Broken student loan program tightens noose

by Julian Benedict

Canadians pushed over the edge by high-interest student loan debt can look forward to even more heavy-handed collection tactics in 2008.

Despite figures which show that, on average, 22% of borrowers who default do so after being denied Interest Relief, a recent Auditor General’s report reveals that the federal government is now introducing “an extensive modernization strategy” to “improve” its collection of defaulted loans.

The Canada Revenue Agency (CRA), which already has at least twelve different collection agencies actively pursuing defaulted loans on its behalf, has also been busy clawing back millions in personal tax credits and refunds. A recent report confirmed that over $20 million dollars in GST credits, and almost $300 million in T1 income tax refunds, have already been recouped in just the last few years. But much of the money being collected isn’t principal. According to one report, at least $400 million dollars of outstanding loan debt currently under collections is interest - with finance charges mounting daily on loans already in default.

The Canada Student Loans Program, armed with the nearly limitless resources and power of the CRA to investigate and seize the meagre estates of defaulted borrowers, appears to have little incentive to implement meaningful reform. But borrowers don’t stop asking for help. A series of internal student contact summaries prepared by the National Student Loan Service Centre for the federal government show that Interest Relief and collection-related problems remain among the top issues borrowers call about each month.

There is little doubt that collection agencies hope the government doesn’t change its approach to debt recovery. One former federal employee who now helps student loan debtors says that agencies can expect to receive commissions of up to 17% on funds they recover for the feds. “It is a lucrative business for these agencies,” the insider says, “especially if they are prepared to say just about anything to grind debtors down.” Once in collections, fixing the problem becomes even more difficult. One of the biggest barriers facing borrowers is the government’s long-term moratorium on student loan bankruptcy - now thankfully under review by lawmakers -- but which currently leaves debtors no room to negotiate with determined collectors.

Borrower-horror stories from across the nation suggest a sea of red-tape, lost forms, and harsh collection tactics are all common problems. Ali Samadi, who graduated in 2003 with an Engineering degree from Ryerson, says he did everything he could to keep his loan in good standing despite having trouble finding work after graduation: “I applied for [the] Interest Relief program, but in less than a year they started to withdraw money [from my account]. Unfortunately, they ignored all my communications, defaulted my loan, and sent my case to [a] collection agency,” he said.

Darcy Ingram, a loan borrower from British Columbia, says he was forced back into school when attempting to recover from cancer surgery. “I had to go directly back into full-time study, despite having severe chemo, extensive fatigue, and other fun side-effects. All this because I could not afford the [loan] payments,” he explained.

Websites like CanadaStudentDebt.ca provide another forum for borrowers to share their experiences. Mark O’Meara, the founder of the site says that collection agencies appear to rev-up their activities around Christmas, in an effort to augment year-end earnings. O’Meara has also had three borrowers post suicide notes on his pages. Hundreds more speak of depression, marital breakdown, and addiction problems resulting from their student loan strife.

Rumours swirling around Ottawa suggest that tinkering rather than meaningful loan reform is expected when the feds announce changes to the program in the next federal budget. Only one thing is for sure: if the Government of Canada doesn’t address systemic problems with the system, such as high-interest rates on loans, and ineffective Interest Relief programs, thousands more are sure to default in the coming years.

About the writer:

Julian Benedict has an Honours in History from Simon Fraser University, and is the co-founder of the Coalition for Student Loan Fairness. LINK He has written several research reports and articles on the student loan system, including "The Canada Student Loans Program: Solutions To Improve Public Confidence and Operational Effectiveness" and "Slaying the Revenue-Neutrality Dragon" in Douglas Welbank's book: The Rise and Fall of Julius Seizure.

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