Student Debt Already a Crisis

Times Colonist May 30, 2010

There is increasing evidence that Canada's student loan program is a train wreck waiting to happen. We noted last Sunday that post-secondary students across the country owe more than $13 billion in outstanding loans.

Many are in over their heads. One out of five students who attend a public university cannot repay what he has borrowed.

The situation is even worse at private career colleges. There, 40 per cent of students will default on their debts. At some vocational schools in B.C., loan delinquencies exceed 75 per cent.

These are well beyond the default rates for business loans and residential mortgages. Part of the problem is easy money. Students with limited resources can borrow huge sums, virtually no questions asked.

For example, kids whose family income is $25,000 can borrow $40,000 for a four-year degree program. Pretty much all they need is proof of enrolment and a clean credit history.

Yet what chance do they have of paying it back? The Canada Student Loan program charges interest at the prime lending rate plus five per cent. A loan that size adds up to monthly payments of $360 for 15 years.

Of course, if the education that students receive is worth what they paid, perhaps they can make good on their debts. Yet is it?

The staggering default rates at private vocational schools would certainly suggest otherwise. But even at public colleges, there is room for serious doubt.

Tuition rates at Canadian universities have grown at double the cost of living for at least 30 years. In just the past decade, fees for a four-year arts or science degree in B.C. have more than doubled, from $8,800 to $20,000.

Add in room and board, books and other charges, and an undergraduate degree costs about $60,000. Professional colleges like law and medicine charge $90,000 or more.

It's possible these increases have been used to improve the quality of instruction. Yet there's limited evidence for that. Between 1987 and 2006, the number of full-time students at Canadian universities grew 57 per cent while the number of full-time professors grew only 20 per cent.

That's why so many courses nowadays are taught by graduate students or teaching assistants, rather than faculty. It's why class sizes have ballooned and multiple-choice exams have replaced written essays. Students are paying more but getting less.

Universities are able to charge the limit because they know kids can borrow the money -- not necessarily that they can repay it. The huge run-up in tuition rates has been matched, step for step, by burgeoning student debt.

The situation resembles what happened with mortgages in the U.S. There, for a while, house prices soared because buyers got easy credit.

The bubble eventually burst when mortgage holders could no longer afford the huge monthly payments. The housing market collapsed, taking with it a large chunk of the banking sector.

The only reason Canada's student loan program hasn't gone the same route is that the amounts are not as large and the federal government quietly writes off the losses. But the personal damage inflicted is just as severe. Young people begin their lives hopelessly in debt, or worse, effectively bankrupt. And high tuition rates are being propped up by reckless lending policies.

We need a student financial assistance program, recognizing that even with part-time work and family support, post-secondary education is beyond the reach of too many young people.

No one should be denied an education because his or her parents lack money. But student loans in their present form have made education less affordable, not more.

With tuition rates now in the stratosphere, it's time to rethink post-secondary financing. And the place to start is on campus. By one means or another, we need to ensure that students get value for their money.

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