HESA

Higher Education Strategy Associates

Category Archives: student loans

March 03

Lowering Tuition in the UK

So, the UK Labour Party has decided that if it gets elected this spring (odds: probably just less than even), it will bring tuition fees down from their current maximum of £9,000/year to a maximum of £6,000/year.

Progressive, right?  Not in a million years.

As I pointed out back here, the weirdness of the UK system of fees and income contingent loans is that fees have risen so high that very few people – about one in five – are expected to pay it back given how the repayment system is set up (no payments on income below £21,000 [C$40,300], and 9% on the everything above it).  The rest – 80% or so – are expected to see at least some of their loan forgiven.  So if/when tuition gets reduced, those who were not expected to repay more than two-thirds of their loans will not see any benefit.  All that happens is that the debt they wouldn’t ever repay gets paid to institutions in advance, rather than lent to students and later forgiven.  Neither will universities be any better off: all that’s going to happen is that public funding will replace government funding pound for pound.

The benefit, in fact, would only accrue to those who were expected to pay more than two-thirds, and the largest benefit would go to that 20% who was expected to pay off their loans in full – i.e. the very best-off graduates (they don’t quite get off 100% scot-free; some part of this gain will be clawed back through higher interest rates on wealthy graduates).  This is why the BBC ended its Sunday interview with Labour higher education spokesman Liam Byrne, by asking the pointed question: “why propose something that benefits the Goldman Sachs graduate more than the social work graduate?”

Fair question – and so it was no surprise that Byrne ducked it, and stuck instead to his talking point that “the present system is unsustainable”.  I think by this he meant that the exchequer will spend ever greater amounts in future on forgiving loans – but if that’s the rationale, it’s hard to understand how bringing those payments forward makes it any more sustainable. And indeed, it’s worth remembering that the cause of the unsustainability (i.e. all that loan forgiveness for lower-earning graduates) is the thing that makes it at least somewhat tolerable and lightly progressive.

Now, one shouldn’t give the ruling Tory party too much – or indeed any – credit here.  The current fee/loan system was more or less designed by mistake; the Tories were under the delusion that very few universities would jack up fees to the maximum £9,000, and so the size of student debts (and hence loan forgiveness) came as a complete surprise to them.  If they could do it again, they’d undoubtedly make it far less generous to lower earners – and indeed, now seem intent on doing so by stealth, by freezing the repayment threshold and allowing inflation to erode its value.

None of this, of course, is to say that more public funds wouldn’t be welcome in the UK.  The question is, if you had a couple of billion to spend, as Labour now seems to want to do, would you: a) give it to institutions so they can improve the education they provide?  b) give it to students from lower-income backgrounds by reducing their tuition upfront (as the UK did between 1998 and 2006)? or c) hand it over to the richest tranche of graduates?

For some reason, Labour’s answer is c).  And on the politics of it, it’s hard to say they are wrong – in a poll taken over the weekend, 60% of UK voters say they back Labour’s policy.  And of course it’s easy to understand why; if you’re not paying attention (and let’s be honest, most people aren’t), you might think the tuition fee policy was actually going to make life easier for all students.  And who wouldn’t vote for that?

Apparently UK politicians – like Canadian ones – seem to think it’s better to play populist games with tuition rather than to actually do things that help low-income students.  That’s deeply unfortunate, but unfortunately not surprising.

January 13

Packaging Student Aid

One of the things about student aid that makes it such great fun as a policy area is that it’s as much about framing as it is about actual policy.  For instance, which of the following two policies would you like to have?

a)      A policy where students are asked to bear a huge amount of debt – over $100,000 in some cases for an undergraduate degree – over 25 years, and where three-quarters of students will never repay their loans in full; or:

b)      A policy where graduates are asked to pay a 9% surtax for 25 years, up to a maximum of about $100,000, but much less (possibly even $0) if their earnings are low.

If you’re a regular reader of the Guardian, you’ll probably recognize the first policy as being the one implemented by the Cameron government in 2012, to cover fees in English universities.  That’s the one the progressive types are always pointing at and shouting: “Look!  Students are being horribly indebted AND the government is losing lots of money through the program!  Quelle fiasco!”

But here’s the thing: that second program is also the English loan scheme.  As I’ve explained before, for the three-quarters or so of graduates not expected to pay off their loans in full, the scheme is simply a graduate tax.  It’s not explained that way, but that’s what it is.  It’s a packaging issue.

There’s something similar going on in student aid policy in the United States; namely, the interest in something called “Income Share Agreements”.  It’s been kicking around for awhile (the American Enterprise Institute wrote about it a year ago), but is getting more of a hearing these days because Florida Senator, and potential Presidential candidate, Marco Rubio is now backing it.  It’s basically a Human Capital Contract – someone gives you money today, and you agree to give them a set portion of your income for a set number of years.

If that sounds like a Graduate Tax, that’s because it’s exactly how a graduate tax works – the difference in this case simply being that you’re not giving that money to government, but rather to an individual who has chosen to “invest” in you.  The beneficiary is different, but the flow of funds is precisely the same.  But that difference is enough to get the idea some love from a Tea Party favourite.

And that is to say nothing of our experience in Canada where the CFS, which absolutely hates income-contingent loans, and has done so for years, applauded the introduction of the Repayment Assistance Program (RAP) – which basically makes the Canada Student Loans Program fully income-contingent – because the government simply chose not to call the program “income contingent”.

This all goes to show: in student aid, few people actually look at substance.  The real debate is about the packaging.

January 09

The Canada Apprentice Loan: Adventures in Federalism

As I noted a few months back when writing about the 50th anniversary of the Canada Student Loans Program, CSLP was at the heart of one of the federation’s key moments in fiscal federalism.  In 1964, Lester Pearson was running into opposition in Quebec on two of his major policy initiatives: the Canada Pension Plan and the Canada Student Loans Program.  A deal on both was eventually struck: any province could “opt-out” of a federal program and receive a compensating “alternative payment”, so long as they ran a program that provided citizens with essentially the same benefits.  The actual clause in the Canada Student Loans Act (stripped of some confusing jargon) reads as follows:

16. (1) Where the government of a province has, at least twelve months before the commencement of a loan year, informed the Minister in writing that a provincial student loan plan will be in operation in that province in that loan year and that [the province does not wish to participate in the CSLP], the Minister shall pay to the province… an alternative amount calculated as provided in this section.

Through to the early 90s, this was the standard way to create new programs in Canada.  If a province wanted out, you simply lopped-off a portion of the program’s budget and handed it to them.  It was only ever Quebec that wanted to do this, but in theory it was available to every province.

Now, along comes the Canada Apprentice Loans, announced in last year’s budget.  They have their own legislation, the Apprentice Loans Act, which became law last year via the budget omnibus legislation. This is a point worth underlining – it means that these loans are administered on a different legal basis than Canada Student Loans.  And what’s immediately apparent when you read the legislation is that not only has the concept of opting-out gone out the window, but it’s turned around, smashed the glass, and done a serious crowbar-job on the frame, too.

Here’s the new wording:

7. The Minister may pay a province the amount that is determined in accordance with the regulations if:

(a) the Minister determines that apprentices registered with the province are unable to enter into agreements for apprentice loans under section 4;

(b) the province has in place a program providing for financial assistance to apprentices; and

(c) the Minister considers that the purpose of the program is substantially similar to the purpose of this Act.

Put simply, provinces do not have the right to opt-out under the new Act.  The minister can choose to setup a deal and give compensation to a province if she/he chooses (which of course was immediately done with Quebec), but it’s a gift of the Minister.  If Alberta set up its own program and asked for treatment similar to Quebec, the Minister would be legally within his rights to tell them to take a long walk off a short pier.

The fact that this passed essentially unnoticed tells you something about the state of our federation.  Even ten years ago, this wording would have made Quebec go ballistic, and probably Alberta as well.  Now: nothing.  And so the government led by the man who drafted the Alberta firewall letter enacts the most centralist piece of new legislation in fifty years.

Kind of fascinating.

January 08

Canada Apprentice Loans: Adventures in Government

I know it’s exceptionally nerdy, but I highly recommend the experience of reading a new law’s regulatory impact statement, for no other reason than to get a taste of the sheer absurdity of government these days.

Take the regulations on the new Apprentice Loan Act. The executive summary on the cost-benefit of the program (scroll down a bit) reads as follows:

The Canada Apprentice Loan (CAL) will cost the Government of Canada (GoC) $74 million over 10 years, from 2014–15 to 2023–24. Benefits include income gains for additional apprentice completers as a result of the CAL. If a 10 percentage point increase in the completion rate due to the CAL were assumed, this would yield income gains of $185 million over 10 years, and net benefits to Canadians of $111 million.

The key word in that sentence is “assumed”. Or, in other words: they plucked some numbers out of the air to make the program look plausible.

To be fair to the folks who wrote this, there’s no good data available as to the likely impact apprentice loans might have on completion. There would be if the government had, at any time in the past six years, evaluated the effect of the Apprenticeship Incentive or Completion Grants, or the Tradesperson’s Tool Deduction. But the government hasn’t done any of this, so “assuming” numbers may have been the only way to go.

Another highly amusing aspect of the regulatory statement is the rationale for the program’s borrowing limit of $4,000/period of technical training. Supposedly, it’s equivalent to an apprentice’s lost earnings during a technical training period, but no source for the figure is given.

In all the largest occupational categories, the usual technical training period is 8 weeks. At a fairly generous estimate of $17/hr and 40 hours per week, the implied loss in gross earnings is about $5,440, with a net earnings loss of between $4,000 and $4,500, depending on what province you’re in. So the estimate is probably right, right?

Wrong. That math only works if you assume the apprentice does not receive EI during technical training. Once EI is factored in, apprentices would need to be making $25/hour in order to be losing $4,000 in wages per technical training period. Let me assure you: apprentices are not making $25/hour.

How could anyone make such errors, you ask? Simple: they aren’t errors. Nobody actually believes these numbers. They’re just made-up after the fact to provide cover for a decision that was made with an eye toward placating constituencies (read: construction companies) rather than addressing a real problem. It’s what happens when policy is made on the fly, and the public service isn’t asked for input until after budget night.

Some of you may read this and think: “Aha! Tory perfidy!” But resist that impulse if you can. Harper’s government is hardly the only one that does this kind of thing: the Ontario Liberals’ 30% Tuition Grant is a far more egregious example of the same process, and a more expensive one too. The OTG costs hundreds of millions of dollars per year, where the Apprentice Loans are projected to cost just $7 million/year (yes, yes, the budget said it would cost $25 million/year – now they’ve decided it will be less).

The real problem is that when Canadian governments of any stripe want to claim they’re “doing something” about education, they simply start writing cheques to learners (or their parents) and Hey, Presto! Problem solved! But the only “problem” this solves is the perception that governments aren’t doing anything about education.  Improving education – actually making a difference in terms of completion rates, or graduate quality, or what have you – that takes work. That takes thought. That requires politicians to concentrate for more than a couple of hours.

Most of all, it requires investments in institutions. And increasingly, governments seem reluctant to make those investments.

November 20

Independence Day

When should a student be considered independent of his or her parents for the purpose of calculating student assistance?  It’s a tricky question, which generates different answers in different parts of the world.

Most student loan schemes require some kind of test of parental income for at least some of their clients.  In some places, it’s a way to save money – there isn’t enough to go around, so let’s prioritize the less well-off.  In other places (including Canada), it’s because there’s a recognition that education is something that families (not just the student) pay for, and so family incomes need to be taken into account.

Not everyone goes along with this logic.  In some parts of Europe – Scandinavia in particular – the age of independence is 18.  Everybody, regardless of their family income, is considered equally wealthy (or equally poor, depending on how you look at it), and therefore automatically has access to grants and a fairly generous set of loans (about 85% of Swedish students opt to take the loan).  This approach makes more sense from an equity point of view in Scandinavia than it does here, because of smaller disparities in family income, but that’s not really why they do it.  Rather, the policy fairly explicitly is about making young people independent of their parents by giving them financial aid.  Which, to put it mildly, isn’t a goal most Canadians associate with student aid.

The question for most countries with respect to independence is when to end it.  In Australia, it’s essentially when you turn 25.  In the US, you’re independent if you’re 24 or over, if you’re a graduate student, if you’re a veteran (or are on active duty in the reserves or national guard), if you’ve ever been in foster care, or if you have children.  Quebec has no age limit, per se: if you’ve ever been married, ever spent two years in the labour force without going to school, or have finished 90 university-level credits (which effectively means “in graduate school”), or are seven years out from finishing your last period in full-time studies you’re considered independent.

The rest of Canada has a threefold test – like Quebec, it has the 24-month labour market test and the married test, but otherwise, the requirement to become independent is simply to be more than 4 years out of secondary school.  In practice that means independence at 22, which is pretty much the lowest age for any country that makes the dependence/independence distinction.

Why does Canada have such convoluted rules that don’t invoke a specific age?  Basically, it’s the quality provisions (i.e. section 15) of the Charter, which says you can’t discriminate by (among other things) age, unless you have a really good reason to do so.  Now, in the Gosselin decision, the Supreme Court held 5-4 that governments could in fact explicitly discriminate on age in social programs (the case involved a Quebec policy that provided lower welfare rates to people under 30).  But the student aid rules date from before Gosselin, and have never been subsequently re-written or simplified.  And, near as I can tell, Justice Department lawyers aren’t convinced that the existing rules would pass muster, even post Gosselin.

Hence the ludicrous rules on the Canada Student Grant, which basically guarantee a $2,000 grant to anyone with “family income” of under (roughly) $40,000, but where “family” for independent students basically consists of the student’s own income.  In practice, this means the CSG is a universal grant for independent students.  Which is nuts – and also a major reason why CSL program expenditures are rising so quickly.

If we were a little tougher on independent undergraduate students (many of whose parents are relatively well-off), we could probably spend more money on deserving, poorer undergraduates.  It’s a trade-off we should think about making.

October 07

Do the Poor Really Pay More?

There’s a trope out there that goes something like this: “Loans are unfair because interest on the loans means that needy students pay more in total to go to school than students who don’t need a loan“.  If it were true, this would indeed be problematic.  But the thing is, for the most part, it’s not.

Let’s follow two hypothetical students: Claudia and Eveline.  Claudia can manage to pay $25,000 for her four years of tuition, upfront; Eveline cannot, and she borrows $25K from Canada Student Loans and her provincial student aid program over four years.  Assume that inflation is a constant 2%, and that interest during the repayment period is 6.25% (over the last few years, real interest rates have floated between 400 and 450 basis points above inflation).

Student loans carry zero interest during the in-study period.  This means students actually make money while they’re borrowing because inflation eats away at the value of the loan before they’re required to pay it back.  In Eveline’s case, she effectively makes $1,125 between the September she starts and graduation day.

Then, of course, things start to work in the other direction.  Assuming Eveline takes eight years to pay off her student loan, she ends up making $4,321 in interest payments (figure is net of inflation).  Take away the $1,125 that Eveline “made” during the in-study period and the net interest cost comes to $3,196.

If that were the end of the story, the people who claim loans are “unfair” would be right; we would be discriminating against the poor.  But that’s not the end of the story because people who get loans usually also get grants.

If you’re an independent student making less than $38K per year and you apply for aid, you are nailed-on for an extra $2,000 per year – that’s $8,000 over the course of a degree.  Ditto if you’re a dependent student and your parents make less than $38K.  If you’re a dependent student and your parents make less than (roughly) $76K, you’re nailed-on for another $800/month – or exactly $3,200 over four years, which wipes out the interest cost of the loan.  Plus, of course, you get 15% of all interest paid as a tax credit – which means you actually come out ahead by a few hundred dollars.

Are there borrowers who don’t come out ahead?  Yes.  Those who borrowed but had family income high enough that they didn’t qualify for the middle-income grant likely wouldn’t receive a grant to offset the loan interest amount.  Borrowers who take more than eight years might end up with higher interest charges not covered by their grants (and possible remission).  There are enough variables here that it’s hard to say how many people this might include.  But remember – the base population that doesn’t get sufficient offsetting grants consists of dependent students with family incomes over $80K, that’s *maybe* 20% of all borrowers (and not the poorest 20% by any means).  Or to put it another way: probably something like 80% of borrowers are receiving more in subsidies than they pay in real interest over the life of their loan.

That’s a good thing – an outcome of our generous, if opaque, student aid system.  We should acknowledge it, celebrate it, and most of all get the usual suspects who adore this talking point to shut up about it.

March 18

How ICRs can Become Graduate Taxes: The Case of England

As noted yesterday, graduate taxes and income-contingent loans have many similar features.  They both defer payments until after graduation, and they are usually payable as a percentage of marginal income above a given threshold.  In England right now, the payment scheme on ICR loans is that students pay 9% of whatever income they earn over £21,000 (roughly C$38,000).  The difference between the two is that with a loan you have a set amount to pay, and when it’s paid you’re finished.  With a graduate tax there is no principal, so you just keeping paying that fraction of your income for as long as the tax lasts.

That sounds like a simple and clear delineation, right?  Well, here’s a twist: what if the loan were so big that you had no practical chance of ever paying it off at the set repayment rate?  What would the difference between an ICR and a grad tax be then?  The answer is: practically nothing – and that’s exactly where England finds itself right now.

Let’s step back a bit: in 2010, the UK government decided to let institutions charge tuition up to £9000.  They also decided to allow students to borrow this amount for tuition (plus more, again, for living expenses) under the repayment scheme described above.  When they did this, they were under the misapprehension that universities might actually try to compete for students on price, and hence assumed an average tuition of about £7000.  Rather predictably, average tuition shot straight to £8500.  As a result, it’s quite common for students to be borrowing £12-13,000 per year, or £36-39,000 for a degree (that’s C$66-72,000 – yes, really).

Crazy, right?  Cue all the “intolerable debt burden” stuff.  But wait: these loans aren’t like the ones we’re used to.  Repayment is based on your income rather than size of debt – no graduate is ever required to pay more than 9% of their income over £21,000 in any given year, so the burden in any given year is pretty limited.  And – here’s the kicker – the loan gets forgiven after 30 years.  So, if you don’t finish paying, your obligation disappears without you having any debt overhang. Exactly like a Graduate Tax.

How many won’t pay it off?  Well, these things are difficult to predict, but even over 30 years, paying 9% of your income over $38,000 isn’t likely to completely pay off very many of these loans.  The government’s own financial forecasts are that 35-40% of the total net present value of the loans will have to be forgiven (others put it 8-10% higher).  At a rough estimate, that probably means 70 to 80% of all borrowers will see some loan forgiveness.

At this point you start to wonder if debt numbers really matter in this system.  Forget ICR: for most people, the current system is simply one in which government transfers billions of pounds in 2014 to institutions using student loans as a kind of voucher system, then turns a portion of those loans into student grants in 2044 via loan forgiveness.  In the meantime, graduates pay a 9% surtax on income over £21,000.

Altogether, a very wacky system.  Not a model for anyone, really.

March 17

Oregon’s “Pay It Forward” Scheme and the ICR vs. Graduate Tax Problem

You may have heard some rumblings from south of the border over the past few months with respect to a program called Pay It Forward (PIF).  The brainchild of a student group called Students for Educational Debt Reform, this idea was picked up by the Oregon assembly last summer; within a few months, over a dozen state governments were examining similar draft legislation.

The basics of the program are these: instead of paying tuition, students agree to pay a percentage of their future income (the percentages vary by state – in Oregon it’s 0.75% per year of study) for 20 years after graduation.  Some people mistook this for a version of income-contingent loans because it emphasized paying for school after-the-fact rather than up-front, and also because repayments were to be made as a function of income.  But there’s one key difference.  Loans have a limited liability: once you pay off the principal and interest, you’re done.  With PIF, there is no principal – once you start paying into a hypothecated fund, destined for the state’s higher education institutions, you keep on paying for 20 years no matter what.  This is formally known as a “graduate tax”.

Graduate taxes tend to be more progressive than income-contingent loans.  If you’re at the bottom of the income scale, you probably come out better off – you simply never pay anything.  If you’re at the top of the income scale, you’re likely going to pay a lot more because a portion of your income will go into public coffers long after you’d likely have paid off a loan.  Interestingly, the famous Yale Tuition Postponement Option of the early 1970s (designed by Nobellist James Tobin, and used by Bill Clinton when he attended law school there) went off the rails for precisely this reason – the richer students got tired of paying for the poorer ones, and started making a fuss.

One downside to a graduate tax is that it’s harder to collect than a loan.  In the US, for instance, it’s hard to imagine enforcing something like PIF, unless it was instituted nationally (if someone moved from Portland to Chicago, would Illinois be responsible for collecting the PIF contribution?).  A graduate tax was in fact examined relatively thoroughly not once but twice in England (the 1997 Dearing Report and the 2005 fee reform), and was rejected precisely because of concerns about grads evading repayment through emigration.

Another downside is: where exactly does the money come from while you’re waiting for graduates to start earning money?  If tuition is covering 40% of institutional expenditure, someone has to make that income good over the 20 or so years before the grad tax makes up the difference.  It’s not clear who that might be; if the state had money to do this, it probably wouldn’t be faffing around with ideas like PIF.  You could securitize the revenue stream, of course, but that also might get tricky.  Income-contingent loans lack graduate taxes’ most potentially progressive features, but they do have the advantage of: a) being collectable, and b) producing income for institutions in the short term.

There is of course one country that is trying very hard to merge the ideas of ICR and graduate taxes, with some really odd results.  More on the English experiment tomorrow.

February 27

New Student Debt Numbers

So, the more stat-minded among you may have noted the release, this past Tuesday, of Statistics Canada’s 2012 Survey of Financial Security (SFS).  Though the main talking points were largely about mortgage debt, it also contained some interesting statistics on student debt.

Now, remember that these are figures on outstanding student debt.  Some of it will be in repayment (i.e. held by graduates now in the labour force), and some of it will not (i.e. held by current students).  The way to think of these debt figures is as a collective portrait of people who borrowed in the decade or so prior to the snapshot, and who had not yet fully repaid their debt (because those who had successfully completed repayment would be out of the sample).  So the 2012 figure for student debt is actually a collective picture of the outstanding debt of everyone who borrowed in the period 2002-2012, and who had not yet repaid, the 2005 figure covers the period 1995-2005 or so, etc., etc.

Anyways, the headline that the usual suspects would like you to focus on is the one about aggregate debt outstanding: $28 billion, up by $5.5 billion (23%) in real dollars since the last time the study was conducted, in 2005.  Why is that a big deal?  Because!  $28 Billion!  Big Number!  But a slightly more intelligent look at the data shows a different story.

Figure 1 shows that the average outstanding student loan was about $15,000.  That’s up about 6% from 2005, and 13% from 1999 (again, all figures are inflation-adjusted).  Why is this figure so much smaller than the one for total debt?  Simple: more people have outstanding student debt than in 2005, so it’s divided among a larger population.  That might be because people are taking longer to repay their loans – more likely, though, it’s a reflection of the fact that student numbers as a whole rose substantially over the 00s.

Figure 1 – Average Student Debt Among Holders of Outstanding Student Loans, in $2012

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Intriguingly, the data for median student debt (that is, the mid-point value, rather than the mean) tells a slightly different story, in that it fell 2% between 2005 and 2012 (though it has still risen a bit since 1999).

Figure 2 – Median Student Debt Among Holders of Outstanding Student Loans, in $2012

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How should we interpret this?  This isn’t the easiest data to unpack.  It probably means, as I pointed out back here, that student debt hasn’t been increasing.  But it also might mean that debt repayment rates have been increasing along with indebtedness, or (less likely) that a greater fraction of student loans are held by individuals who graduated from shorter programs.

Whatever the truth, what we do know for sure is that young people aren’t drowning in student loan debt.  Among family units headed by people under-35, only a quarter hold a student loan, and the loan debt constitutes just 5.3% of their total debt, down from 6.7% in 2005.  Whatever the effects of student borrowing is, it would appear that deterring graduates from taking on ever-larger mortgages isn’t one of them.

January 28

Why Student Debt Burden is Falling Like a Stone

Everyone talks about “rising student debt burdens” as if they are real.  But they’re not.  In fact, the burden of carrying a student loan has fallen significantly over the past decade.

Student loan burden is best measured by looking at the percentage of monthly after-tax income that it takes to service a loan each month.  This figure will therefore be affected by four different factors, namely: the size of student loan debt, interest rates, post-graduation income, and taxes.  Here’s what’s happened to each of those over the past 25 years:

1)      Student debt rose very quickly in the 1990s, more than doubling between 1992 and 2000.  This was because the federal government raised lending limits, and provinces by-and-large cut their grants programs.  Starting in the early 2000s, however (for reasons I’ll get into tomorrow), growth in student borrowing stabilized.  As a result, student debt has been roughly constant in real terms for over a decade now, as I showed back here, and may even have decreased a bit.

2)      Interest rates.  Nobody remembers this, but during the early 1990s, when we had the triple-whammy of the peso crisis, the sovereignty crisis, and an inflation-obsessed John Crow as Governor of the Bank of Canada, our interest rates were regularly 400 basis points higher than the Americans’.  They’ve come way, way, way down.  In 1991, prime briefly hit 14%, and throughout the 90s it averaged about 7.5%.  Today it’s 3%.

3)      Post-Graduation Income has remained remarkably constant over time.  Between 1988 and 2005, it didn’t change a bit in real terms.  Growth has been below inflation in the last few years because of the long recession, but it is still growing in nominal terms (we know this thanks to the many provincial graduates surveys, which have replaced the NGS as our key source of data on this subject).

4)      Taxes.  They’re down a fair bit.  Someone with average graduate income, 2 years out of school, paid out 28% of their income in taxes in the early 90s; now they pay 22%. (Thanks to Kevin Milligan and his great CTaCS program for the help in calculating this.)

In other words, things were pretty bad in the 1990s.  But since then, most of the relevant forces that underpin student loan burden have been heading in the right direction: debt is stable, or even down a bit, interest rates are down, taxes are down, and until quite recently income was more or less stable – and even now isn’t down very much.  Put it all together and what you see is that the after-tax repayment burden for someone with average student wages, repaying an average-sized student loan, has fallen sharply in the last decade:

Figure 1: Percentage of Average After-tax Earnings of Graduates, 2 Years Out, Required to Service an Average Student Loan

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That’s right: the burden of carrying an average loan, with an average salary, has fallen by over a third in the past decade.  It’s actually back down to where it was in 1992, before the rapid rise in tuition and debt of the 1990s.

I no longer expect facts to get in the way of people trying to manufacture a good crisis, but if anyone does happen to care about the data, there you go.

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