Proceedings of the Special Senate Committee on Post-Secondary Education
Issue 2 - Evidence - October 30 Sitting
OTTAWA, Thursday, October 30, 1997
The Special Senate Committee on Post-Secondary Education met this day at 9:10 a.m. to continue its inquiry into the state of post-secondary education in Canada.
Senator M. Lorne Bonnell (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this morning we have witnesses from the Department of Human Resources Development. Ms Martha Nixon, Associate Executive Head, will tell us what the government has in mind with regard to student loans.
Ms Martha Nixon, Associate Executive Head, Human Resources Investment Branch, Department of Human Resources Development: It is a pleasure to be here again. I feel as though we have a strong friendship. This is our third visit to your committee. We enjoyed being here in the past.
We have changed some of our team. Thomas Townsend joined us eight weeks ago as Director General of the Learning and Literacy Directorate. JoAnne Denis has been the foundation of our shop for many years and I am very pleased that she is with us today.
Mr. Townsend has been learning very fast on the job as he has joined us at a terrifically busy time. We are impressed with how fast he has learned, and I know you will be as well.
We thought it would be useful today to update you from where we left off last February, to touch on the fairly busy schedule that we have had, and to tell you a bit about the issues that we have been working on, where we think we are and where we should like to be going.
We appreciate that you are still concerned about this issue and are moving toward some kind of final report following your interim report likely in December, as Senator Bonnell has indicated.
We have supplied you with a briefing deck in both English and French so that you can follow along with us, if you wish. We would be happy to run you quickly through the information contained in it and then to answer any questions you might have if we have not covered enough of the things that you are interested in.
[Translation]
On page 1, you will find a list of the topics we discussed last time. On page 2, we provide details on measures contained in the budget and the Speech from the Throne; our consultations with education groups, provinces and lenders; the modelling we have done on loan repayment options; a diagnosis of the problems facing post-secondary education and student assistance in particular; and lastly, some broad approaches to student debt.
[English]
On page 3, we touch briefly on the new measures that were announced in the 1997 budget and in the Speech from the Throne. You are probably well aware of those.
There were two announcements in the 1997 budget. One of them related to the extension of the Interest Relief Program. You will recall that the Interest Relief Program is the measure that we have available for students in the months after graduation. They have six months before they must start repaying their debts. Within the first five years after graduation, they then have access to the Interest Relief Program under which, if they have a low income and a high debt ratio, we can help by paying the interest.
Previously, they could access this program for 18 months within that five-year period.We extended that to 30 months. In essence, that gives six months of what we call grace period, plus now 30 months of interest relief accessibility. That gives a solid three-year period during which, hopefully, we can assist people through any periods of trouble.
As well, we talked to you the last time we were here about bankruptcy problems. As of October 1, we had passage of the new bankruptcy provisions which prevent students from declaring bankruptcy within the first two years after graduation.
The 1997 budget also indicated that the interest relief decision would be provided by banks. We were going to look at an ICR, income-contingent related payment, in relation to the repayment period for students. We would be looking at various options with banks and stakeholders in terms of how to relate repayment after graduation to income so that if graduates have periods of low income they would have lower payments to make. We are still exploring how we will do that, but the budget did signal that we were intending to move in that direction.
The interest relief decision has been implemented and, as we will explain throughout the presentation this morning, we are talking to many of the stakeholders about income-related repayment.
You are probably aware as well that in the Speech from the Throne there was notice of a new grant for students with dependants. This would relate to the recommendation that you made in your interim report. There was an indication that a $3,000 grant for students would be available. We are hoping to be able to implement that in the 1998-98 academic year. We are quite pleased that we will have that capability because our research shows that many of the students who have been having problems are those who have dependants. Our need assessment seems often not able to reflect the additional costs and needs that students with dependants have.
In addition, the Speech from the Throne indicated that the government would be proceeding with a Millennium Scholarship Endowment Fund which would be aimed at helping those with low and moderate incomes and also those who show excellence in studies. That plan is under discussion. We are not in the lead in terms of the design of that scholarship fund but we are talking to our Department of Finance colleagues so that there will be complementarity in terms of the planning of that fund in relation to student loans.
On page 4, we talk a bit more about the new grant for students with dependants. I mentioned that we were talking about grants of up to an additional $3,000 per year. In the Red Book there was identification of $60 million that would be used for this purpose, hopefully to assist up to 20,000 students. In looking at that $60 million figure, we are aware that in addition to the $60 million that has been put forward there will also be a need to have an offsetting payment for the Province of Quebec. We are estimating that the cost of that grant will likely be more in the area of $100 million and that we will likely be able to help 25,000 students. We think this is a considerable addition as a debt measurement manner and that this particular grant will go some way to meeting a fair bit of the need.
I will now ask Mr. Townsend to take us through some of the consultations that have had much of the focus of our work over the last couple of months. We have had discussions with many people over the last little while.
[Translation]
Thomas Townsend, Director General, Learning and Literacy Directorate, Human Resources Development: I would like to touch on the topics on page 4. The minister had asked us to consult with interest groups, the provinces and financial institutions on the financing of student loans. To date, we have had several discussions with each of these groups. We have met with each of the provinces participating in the program and with the province of Quebec which receives compensation. We have also held discussions with the Yukon and the Northwest Territories which, like Quebec, also receive compensation. We have also held discussions with the three banks which account for 85 per cent of all loans, namely the Royal Bank, the Bank of Commerce and the Bank of Nova Scotia. Every six weeks, we met to consult with a group of nine other lending institutions. Last week, we had the opportunity to consult with seven groups, three of which represent students, on the proposed reforms.
[English]
We have bilateral discussions with the provinces through the intermediary of the Council of Ministers on Education and the Executive Director, Paul Caplan. We had proposed that our deputy minister attend a meeting that was held in Saskatoon in September. However, the agenda did not permit that and it will be rescheduled for a meeting that will be held this February.
Apart from these consultations with groups, we have taken the opportunity to meet with as many individual organizations and/or student groups or interested parties as possible over the course of the last few months to receive their opinions on needed reforms in the student financial assistance area.
We have proposed that on November 17 and 18 all of the stakeholder groups come together in Ottawa for a day and a half meeting to look at the state of consultations at that time and to look at what final proposals they would like to make to us with respect to student aid reform. This meeting would include the provinces and the territories, groups that represent student interests as well as teacher and institutional interests, and the lenders.
The messages we have received to date have been clear and unequivocal. The principal preoccupation of all those involved with student financial assistance is the growing magnitude of student debt. Equally, groups have indicated that they welcome the millennium scholarship announcement. In particular, student groups have cautioned us that they would very much like to see the scholarship related to need.
Groups, including lenders, have signalled repeatedly that there needs to be consumer choice in borrowing. They are counselling us not to come up with a system of repayment where everyone would be forced into a single payment system but where borrowers would have options of repayment.
[Translation]
Regarding the designation of institutions, the groups do not want to use default rates alone as a criterion for such designation. The needs assessment policy which was revised two years ago is a sound policy, but could use some fine-tuning.
[English]
In particular, the provinces have indicated that they have been waiting for a long time for us to harmonize our loan programs with them. They are very encouraged by the discussions that are taking place, but signal again that they have been waiting a long time for this harmonization and that they should like to see progress made in the near future.
Ms Nixon: We have talked to the provinces in particular. Obviously, they have their own programs and they each have their own ideas about how they should manage debt. We have had a lot of pressure from Ontario, which remains intent on introducing some kind of an ICR-designed program in the next school year.
One of our fairly big challenges is trying to figure out how you bring the issue of debt and debt management into some kind of positioning so that you can try to find a design that will bring as many of the provinces as possible along with us. We are quite determined that we wish to have, as much as is possible, a national program, and that we would like to have a way to continue to harmonize with the provinces and to have access available to all students across the country. As we say on page 7, we have been working with the provinces since we talked to your committee last.
We must look to the signals that were brought out of the annual premiers' conference, where debt was one of the issues that they placed high on their agenda. We must also look at some of the comments that were made by the new chair of CMEC, Paul Ramsay, who joined with the students from the CFS last week to make pronouncements about income-contingent repayment plans. Indeed, when Mr. Ramsay met with Mr. Pettigrew last week they had some discussions about some of the federal work that has occurred. We are hoping that CMEC will continue to work with us as we try to find solutions.
There has been concern that Ontario is pushing the agenda to some extent. Recently, in terms of discussions with Ontario, we have felt that there was a lot more flexibility around design in their positioning at the moment than perhaps there was six months ago.
We have been sharing with Ontario a lot of the research capability that we have. We have been doing our life paths modelling around different options. We have been doing some of that at the request of Ontario in terms of different design models that they have looked at. It is fair to say that we have been trying to cooperate with Ontario as much as we can.
Ontario has put an invitation on the table and is working with the lenders to come up with some kind of design by early November. They are keeping us informed of that process. As much as possible, we will be trying to ensure that their thinking and our thinking runs in parallel at least to some degree.
We have been talking about this issue with the provinces for two years and we understand clearly that the provinces would like us now to put some money on the table in terms of debt management and get on with it. In a sense, we have gone some way to doing that, both in terms of the interest relief provisions in the last budget and in the announcement around the grant for students with dependants. We have been open in working with them around need assessment methodology and trying to fine-tune that. Also, we have begun to talk to them about looking jointly at designation policy for institutions to find ways to work with institutions so that those with high default rates in some way can look at that record and improve it.
We are also quite intent on trying to find the best possible way to look toward a single loan product based, perhaps, on something that will allow the provinces some flexibility in terms of their own design but which will have some consistent basic principles to which we all agree. We may be able to find one design that will fit all, but that may not be possible. We are not yet even close to knowing how that will work out.
We continue to work closely with the provinces. We think that the mid-November meeting will be quite interesting because it will be the first time that we will have the provinces, all the stakeholders and the banks in the same room together to spend a day and a half to try to arrive at some consensus, if possible.
We have also opened the electronic chat site, and some of the issues are already being discussed on the electronic highway by the people involved in this meeting. We are starting to engender a bit of debate around the issue, and we have reasonable expectations for that meeting.
In terms of the student groups with which we have talked, we have tried to keep them in touch with our thinking and to listen to their thinking. A coalition which has emerged from leadership from the Association of Universities and Colleges of Canada and the students groups has been very helpful. It is called the round table coalition, and it is a coalition of seven groups with which we deal regularly: the AUCC; the ACCC, Association of Community Colleges; CASA, the Canadian Alliance of Students; the Canadian Federation of Students; the Canadian Association of University Teachers; the Canadian Association of Student Financial Aid Administrators; and the national graduate students group as well. They have been working to hold consensus. As you remember, a proposal around student assistance they announced before the last budget contained a range of measures, including tax measures, some debt management measures, and some grants. Some of these tax measures were picked up and announced in the budget. They are continuing to work as a coalition. It is unusual to have it hold together for this length of time. They are now beginning to come forward with an alternate solution around some of the debt issues. We are hopeful that what they are coming up with will be worth discussing as a possible workable solution.
Needless to say, when you have that kind of coalition, it is helpful to continue to work with them, and that is what we have been trying to do.
I will again turn it over to Mr. Townsend to give a bit of insight on the lenders and where they are sitting at the moment.
Mr. Townsend: I will talk primarily about three of our lenders, namely, the three banks. I am doing so because the financial institutions that participate in our program have asked us to begin consultations with the banks. I should like to underscore that a number of financial institutions are important to our program, among them approximately 125 credit unions which have had a long-term interest in this. They have asked us to proceed with discussions with the banks since the three banks that I will mention here hold about 85 per cent of the overall loan portfolio. One of those banks, the Royal Bank, holds the largest percentage. Although we do not have calculations from this years' loans, it is approaching 50 per cent of the total portfolio. Obviously, it is an important partner in terms of our discussions.
The discussions with the lenders have been around the possible implementation of an income-related repayment plan.
Ms Nixon: Perhaps I could explain some terms. ICR is income-contingent related payment; IRR is income-related repayment. All of them describe something that has a method of repaying which tries to relate income to repayment. These terms sometimes get confusing if you are not part of this little group.
Senator Andreychuk: IRR is income-related payment?
Ms Nixon: Repayment. That is sometimes thought of as a euphemism for ICR because ICR started to engender heavy emotional feelings at one point in our history.
Senator Forest: Could you differentiate between "contingent" and "related"?
Ms Nixon: Generally speaking, they are used loosely and often mean the same thing. ICR, generally speaking, refers to the generic model that you would find in places like Australia and New Zealand where you have understandings of a fairly long period of repayment, usually 20 to 25 years. Generally speaking, you have collection through the income tax system. In a sense, it is something that is understood to be the kind of classic. We use IRR because there can be more variations and it can be a very different model.
Mr. Townsend: The ICR concept arose approximately 30 years ago and, generally, is the term used in academic circles. When we talk about actually implementing theoretical models and income-contingent repayment, you have other variations on it. The middle letter, which changes frequently, is generally a signal that there is some small variation in the implementation structure.
The feature that is of most interest in schemes related to income -- and the one that could be possibly most important for us if we are able to build the feature into our plan -- is that it offers borrowers protection against default. Because the schemes are related to income and you pay only as you have income above a certain threshold and a percentage of that income, if a borrower is either unemployed or has an income below the threshold, he is not obliged to make payments on the loan. This is an important feature, particularly when speaking of individuals who have suffered some bad experience in the workforce and that bad experience has precipitated a default on their loan and subsequent collection arrangements. This is a very troubling circumstance for a citizen to find themselves in. The feature of default protection is of interest to us and one of the primary reasons we are exploring an income-related repayment plan.
We have asked the lending institutions, the three banks, what they would be able to do in this context. They have been able to give us some feedback. Banks primarily, and in particular with retail loans or consumer loans, do not like to vary repayment based on income. They see it as administratively cumbersome. It is large, complicated, and costly to change computer systems that banks use to administer their loan programs. They have indicated that they certainly would not be able to be in a position to implement such a plan by 1998.
There has been emotional debate around the implementation of income-contingent repayment plans generally. The position of the Canadian Federation of Students is that in those countries which have embarked on these schemes, there has been a rapid increase in tuition. The Canadian Federation of Students is suspicious of governments looking at these schemes for fear that there would be deregulation and rapid increases in tuition in this country.
That banks are saying, "We have a large number of borrowers, over 500,000 citizens. We want to ensure that those borrowers feel there is value in this scheme." Banks have indicated that 25-year repayment periods are too long, particularly if there is a real rate of interest. Banks have indicated that for periods much in excess of 15 years, the reduction in monthly payments is offset by large increases in the total cost of the loan. Anyone who has had a mortgage understands this principle. They have also indicated that we would have to be much more detailed in terms of our intentions before they could price the administration of such a plan.
The Royal Bank, in particular, has offered alternatives which exist within the current framework of our contract which would involve offering borrowers much more flexibility in repayment terms but, again, within the capacity of the bank to administer this on existing information systems and within existing loan products.
We met with the financial institutions recently, and they are quite excited about the possibility of reform for two reasons. First, I believe, like everyone else who has an interest in this area, that increasing student debt, particularly as that precipitates defaults, is costly and worrisome for the banks as they have entered these relationships not to make money on this product but to establish a customer for life. They do not want their first interaction with that customer to be one where they must negotiate provisions around a default.
The banks have also been interested in a number of administrative reforms which will permit the electronic exchange of data between our program and their institutions. The banking industry in Canada -- in fact, the financial industry in Canada -- is a world leader in electronic transfer of information and are moving all of their systems quickly to this. They are eager that an organization which has large dealings with them be able to communicate in ways that are consistent with those systems.
We have agreed with the lenders that we will continue consultations with them on a regular basis.
Ms Nixon: It is fair to say that the situation with the bankers is coloured to the extent that we still have a five-year contract with them that we signed in 1995, which is in place until the year 2000. Whatever we do between now and the year 2000 must be compatible with the contract that we have. We also need to ensure that the banks are partners in a way in which they were not before. They do have a fairly large stake at this point in terms of trying to assist people to pay back.
Moving to page 10, we have already touched a bit on discussions with Ontario. It is clear that the bankers are figuring largely in the way that Ontario is proceeding. Ontario does not now have a risk-shared contract with banks. They are hoping to move in that direction as they go into some kind of income-contingent repayment scheme.
We have not had much of a sense of what Ontario is thinking. They have been using some of our data but the impression we have now is that they are willing to meet over the next number of weeks with some of the major banks and jointly reach a proposal that will be acceptable to the banks and one that will be doable in the very short period of time within which they hope to have their program up and running. We know that they will keep in touch with us on this.
Clearly, it is useful to ensure that Ontario's direction will not be impossible for us to support in some way. Ontario's position will be quite key, but in terms of having to do what they want to do as quickly as they are, they may be changing some of their original ideas around an ICR scheme. That remains to be seen. We will be keeping in close touch with that.
We want to touch a bit on the modelling that we have been doing, mainly because it becomes quite critical when you are looking at a variety of designs and you must make decisions around how these will impact students over a period of time during which you are trying to figure out what the world will look like 20 years from now. None of us have much luck doing that, even five years ahead. Mr. Townsend will take us through a bit of the Lifepath modelling experience that we have had.
Mr. Townsend: Microsimulation modelling of this kind has existed for about 20 years. This country and Statistics Canada are world leaders in this area. Modelling has been used successfully in policy analysis in areas such as income security and various other kinds of implementation of social programs. We worked closely with Statistics Canada to create a model that would simulate student behaviours post studies to evaluate their capacity to repay over time, to identify areas of loan limits that can be problematic, and to look at interventions that we might make from a policy perspective to assist in preventing loan defaults or in assisting borrowers who have found themselves in some difficulty. We are continuing our work on this model with Statistics Canada and are evaluating a large number of policy options using the model.
The kinds of options that we would look at are total indebtedness and what the possibility is that that will cause problems for individuals as they enter the workplace. We are looking at interventions that may occur either to maintain the total level of indebtedness lower through grants, as well as interventions during the period of repayment in terms of interest relief, or in remission of principal of the loans.
We have made the model widely available. All of the provinces that we work with have copies of the model and can both evaluate the options that we are looking at and the conclusions that we are reaching. We have also provided what we refer to as user friendly versions of the models to student groups and to other associations so that as we are doing policy development work each of these organizations can take a look at the policy and run their own simulation and test our conclusions with respect to that policy option.
Ms Nixon: It is important to have an idea of how the model works. The computer takes a whole weekend to process one particular set of circumstances, and this is the user friendly version. It is not something that you or I would want to put on our computer and run through.
Mr. Townsend: There are several hundred fictitious individuals in this model, so you actually create individuals and have them go through life incurring the kinds of circumstances that you and I do through the course of our lives. In that way, we can examine the effects on these individuals of having these loans.
The Chairman: You said "some of the provinces." Do you not work with all the provinces?
Mr. Townsend: That was an error on my part. All the provinces have the model and can evaluate the results of any of our policy discussions.
Senator Forest: You do have a bit of a difference with Quebec and the territories, do you not?
Ms Nixon: That is right. They have opted out and have compensation.
Has Quebec used the model?
Mr. Townsend: They use microsimulation and they are looking at evaluating the payments that we would make in compensation and in relation to their own programs, which are quite different from some of the other provinces.
Senator Forest: In meeting with students from Quebec, we learned that their provincial program, in terms of lower student fees and so on, is quite good compared to some of the other provinces.
Ms Nixon: It is generous.
Senator Forest: Generous, yes.
Mr. Townsend: We are preparing a diagnostic which frames the background for any policy reforms that we might propose. I thought it might be of interest to this committee to go over some of the highlights that are emerging from that diagnostic instrument.
A large percentage of our population <#0107> approximately 2 million Canadians -- is in post-secondary education. One in four adults is engaged in some form of training throughout the course of each year. By the age of 24, one-half of our population has engaged in some form of post-secondary education -- that is, university, college or professional training. This is the highest among the OECD countries.
Over the last 20 years there has been a continuous increase in enrolments in our post-secondary schools, something which is a source of great pride for all Canadians. We have preliminary indications, though, that these trends may be starting to come to an end. The most recent Statistics Canada quarterly has indicated that there is some downturn in enrolment in universities and in particular for male students. Clearly, it is too early to tell whether this is a trend. However, for the first time in 20 years we are seeing the slope of increase in enrolments in post-secondary education declining and, in some cases, declines in absolute numbers of enrolments.
Senator Perrault: Is that at least in part because of the costs involved? Are some deterred from pursuing post-secondary education because they are worried about their ability to repay their loans?
Mr. Townsend: The most recent Statistics Canada quarterly has an article on this very subject which indicates that the evidence is inconclusive as to whether increases in tuition are actually resulting in declines in enrolments. I think it will take somewhat longer for us to make such a determination. Certainly, student groups and institutional associations such as the Association of Universities and Colleges of Canada have indicated that it is their belief that tuition may be playing a role in this regard. This is true largely with debt-averse individuals who are looking at the possibility of having to accumulate a large amount of debt in order to obtain post-secondary education and are deciding that the value of that against the level of indebtedness may not be worth it.
Senator Forest: Is there any indication that it might be that with the present emphasis on technological information, and so on, students worried about debt may be more concerned about getting into a field where the job opportunities are great?
Mr. Townsend: Unfortunately, there is very little beyond seeing the trend in the Statistics Canada report at this point. Anything that we say in that regard would be speculative.
Senator Andreychuk: In terms of the decline in enrolment, you mentioned males in particular. Is that males in the youth population or males across the country?
Mr. Townsend: Statistics Canada uses the age group 18 to 24.
The majority of new jobs being created in Canada require college, university or some form of specialized training. In fact, there are indications, again through Statistics Canada, that there may be negative job growth in areas for non-post-secondary education.
We know historically -- and this continues to be a fact -- that individuals who have post-secondary education are less likely to become unemployed and, when they do, they recover from that period of unemployment quicker.
Earnings are higher. In fact, in terms of gross earnings, individuals with university degrees can expect to make 50 per cent more over the course of their life compared to non-university students. The returns on higher education continue to remain strong.
Ms Nixon: On page 13, we start to explore the kind of conundrum that you arrive at. I am sure you have had the same sort of discussion, namely, if you are looking at different approaches to student debt, how do you find a balanced picture with the options that are on the table and before us? There are a great number of choices and finding the balance seems to be the real challenge.
If you look at the current measures, the things that we are now doing in terms of trying to assist students with debt, there is the in-school intrasubsidy which continues at a rate of about $192 million. We continue to have the special opportunity grants that have been in place now for three or four years. Those relate to students with disabilities, high-need part-time students and women doctoral students in certain fields of study. Currently, we are spending approximately $23.5 million in that area. In addition, we have the interest relief provisions that currently are being accessed at about $46.5 million.
We are about to release an evaluation of the student loan program that we had done by an independent evaluator. A preliminary look at it shows us that students who are having trouble with debt often are not accessing the Interest Relief Program. Also, we cannot say that in terms of the special opportunity grants which are currently available that there is 100-per-cent takeup of the amount of money that we have available. Therefore, we must ask ourselves: Why is it that students are not accessing these measures to the fullest potential? We need to explore in that direction. There are some obvious things that we can look at, such as whether students have enough information available about them. Do they know where to go to ask questions about them? Because we are relying to such a large extent on third parties such as the provinces, the student aid administrators and the banks to deliver this information, do we have enough control over how it is put into the hands of students? What we have at the moment is still a reasonable amount, but we need to ensure that it is being accessed to its fullest potential.
As we have described to you in the last few minutes, we have been spending extensive amounts of time, both in terms of the modelling work we have been doing and the research, in ensuring that we have documented as much as we can concerning how we think different schemes will affect students. What are the facts on which we can base the case that student debt is a problem when we go to cabinet? We have had many discussions with many people about the best way to go.
We are still quite convinced that with the combination of the new grant for students with dependants, the millennium scholarship and the measures that we have in place that we need to be looking at some additional assistance. We are still exploring whether or not there also needs to be some consideration of increased ability to save for education and looking at ways to do that. Is it through increased measures around RESPs? Our colleagues in the Department of Finance are exploring a number of options in that regard.
We also feel that we need to have more capability to conduct information campaigns to ensure that the information we have is useful for students and that it is so accessible that they cannot miss it. We need to work with our partners to ensure that.
In addition, we are still looking at the mix of grants needed in the front end of studies before people go into studies so that you do the maximum to try to ensure that people do not incur the debt in the first place. What can we look at that would, through an ICR option, make some kind of income-related repayment scheme possible and attractive to students? We are trying to focus on that transition period for students, namely, the first three to five years after they graduate. From our own experience, we know that that is often the period when students have the most trouble getting into the labour market and where, if they have low income and high debt levels, they will become discouraged and have problems keeping in payment. We are trying to look at whether we can give some assistance in that period which would help them through periods of extreme trouble and hardship. We should consider those students who have made a sincere effort to repay and reward the ones who have tried to repay by giving them some way of continuing to repay.
We are trying to build at the moment -- and, it is fair to say we are not totally there yet -- a business case around making an investment at some early point in the repayment scheme which will keep the student in repayment and will, in the end, save us money over the period of the loan and assist the student who very much needs to get over some bumpy periods in order to do what most students want to do, namely, repay the loan in full as much as they can. We are looking at options around some kind of debt remission at some period in the repayment or perhaps some treatment of the way students pay interest.
In terms of the classic income contingent schemes, most students react badly because that negative amortization over a period of 25 years means you can see a ballooning possibility of the amount that a student will have to pay. The classic argument is that if you are a female who takes time out of the labour force in order to have a child your interest payments continue to accumulate, and if you are not paying back much over the period of 25 years you could end up with a substantial debt that would be quite overwhelming.
We are looking at how to eliminate negative amortization or the accumulation of unpaid interest on the principle and what repayment period makes the most sense in terms of both the continuing repayment possibilities and the government costs. We have given you some idea of what we have been doing. Clearly, we are not yet at the point where we have a total solution, but we are closer than we were when we talked to you in February. We have much more data under our belts. We must have more discussions with the provinces and stakeholders. We are encouraged by the great deal of interest in this subject by many parties and we are hopeful that, over the next three to six months, we will be having a discussion amongst ministers and charting a course which will allow us to do in-depth design. In the next several years, we are looking at being able to have the grant for students with dependants in place and other measures, as well as looking at an income-contingent repayment scheme emerging over the next year, year and a half.
Hopefully, we have been able to cover some of your areas of interest, and we will now answer any questions that you have.
The Chairman: Thank you, Ms Nixon.
Senator Andreychuk: I wish to express my appreciation. If we are to be valid in our work, we need to know what you have done in your response to our concerns and to those in the communities that you have heard. We knew you were monitoring our work and that of the groups which were making presentations. I thank you for putting it in a form whereby we can address the pages as we continue our work.
I found it rather difficult to determine where the bank risk, the lender's risk, is in the present system. It is true it is not a money-making venture for them, and it is probably a side show that takes more energy than I am giving them credit for. However, they are getting built-in clientele, which they told us they treasured and that that was one of the incentives for them being there.
In your brief, there is a comment that a full guarantee would be required in any future consultation. Where will their risk go from here? I think it is a minimal risk. Advertising would be much more expensive than having a built-in client walk through the door. As you pointed out in your statistics, these are the people who will be the high earners. They will not be coming in to borrow small items; they will be coming in for business ventures, personal ventures, and so on.
I found their risk identifiable in the present system but not overwhelming. They seem now to want no risk. How are they defining "no risk"?
Mr. Townsend: The comment around a full guarantee is related to the request that we made around administration of an income-contingent scheme.
As we presented that, the general approach to the lenders was that an individual would pay a percentage of their income. A group of individuals would not, over the course of a reasonable length of time, even 20 or 25 years, be able to fully repay their loan. The banks were saying, "Well, if there is a residual loan that would be left over after that period, who would be responsible for it?" Their reference to a guarantee is in the context of this residual that would be left when the loan period was complete but the loan was not re-paid.
Ms Nixon: In the current program, we give them the 5-per-cent risk premium. They are saying that, after we negotiated that contract, the business case has been found to be perhaps not as accurate as they had thought. They are finding that the default rate and the inability to do first payments is higher than we might have both expected when we set out two years ago on this venture.
Their strong position around an income-contingent scheme would probably depend on the design of the program. If we had some kind of debt remission or some kind of adequate sort of package that did the most that we could possibly do to keep the student in repayment, I believe their demand for a guarantee would moderate. They are saying to us, "We did not properly assess our case the first time around and we will not get caught holding all of the risk if we are going into this business together."
Senator Andreychuk: When we talk about student loans we are focusing basically on students who must borrow, and they fall into all kinds of categories. However, there is also the category of students who do not borrow for all kinds of reasons -- whether they protected themselves, they are doing part-time jobs, or their family is making sacrifices that the next family is not. How do we ensure that there is an incentive for the non-borrowers in our student loan system? They may be borrowing in ways such as repaying grandmother. How do we keep that incentive alive while we prop up the portion that does not seem to have access elsewhere? This has been preoccupying me. We want as much personal initiative and a take charge attitude, and this should be supplemental to that.
In that same regard, we talk about investing in your future. We all take 25-year mortgages. There is a constant debate about whether you are building an asset when you do that. When some of us tried to sell our houses 20 years later, we found that they were hardly an asset because of the market. There was a lot of risk in that.
Should we be emphasizing that an investment in education is a comparable asset which may take years to pay off but that in the end it is worth it for the quality of life you have and for the rewards you get during and certainly after your education? Do we need to do more on that?
Over the last couple of years we have heard young people say that they do not want to get into that because it will cost too much. When I was going to school we were told to invest in our education. That meant personal sacrifices, and not only during our years in university. I knew there would be personal sacrifices for quite some time before the rewards would come.
Ms Nixon: Those are thoughtful questions and I am not sure I can do them justice in terms of the answers.
Senator Andreychuk: You have me thinking. You have been modelling where these people are going and what crises they will encounter. We have been talking about the risky future, the need to be flexible and the fact that we do not know where the next job will come from.
How do we enforce the value of education and support personal initiative toward education?
Ms Nixon: I am not an expert in this area, but we have been talking a lot about what the issues are around learning, generally speaking, that must be dealt with and that are of critical importance in this great new brave world of knowledge-based economy and how to encourage people to think about learning in a very different way. Part of that is recognizing that a post-secondary education is an investment. We must ensure that we have the tools available to enable people to decide, at a very early stage, to set aside some money for post-secondary education, whether it be grandparents, parents or the children themselves deciding that. We have to create an awareness of that which I am not sure is as commonly available as it should be. There are some things that we could do to create that. Perhaps those would be interesting things for you as a committee to look at.
I agree that you need to be sure you are not putting all your effort into ensuring that needy students are not prevented from having access to post-secondary education for economic reasons.
In relation to the millennium scholarship announcement, we are trying to understand what kind of assistance is available for students generally speaking in terms of scholarships, grants, and so on. It is interesting that the total picture is not available anywhere. You cannot just open some site on the Internet and find the total picture of what is available for students. In fact, how students actually find their way to available scholarships and grants baffles me. We should have a clearing house for all of the scholarships and things that students can access. That is done to a certain extent but not entirely. The person who is making the sacrifice should have some way of accessing assistance through merit or scholarships.
Mr. Townsend: The notion of sacrifice is an important one, and the notion of a loan as a vehicle to access this very important asset in our lives, post-secondary education, is important as well.
Concerns are arising over the amount of disposable income that graduates would have to use to pay their loans. Historically in Canada, the loan repayment period has been about nine to nine and a half years. Individuals who have taken loans have used about 10 per cent of their disposable income to pay those loans. In the very high loan areas -- $25,000 to $30,000 of indebtedness -- 30 to 40 per cent of disposable income is being used to repay the loans over a period of 15 years. The difficulty for the economy is that these individuals cannot establish families, buy cars or buy homes, which are the economic benefits that the country enjoys from having a very high level of post-secondary education. It is the balance that is important.
Senator Andreychuk: Looking back to what motivated me to do the things that I did, it was that education was to my personal benefit and it was also my obligation to contribute to the body of knowledge of my country, from which I then reaped some benefit. That kind of debate was missing throughout.
What has happened since the 1960s when I obtained my post-secondary education and now? That debate is important. I hear people say things like, "It is his education. Let him pay for it." That was not said when I was going to school. It was believed that each person who got an education was an investment in the country.
Equally, the individual felt a responsibility not only to make money later but also to contribute to the body of knowledge and to the welfare of the country, be it public service, responsible behaviour or what have you. I am pleased to hear that you are doing some modelling on that.
Senator Forest: The banks are saying that they did not make their business case very well and they are in difficulty. Have they given any indication of what their actual losses are? Are they of tremendous magnitude? Are they not saying or are they hinting or what?
Mr. Townsend: I think it is less the case that the business case was not prepared well than that circumstances have been changing very rapidly. I will present a few of those that are causing some concern to the lending institutions.
Historically, we have had a large number of university students as borrowers, a lesser number of college students, and a very small number of private career college students who are borrowers. This has been changing. Although university students still represent the majority, it is just the majority now rather than the preponderance of borrowers. Community college students and people who attend private career colleges are representing a growing proportion of the loans.
Under our program, banks cannot refuse a loan. If a person qualifies under our needs assessment, they must provide the loan. The rate of default differs among university graduates, community college graduates and private career college individuals.
The absolute number of individuals receiving loans to attend career colleges has doubled in the last few years from about 25,000 to 50,000. The average default rate on these loans is very close to 40 per cent. Therefore, lenders become quite concerned if they see a larger number of individuals getting loans who fall in a category where the default rate is higher. This is one of the areas they point to as causing them some concern.
Senator Forest: In that regard, is anything being done about the institutions from which there is such a high rate of default? Is anything being done about de-certifying them?
Mr. Townsend: Provinces are interested in the accreditation of institutions. It is a provincial responsibility. We have formed a working group with our provincial colleagues to look into more the accreditation of these institutions than the de-designation of them.
As well, in some cases it is important that individuals receive the training but a loan may not be the best vehicle. There have been changes in a number of the social assistance programs in the provinces over the course of the last few years, and this has created an increase in the numbers of people who have been on long-term social assistance looking to gain some post-secondary education in order to re-enter the labour market. These transitions can be particularly difficult and made more so if there is a loan to repay as well. We must look at the implications of a number of social policy decisions which have been made over the course of the last five years.
Senator Andreychuk: Are some of these institutions privately-owned institutions as opposed to public institutions?
Mr. Townsend: Yes. The majority of these institutions are reputable and provide very good service and are important. They tend to concentrate the period of study to a very short period, and they are oriented towards providing individuals with skills which allow them to obtain jobs immediately. The ones we hear about most frequently are in the high-technology areas. They are a valuable component of our overall post-secondary education. There is a range. I have mentioned one kind of school; there are obviously other kinds of schools as well.
Senator Forest: Of the 2 million Canadians participating in post-secondary education, what percentage of those are accessing the loans program?
Mr. Townsend: At the university level, it is about 30 per cent of people entering; at the community college level, it is about 25 per cent. It is much more difficult to get a precise number at the community college level because of the way in which statistics are kept, but, if you would permit me a little latitude, I think it is around 25 per cent. We cannot give a number on private career colleges because enrolment figures are not kept at these institutions.
Senator Forest: I am involved in areas which deal with learning in the workplace and continuing education. I should like to know how much help we are getting from private industry in providing those kinds of programs for their employees. Do you have any sense of where that is going? We are trying to encourage that among employers and institutions.
Ms Nixon: I do not have the statistic in my head. A survey is done every year of employers and how much training they actually do with their employees. I can access that for you and obtain that figure. I know that it is discouragingly low at times, but I also understand that many employers are dealing with pressures and a variety of circumstances. We do not get involved as much as we used to in our department with workplace training for a variety of reasons, but we do workplace literacy programs or we indirectly fund them. In terms of other workplace programs, very seldom are we involved now.
Senator Forest: I am thinking of the co-op programs at the universities, where there was a real partnership. I am hoping there will be a growing number of programs where employers are giving employees the opportunity to learn. Certainly now in Alberta, where we have had a high unemployment rate and now we are looking at a shortage, we are encouraging businesses, even if for no other reason but for their own economic well-being, to keep their people. It is wise to assist them to become involved in those kind of programs and programs that go beyond just improving the skills for the job.
Ms Nixon: That is right.
Senator Forest: I am interested in that because it goes back to something which Senator Andreychuk mentioned, namely, responsibility of not only individuals but also the businesses in the community.
Ms Nixon: The businesses that have flourished in the past number of years have probably been the ones which have recognized the need to train and to introduce new ideas and new technologies to their staff. Many people know much more about this than I do, but I agree with you that it is important.
Senator Perrault: I have been impressed by the interesting and important information brought to us today by Ms Nixon and Mr. Townsend.
There has been a profound change in education since I graduated from UBC. They used to have recruiters at the gate waiting to hire people. It was a great issue that we were being hired away to go down to the United States to high-paying jobs. In recent months, I have had many discussions with young people. There is real concern out there. The other day, a guy said, "I have a Ph.D.," and he was driving a taxi from the airport to my home. He said, "Don't you realize how grave the situation is?" I said, "Indeed, we do." He said, "I cannot get employment based on the ability that I have acquired in post-secondary education." You have sounded these same notes in your testimony today.
Unless reforms go hand in hand with an employment strategy, we will have a continuing problem.
When a young person says, "I owe $30,000 to the bank," and he is on minimum wage working for a hamburger chain, how can he repay that amount? It must be related to income, surely, and it must take a long period of time.
Many people are deferring decisions to get married, as you rightly pointed out. The very foundation of our society is affected by this crazy business.
One chap told me the other day that the collection agencies were down his throat and deducting money from his income. He told me what his income was, and it was pitiful. This is a terribly serious matter.
With high unemployment rates in most of the provinces, I am glad to hear about that mini-boom in Alberta. That will help all of us. British Columbia has a flat economy now. It is very tough for supposedly prosperous British Columbia. The purchase of wood products by the Japanese is profoundly affecting our revenues in the province of BC.
I got through university through a combination of all sorts of things, including bursaries, and so on, but it is a tougher situation today than it was when I was at university, which was just after the Ice Age.
I appreciate the fact that you seem to be making inquires in so many different directions. I think you realize the gravity of the situation. This has the potential for social revolt if we do not do something about it. You cannot have the best educated generation in the history of Canada embittered with a system that does not provide them with the opportunity to form families and to gain a useful, constructive place in society. I do not want to be driven home from the airport by any more by Ph.D.s and harangued for an hour as we travel.
We all appreciate the information that you brought to us this morning. However, what is being done in the United States? President Clinton made some statements that he was very much in favour of a program to aid students. Have you monitored that? Do you have copies of the proposed Clinton initiatives?
Mr. Townsend: We monitor the situation in the United States, along with other countries.
Our country continues to have a program of student financial assistance that is seen as one of the best in the world, but there are a number of interesting initiatives that have taken place in the United States that we are studying. The government accounting office has pointed out one to us. There is a high drop-out rate for students that have what we refer to as need which is not covered through the loans. So that our loan limits do not cover the entire assessed need. The level for this group of students is much higher than it is for other groups of students.
The government accounting office did a research project on grants that were given to students in their first and second year of study. This research demonstrated that grants helped individuals stay and complete their studies. This is valuable work that we are integrating into our policy reform.
We are studying the American situation carefully. It is quite different from ours. One of the other areas that we are looking at is their private lender income-contingent repayment scheme, along with the programs available in Australia, New Zealand, Sweden, and other countries.
Ms Nixon: One of the things that is really different in the United States is that it is an enormously complex system. Every student receives options centred around the packaging of a student loan package. ICR is optional. You must be enormously informed about what is out there in order to be able to make choices wisely in that system. They have many banks and different players involved in different ways. We have had exchange visits and some of the people who came up here looked longingly at our situation because it is so much simpler than what they have in the states. However, there are lessons to be learned from other countries' experiences.
Senator Perrault: Another source of concern on the part of the young people in my province is that a high population of students come from offshore. Most of them come from families with means and good incomes. When I am told by a young Canadian that he cannot afford to assume the debts that will be related to his attendance at university while offshore students are given places at Canadian universities, that causes me a great deal of concern.
I have been out to UBC and I have observed this phenomenon first hand. There is an extremely high percentage of foreign students. The universities, however, welcome them because in some cases they pay a higher fee to attend. It is very little comfort for a Canadian young person to be told that this is the debt scenario that you face with no assurance that you will have an income which will make it possible to repay that debt while some offshore student gets that place in the university.
Senator Corbin: When you say "offshore," to what are you referring?
Senator Perrault: I am referring in some instances to students from Asia. They are hard working and able students, but I do not want to see too many placements given to them when we are providing the educational institution.
Senator Forest: Many of our institutions are marketing in those countries to attract these students.
Senator Perrault: Sure they are, because it is a source of income for them. I understand the dilemma facing the universities.
Senator Forest: Also, our foreign students bring a certain culture to our universities. That is very important to our students, too.
Senator Perrault: I am not criticizing that fact. I simply voiced my concern that there may be a great number of young Canadians who are deferring a decision to attend an institution of higher learning or to pursue post-secondary education because they fear the financial consequences of it. This is what they are telling me and that is what concerns me.
The Chairman: Thank you, Senator Perrault for your speech about British Columbia. It is interesting to know that, although you come from the other side of the mountain, you still believe, as we do, that we have the best education system in the world right here in Canada.
Senator Perrault: It is a great system.
Senator Corbin: I have been following the work of your committee, Mr. Chairman. I commend you and the members of the committee for spending long hours on this topic.
I looked at the information provided to the committee this morning. If this question has been answered, do not repeat yourself because I will find it later.
At paragraph 5, page 7, you state that "concern was expressed at the concept of income contingent repayment..." Could you explain that to me in plainer English? I read the French version and it appears clearer, but still I do not understand the fundamentals of the problem that is alluded to here.
Ms Nixon: We were trying to highlight the differing opinions held by the provinces concerning this whole issue. Currently, many of the provinces have what they call debt forgiveness programs or debt remission programs in place. So that when a student graduates, the provincial portion of the loan would be capped at a certain threshold and the amount above that threshold would be paid by the province. I think Manitoba is the only province at the moment that does not have a remission program of some kind. Some of them are more generous, other less generous. In particular, the western provinces are quite satisfied with the debt remission loan forgiveness model and they do not see a need to substitute an income-contingent repayment model for what they currently have in place. At the moment at least, many of them have said to us that they would prefer that we assist them with their debt remission programs rather than introducing something that would look like an ICR scheme.
Senator Corbin: What would be the shape of that assistance that they are requesting?
Ms Nixon: It would most likely be a monetary shape. Although we have not by any means eliminated the possibility of finding an alternate design that they would buy into, there have been positions taken in the past which indicate that they would say, "Why can you not just put some money into our debt remission program and assist us?" Since federal loans are 60 per cent of the problem and provincial loans are, generally speaking, 40 per cent, then at the moment they feel they are carrying the burden of assisting with debt at the repayment end of the scheme.
Senator Corbin: Would that be tag money? In other words, this would not be a general transfer into the general funds of the province?
Ms Nixon: It would be targeted.
The Chairman: We have kept you later than you had wanted to stay, but I should like to thank you for coming here this morning.
Have you thought of any way to combine your millennium scholarship program taking into consideration merit and need? Will you be making any recommendations to the Department of Finance concerning those two criteria? Sometimes the two do not go exactly together, but have you thought of that type of scholarship?
Ms Nixon: Those possibilities exist. Have we thought about them? Yes; you think about all the variations that are possible out there.
At the moment, it is important to try to evaluate. If you had two streams, how would you balance that with the overall objectives for the scholarship fund -- that is, to help needy students -- while trying to reward those who have some merit? It is not outside the realm of possibility but it is not something that we are actively working on. It is something that we can certainly talk to our finance colleagues about.
Obviously, your preference would be to see them as two separate streams rather than any combination?
The Chairman: I think it is important that we keep people of merit in Canada rather having them go to the United States. If we can help them by giving them this extra grant money or scholarship to stay in Canada, then we should do so. Presently, we are exporting brains instead of raw resources. If we can keep some of those scholarship candidates here in Canada to train our people, then that is something that we should work toward.
Please keep that thought in mind. Thank you for coming here this morning. I hope that we can call on you again if we need to do so.
Ms Nixon: Certainly.
The Chairman: I think that that our study in education has awoken the political parties, the provinces and our government. Even when the Prime Minister speaks, he talks about education. During the last election every leader of every party placed education at the top of their agenda. Even the provinces are talking about education. If we did nothing else on this committee than stir up this country, we are doing our job.
The committee adjourned.