a gees ot I eee viene Ae oes Prem Ber Stn eepecdars gf aaa) em seat Ee 2 carreras -F _ xd > July '95 Baie Press Government defaults on BC student loans Charter banks provide healthy competition for college market by Paul Andrew Dramatic changes are in store for college students who are relying on fi- nancial aid to pay for post-secondary education in the upcoming school year. Before now, students requiring loans to get them through the school year have been able to choose from a number of major Canadian banks for handling federal and provincial student loans, making the process more stream- lined and less of a hassle than applying for a loan at a Charter Bank, That will all change this September. In a statement prepared by Julian Smit, Student Society Treasurer, stu- dents are advised to transfer all of the necessary paper work to either the Bank of Nova Scotia or the Royal Bank of Canada, if they intend to apply for a new loan for the next school year. Only these two banks will be handling new pro- vincial student loans. On the other hand, if you will not be applying for another loan, old loans will still be handled by the bank you are using now. These change come with the rev- elation that the BC Government will no longer guarantee student loans to banks in the event of a student defaulting on his or her payments. Linda Dallen, act- ing Director for the government Student Services branch in Victoria, says no stu- dent loans will be guaranteed as of Au- gust Ist, and if a better deal can be ob- tained by a Charter Bank, it shouldn’t be overlooked by students. She could not say why the government has decided to stop guaranteeing payment to banks if students default on a loan. “I know some of the lenders [banks] will be offering student loans independently, and if they can give a better deal than the government, then aa) that’s a bonus for students,” Dallen said. “No contracts have been signed yet either, so we can’t say anything until the contracts have been signed off,” Dallen continued. Patty Louis, the Student Finance and Placement Officer at Douglas Col- lege, says the reason for the change in government policy on student loans is likely because of the high rate of de- faults on loan payments. “They are en- tering into a risk-sharing agreement with a few lenders, so they [the gov- ernment] will still be offering student loans, but I think it’s because of the concern over the default rate, and that’s prompted them to look at ways of spreading the risk...not all banks are FINANCIAL AID | ees ene) willing to participate in a risk-sharing type agreement,” Louis explained. So if a student defaults on a loan, who would be the one to repay it? “That’s a good question,” Louis said. “My understanding is that the gov- ernment pays a risk premium to the lender, in exchange of the lender assum- ing the risk in the case of a default,” Louis emphasized there may be some positives as far as interest rates are con- cerned, saying students may be able to negotiate a floating rate of interest rather than a fixed interest rate. “If you borrow when the interest rate is high and the loan is at a fixed rate, you may end up paying up to 15%,” Louis ex- plained. “So a floating rate that is of- So what's the deal with the banks? by Brian Donaldson The provincial government is making plans to privatize the financing of your education. Because the government has decided to stop guaranteeing student loans as of August first, the Bank of Montreal will no longer be providing money for provincial student loans. As an alternative, it will be offering qualified students the option of applying for a line of credit. During an ad hoc interview, Sheryl, a Bank of Montreal operator at 665-2700, explained some of the ins and outs of the proposed student credit line She said that during the course of the school year and for one year after graduation, students would be required to make monthly interest payments. "Now to qualify for a student line of credit, you will need a co-signer." If you qualify, you can borrow up to $5,000 per year. When asked if an employed, part- time student would qualify, her anwer was no. "In order to ensure repayment, the bank requires a $40,000 per annum income." When it was suggested that her bank is not really going to be helping students who do not already have a line of support, Sheryl replied, "not really, because this is another option." However, when I asked her directly if ] would qualify if I could not get a co-signer, her answer was no. So much for business providing education of its own free will... The two banks that will be receiving 5% premiums on student loans are the Royal Bank and the Bank of Nova Scotia. A Scotiabank employee by the name of Helen (at 1-800-972-6842) explained some of the financial details of her bank's student loans as of August first. WELCOME TO CAMPUS _ MIASTERCHARGE ACCEPTED HERE She stated that her bank will be offering two kinds of student loans: class A and class B. Full-time students would qualify for class A loans while part-time students would qualify for class B loans. = Interest rates on these loans will vary according to the Bank of Canada prime lending rate. Both loans are planned to have rates of prime plus 3.75% without a co-signer, and prime rate plus 3.25% with a co-signer. | the fered by the banks might turn out to be an advantage.” Bob Knight, Divisional Manager of the Toronto Dominion Bank, says students shouldn’t worry much as far as acquiring a loan is concerned. The TD Bank will be offering a private pack- age to students who want an alternative to dealing with the government. They will not be included as one of the banks used by the BC government to process student loans. “We feel that we can offer an op- tion to students who require financial aid,” Knight said. “The reason we are not one of the banks participating in the government’s federal/provincial loans scheme is because we didn’t like the way negotiations were going with them, so we pulled out of the program.” Knight denied the reason they pulled out because of the high default rate on students loans. He then went on to point out the option that the TD, and others, will be presenting to students. “We will be offering our own student loan program at the TD Bank,” Knight said. “Students can go to any TD branch right now and find out about it, but there will be a 1-800 number very soon that should make things easier,” he contin- ued. This situation conjures up ideas of healthy competition in a market once dominated by the government. The banks suddenly find themselves in a position where they can compete with the government in offering a better deal to students. Julian Smit advises students to become prudent when considering a loaning institution. “Shop around and ask questions. Both the Royal and the Bank of Nova Scotia offer different student banking packages,” Smit then goes on to em- phasize the importance of transferring your current student loan right away, to an institution who will be dealing with the government in the future. “If you currently have any outstanding loans, and there is achance you will have more in the future, get the forms to transfer your loans and take the completed forms to a convenient branch of the Royal or Scotia Bank,” Smit continued. “This way, everything will be set up by the time you want to negotiate your new loan document.” he ult of onsum Grant Black puts on the feedha and lives to write about it... iat father motoll!