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Friday, October 22, 2021

Are Trudeau and the Liberal government profiting off student debt?

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TORONTO — NDP Leader Jagmeet Singh, who has promised to “immediately and permanently” get rid of charging students interest on federal student loans, has accused the Liberal government of profiting off student debt.

Already, five provinces no longer charge interest rates on these loans — British Columbia, Manitoba, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island — and Singh wants the federal government to do the same.

The New Democrats, who have been attracting younger voters according to polls, have highlighted affordable post-secondary education as a key area of their platform messaging. In addition to eliminating interest charges, they have also pledged to forgive up to $20,000 in student debt and double non-repayable Canada Student Grants.

THE CLAIM

“Since coming to power, Trudeau has profited off of student debt, to the tune of nearly $4 billion in interest payments,” Singh wrote on Twitter this past weekend.

“It is a fact that in the six years that Justin Trudeau has been prime minister, if you look at the federal interest that’s been collected for student debt, that has been a $4-billion cost for students. And the prime minister has been responsible for that,” he told reporters during a campaign stop earlier this week.

CTVNews.ca digs into whether this statement is accurate or not.

CONTEXT AND ANALYSIS

This is not a new claim by the NDP, which also made the charge in 2019 ahead of the last federal election. At the time, Singh said Trudeau’s government was “raking in billions of dollars in interest from young people” and that “making a profit off student loans is wrong.”

“Profit” is defined by how much has been earned or gained after expenses and other costs have been deducted. As Investopedia defines it, “the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question.”

To test the validity of Singh’s statement, we looked at the numbers: how much does the government spend on the program, how much it makes, and other related details.

During the previous election, the total amount of student debt at the federal level was estimated at close to $17 billion, with nearly $3 billion in interest collected since 2015. The total amount of student debt owed now stands at $22.3 billion as of July 31, 2020, according to information CTVNews.ca requested from the Human Resources and Skills Development Canada (HRSDC).

The government handed out $1.63 billion in Canada Student Grants to more than 528,000 students during the 2019 to 2020 loan year, more than double the amount granted between 2015-2016, according to the Canada Student Financial Assistance Program Statistical Review. It also made loans totalling $3.45 billion to nearly 608,000 students.

When combined with the previous three years, the government issued a total of more than $13 billion in loans and about $5.6 billion in student grants. The amount spent on student grants over four years already exceeds the amount of interest the government collected over the last five years.

The average Canada Student Loan balance at the time of leaving school in the 2019-2020 academic year was $13,549, according to figures provided by the HRSDC. Over the last 10 years, on average, it took a little less than six years for a student to pay off their Canada Student Loan, while 25 per cent paid off their loans within three years, the agency added. That loan average jumps to $28,000 at the end of an undergraduate or master’s degree, according to a Statistics Canada survey published November 2019, and the figure cited by the NDP.

But the government also writes off hundreds of millions of dollars in loans each year for a number of reasons, including bankruptcy, extreme financial hardship, and settlements. The majority comes from loans that have not been paid or acknowledged for six years, the Canada Student Loans Program annual report for 2018 to 2019 states. For the 2020-2021 fiscal year, $185.5 million in Canada Student Loans were written off, according to figures provided by the HRSDC. In 2018, Ottawa wrote off more than $200 million in outstanding student loan payments.

These figures also do not account for other costs incurred by the government, such as their repayment assistance plans, which gives some borrowers a reprieve from repaying the loan until they have earned a certain minimum amount. This means the government covers the interest portion, or may contribute toward both the principal and interest, depending on the various factors.

In addition, the government has suspended the accumulation of interest on Canada Student Loans for two years, starting from April 2021 and ending March 31, 2023. Prior to this, the government had already lowered interest rates with the variable rate set to prime, instead of prime plus 2.5 per cent, and the fixed rate set to prime plus two per cent, from prime plus five per cent. 

The interest also does not accumulate on the loans while the borrower is in school, or even during the first six months after they leave. Meanwhile, the eligibility criteria to qualify for loan forgiveness was also expanded so that more students with severe, permanent disabilities may be eligible.

These are all “costs” incurred by the government. Throw in administrative expenses, that’s another $137.1 million in 2018-2019. In the annual report for that year, loan expenses totalled $2.66 billion, while interest revenue was $841.4 million.

That year, the government also gave $492.3 million to Quebec, Nunavut and the Northwest Territories to support their own financial assistance. These three jurisdictions do not participate in the Canada Student Loans Program, which uses a single application process for students looking to receive federal and provincial aid for post-secondary schooling.

What about the $4 billion figure Singh used? If we add the amount in the “Interest on Canada student loans” line from the Public Accounts of Canada from the last five years (2016-2020), the total amount of interest collected comes to $3.63 billion. If we include 2015, the total is $4.25 billion.

Finally, the amount the government receives in interest is put back into the Consolidated Revenue Fund, the HRSDC says, and is not allocated to any area. All funds paid to the federal government are held in this central account at the Bank of Canada. Trudeau and the Liberal government do not benefit from the interest collected.

CONCLUSION

While the government does collect a very hefty amount in student loan interest each year, it is already significantly less than what it spends on student grants – which has also increased. Even excluding grants, the amount the government spent on bad debt, borrowing expenses, interest subsidies, repayment assistance programs, administrative costs, totaled more than $1.1 billion for the 2018-2019 loan year, higher than the $841.4 million it received in interest payments.

Whether student loans should incur interest is its own issue, but it is clearly false to say that Trudeau, or the Liberal government, is “profiting” from that interest.

Edited by CTVNews.ca Michael Stittle

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