobs?
Mr. DeJong: That is difficult to assess, because we assess their ability to pay. Interest relief is geared to low or no income. I think we can get those statistics, because that is important.
Senator Tkachuk: Would those people be in trouble because they cannot pay the student loan, or are they in trouble because they have accumulated other debts that are causing a problem as well? In other words, the student graduated from college, gets a car, buys some new clothes and gets credit cards, because companies mail out credit cards out to students like crazy nowadays. All of a sudden, there is a whole bunch of debt. Is that the typical student? That is what I would guess, or would the sole reason he or she is in trouble be the student loan itself?
Mr. DeJong: That is difficult to answer, because we do not go into a financial assessment; that is not our role in understanding. We receive more information on their interest-relief applications; there we end up with income levels and so on. We do not specifically ask them what their debt load is, because we are not a financial counsellor to tell them what to do with their debt loads.
Senator Tkachuk: You are interested in collecting the student loan.
Mr. DeJong: I am interested in helping them to use a product or service to allow them to get themselves back into good standing.
Just to be clear, in the service we provide, it is early-stage delinquency and pre-emptive management. We do not take a portion like a collection agency. It is not at all in that matter.
Our focus, primarily, is pre-emptive management. We have intensive scoring models where we will score a borrower into a risk model and then do a lot of pre-emptive counselling. For us, the right thing to do and the right model is to avoid any delinquency.
Senator Tkachuk: It is incentive for your business, because the more current files you have, the more money you make. You do not want to lose that file to the Canada Revenue Agency.
Mr. DeJong: That is correct, and I also need to maintain high quality and high customer satisfaction. We use a relationship-based model. We firmly believe that if we do not build the right relationship, that borrower will never call me back. I need to build; it is like anything.
Senator Eyton: Ms. Frith, when you bring back an analysis of the percentage of defaults, could you also give us the same analysis of the number of defaults and the dollars involved each year? It seems to me that you cannot analyze this unless you look at the graduating class of 2000, the graduating class of 2001 and so on. There will be different numbers.
Ms. Frith: Yes. We will bring that back. That is exactly how we do defaults.
Senator Massicotte: Do it by year of graduation, but also go back X number of applicants: X number are your 20 per cent; 10 per cent have requested default, and so on. Show us how many requested debt relief and how many got it in the four categories — interest deferral, debt relief and the others. Give us percentages of where they got the relief and how they got the hardship. In other words, it is the same question, but just more information.
Senator Moore: Mr. DeJong, you said that you are paid by status, and there are two: in study and in repayment.
Mr. DeJong: Yes.
Senator Moore: Is that done on a percentage basis?
Mr. DeJong: No, this is actual data. We know at any given time, any day of the week or end of any month, what percentage of our borrower portfolio is in repayment or in study.
Senator Moore: Do you get paid a percentage of the amount that you collect?
Mr. DeJong: No.
Ms. Frith: They are not paid in any way whatsoever as being a collection agency. They are not a collection agency. They work for us as a bank.
Senator Moore: You are paid by the contract you have from Ms. Frith's department, and that is it.
Mr. DeJong: Right.
Senator Moore: You do not get paid a percentage of what you collect, nothing like that.
Mr. DeJong: No.
The Chair: Ms. Frith, I think you have been here all morning. You can see that we have the private member's bill from Senator Goldstein, concerning which I am sure you have some views. We are anxious to hear them, and you have other views about how the provisions contained in Budget 2008 are being legislated and integrated within this corpus of legislation. We will be very interested in hearing from you.
As far as you are concerned, Mr. DeJong, I think we have a better idea of your role.
I think, colleagues, that we should have the full package here when we reconvene, and I think we will put the hearing at four o'clock on Wednesday, April 2, devoted to this subject. We will have the people from the Canada Revenue Agency, HRSDC, and Industry Canada. We will have two hours. We sent a note up to Mr. Manconi of the Canada Revenue Agency that it would not hurt to have one or two of the collection agencies here. We will have the whole picture.
You know why we are interested in that. It is because we have had quite troubling evidence about draconian methods used. You have told us that those may relate back to the old days, to the banks, and we hope that is the case, but in any event having the collection agencies here will complete the picture.
Thank you all very much. We are very interested in this program. From what we can see, and I think I speak on behalf of my colleagues, Ms. Frith, you are running a great show there. You are obviously concerned. It seems to be in a process of upgrading and responding to the problems, so that is good. We are also interested to make sure that that is happening. Many, many thanks.
The committee adjourned.