February 17 1999

Btther Pres

  
 

Inside...

Pull-out volley-
ball supplement

  
    

   

 

New plans for
student loans

Annette Martin

“Harmonisa-
tion”—what is it, .
and what can it do
for you?

“Harmonisation” is not the name of a
new band, but the federal govern-
ment’s new plan to combine, or
‘harmonise’ federal and provincial .
student loans. The idea is to stream-
line both loan applications into a
single assessment and administrative
process.

The same 60/40 cost sharing
arrangement would remain in effect
for all the core elements of the
program, and province-specific grants
would continue to be fully funded by
the provinces.

So far, only Nova Scotia and
New Brunswick have signed the new
agreement while discussions are
ongoing with the other provinces. The
feds are hoping that all students will
be negotiating only one loan by
August 2000.

But why the hurry? Government
wheels usually move creakingly
slowly—what is driving this rela-
tively speedy agenda?

The main push for Harmonisa-
tion is coming from the banks, who
are unwilling to renegotiate “risk
sharing” agreements unless each
student has one common loan—and
the present agreement expires Sep-
tember 2000.

Patty Lewis, Financial Aid and
Placement Supervisor at Douglas
College, says, “The lenders are push-
ing hard for the August 2000 deadline
when risk sharing is up for renewal.”

What is risk
sharing?

Prior to 1994, student loans
were provided through the banks, but
the job of collecting defaulted loans
was the responsibility of the govern-
ment.

Risk sharing allowed the .
government to retain responsibility
for determining student loan eligibil-
ity while banks assumed full owner-
ship of the debt and responsibility for
collection of the loan. In exchange,
governments agreed to pay the banks
a “risk premium” (5% of the loan

value).°

The Canadian Federation of
Students (CFS) argued at the time
that these agreements were a “slip-
pery slope” towards bank interven-

tion in student loan policy. Now these

fears may be realized under the
proposed new agreement as credit

et
ik

Good deal? Bad deal?

unpaid after 9.5 years. Of these 7%
not all seek bankruptcy protection.

In New Brunswick, which has
already implemented Harmonisation,
6.5% of students who applied for
loans last year were turned down for
assistance and will not be able to go
to college or university.

   

Now, instead of having 2 big debts, you get ‘one huge one!

history, bankruptcy law and higher
risk premiums are all on the table.

Credit worthi-

ness

Lewis says that “traditionally,
student loans in Canada have been a
social program, permitting access to
education for students facing finan-
cial barriers.”

The CFS says, “In the absence of
a comprehensive national grants
program, public loans are the only
form of assistance available for
students. Most students would not
qualify for private loans which have
criteria that include credit history,
collateral and personal income.”

The federal government, how-
ever, has introduced eligibility
changes to more closely resemble
consumer loans which will require
that type of criteria.

Banks claim that anyone who
has a history of credit problems can
be predicted to default on a student
loan, and is a poor credit risk,
although the federal government has
no evidence to indicate that a history
of credit problems is linked to higher
default rates on student loans.

In fact, CFS figures show that
since the inception of student loans
in 1964 through to March 1996, 80%
of loans are repaid without any
incident, 93% of all loans are eventu-
ally repaid—including those once in

default—and only 7% of loans remain

What Harmoni-
sation can do

Lewis is more optimistic than
the CFS. She believes that the prov-
inces will have options and that BC
could choose to guarantee student
loans, which would do away with the
need for credit checks. In fact, she
sees several pluses for students in the
new arrangement.

Many students have been
unaware that although they fill out
one application for their student
loan, they have to repay two parts in
two separate payments to two differ-
ent governments, which leads to
confusion and some apparent default-
ing on loans.

After graduation, interest
payments are immediately added to
the federal government portion of
loans whereas the BC portion offers
six-months of post-graduate interest
relief.

Under harmonisation, interest
relief will be available on the federal
money as well because it will be
included in one loan with only one
repayment.

There will also be the possibility
of debt reduction on the entire cost
of the loan, and more portability of
loans for students wanting to learn in
a different province.

“Harmonisation will provide
consistency and doesn’t need to be
less of a system than we have now.”
says Lewis. “Some features of the new

Volume 23 Issue 18

arrangement must be accepted, but
the provinces can choose the add-ons,
and BC can continue to offer the BC
grants.”

How do Doug-
las students feel?

Douglas College students asked
about their student loans were fairly
evenly divided on whether paying off
the money would be a problem, or
not, and even those anticipating at
least $25,000 in debt had no plans to
default. Not even the female student
who cringed when the topic was
introduced, and said, “I don’t want to
think about it.”

One counselling student said,
“I'm not worried about finding work
and paying it off, but I don’t have
any long term plans.”

A professional writing student
said, “No, I don't plan to default; it
will be less than $10,000 and I can
handle that. “

John Morash, a part-time David
Lam student who is also registered at
SFU said, “I will pay for it; it’s a good
investment. You can spend $26,000
on a new car with a three year
warranty, or you can get an education
which will last you a lifetime.”

Avoiding the
problem

But there is one aspect of
student loans that cannot be over-
looked. A student must be taking a
minimum of nine credits to qualify
for financial aid.

Frequently, students find
themselves enrolling in courses they
either don’t want or don’t need just
to fulfill this requirement. Not only
does this take away spaces for stu-
dents who really need those classes,
but it also lengthens the time it takes
for a student to complete their
qualifications—plus it adds to their
debt load.

As Patty Lewis says, “The debt
load won't be so high if students
could get through more quickly.”

So what's the solution? Try
lobbying both federal and provincial
governments to increase spending on
post secondary education. More
teachers plus more classrooms would
equal greater access to learning for
students.

Meanwhile, to help offset
education costs check out Canada’s
free awards web site:
www.studentawards.com