I see that yet another group has called for Canada to have an income-contingent Loan Program to help students fund their higher education studies. Great idea. In fact, it’s so great that the country adopted an income-contingent system five years ago. It’s just that nobody noticed.
Many people think that income-contingency requires that loan repayments be a fixed percentage of individual income, or that loan recovery be handled through the tax system. While it’s true that some of the world’s more prominent examples of income-contingency (e.g. Australia, UK) have those features, those aren’t necessary characteristics of an income-contingent system. All “income-contingent” means is that repayments to some degree reflect a borrower’s ability to repay.
Canada has had some element of income-contingency ever since the “Interest Relief” program was introduced in 1984. Something of a misnomer, Interest Relief allowed unemployed borrowers in re-payment to suspend principal repayments for up to 18 months, during which time government would pay the interest on the loan. The program was expanded in 1994 to include borrowers who were employed but had high debt service ratios. In the 1998 Budget, the time limit went up to 30 (or in some cases 54) months. That budget also announced a system whereby borrowers who didn’t quite meet the test for full interest-relief could get a partial subsidy – unfortunately, this system was never implemented, because the government, and the banks who administered the program at the time, couldn’t figure out how to make it work properly. But the idea came back again in the 2008 Budget, with the introduction of RAP, which was basically the 1998 plan with some knobs added on.
So, like Australia and the UK, we have a system where borrowers with low-income pay nothing, and a system which phases in loan repayments gradually as borrowers begin to earn more money. The only major difference between Canada and Australia/UK is that we say if you’re above a certain income level, you should be paying off a loan quickly under a normal system of amortization, whereas they say the hell with it, and just take a proportion of your income because it’s simpler to manage that way.
Why don’t we call it income-contingency? Basically, it’s because no one wants to embarrass the Canadian Federation of Students (CFS). For years, they insisted income-contingency was the work of Satan because in making loans easier to pay it paved the way for higher tuition fees (yes, really). Yet, as the details of RAP were developed, they decided they quite liked it. Since it’s rare CFS actually backs a government program, it was generally agreed that pointing out to them that that RAP was in fact income-contingency (which they still in theory strenuously oppose) would create unnecessary problems.
So there you go. We have a reasonable student loan repayment system, which the main players like but no one else understands. It’d be nice if we could find a way to communicate this to the country so we could stop with the inane demands for income-contingency, but c’est la vie.