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Student loans in Canada and the US – the good, the bad and the ugly

Canada and the US have seen a great deal of coverage – and concern – about student loan issues in the past month.

Human Resources and Skills Development Canada released its Canada Student Loans Program Annual Report 2009 - 2010 in October. The document highlighted a “year of change” for the country in regard to student financial support. For example, a variety of existing grants were newly consolidated into a Canada Student Grants Program, and as a result 150 000 more students (a total of some 290 000) received federal grants for higher education over the previous year. Meanwhile, loans for study were disbursed to approximately 402 000 full-time students. And under new measures designed to support part-time study, 2 698 loans were provided to part-time students, double the figure from 2008/09. Finally, a newly implemented Repayment Assistance Plan allowed for the Canada Student Loans Program to provide support to more than 160 000 individuals who experienced difficulty repaying their loans in 2009/10 – a 20% increase over the previous year.

Despite an overall positive set of findings in the report, a worrisome detail emerged from the accompanying actuarial report: “the $15 billion limit on the aggregate amount of outstanding loans” allowed for by law in Canada will likely be reached in January 2013. In reaction, the Canadian Federation of Students is urging the government take decisive action to prevent “bankrupting a generation”.

In the United States, the student debt problem (estimated to total close to USD 1 trillion or EUR 712 billion) has prompted intervention by President Obama. Noting the enormous ‘drag’ effects of this mountain of debt on American economic performance, the White House announced on 25 October the following: 

  • A new “Pay as you Earn” proposal. This would extend to more borrowers (and implement earlier, in 2012 rather than 2014) a cap on monthly payments of 10% of discretionary income (down from 15%). 
  • A discount for loan consolidation. For those borrows with loans from multiple sources support will be provided to ease these into one consolidated loan, for simplicity and ease of repayment. 
  • A “Know Before You Owe” financial shopping sheet. The Consumer Protection Bureau and the Department of Education will create a model financial aid disclosure form. Colleges and universities would use this tool to help students and their families better understand the types and amounts of aid for which they qualify, and help them compare financial aid package options.
Human Resources and Skills Development Canada Canadian Federation of Students
White House