Higher Education Strategy Associates

Important Changes to Canada Student Loans

The last federal budget made one large signal improvement to student assistance: the abolition of the education tax credit, and the re-investment of that money into an improved Canada Student Grant. Less remarked upon was a promise to simplify need assessment. Now the details of that effort are emerging, and they are pretty interesting.

The change has to do with the student contribution rules. In the Canadian student aid system, various forms of student income and assets are considered “resources” and the more resources you have, the less need you have and the less aid you can claim. If you have no resources at all you can usually get maximum aid, but as resources rise, aid is effectively clawed back. Different forms of income have traditionally been assessed in different ways – summer earnings were clawed back at one rate, in-study earnings were clawed back at another. Personal savings in one’s one name (as opposed to RESPs) were clawed back effectively at 100%, as were scholarships (subject to an exemption of $3000). All these different clawback rates were confusing, they required students to provide a lot of data (student aid forms would be a great deal simpler without all this) and – in theory at least – they discouraged work.

The new CSLP need assessment system aims to correct all of this. Instead of assessing all these different sources of income, under the news students will simply be required to make a flat personal contribution of between $1,500 and $3,000, based on family income (Crown wards, students with disabilities, students with dependents, indigenous students will see this requirement waived and not be required to produce even the minimum resources). Any income they earn above that level – whether through work or scholarships or what have you – will be theirs to keep; there will be no further clawback on that income. This of course also provides a lot of scope to simplify student aid forms.

What will the impact of this be? Well, it’s a two-sided coin. On the one hand, there is no doubt that students will have more income at their disposal and that should help with issues of retention and student poverty. At the same time, a reduction in assessed resources will mean an increased in assessed need which in turn will drive higher borrowing. Ceteris paribus, that means higher student debt, although presumably the increase in Canada Student Grants will offset this somewhat. That’s not necessarily bad – as I’ve shown before , student loan burdens are currently a lot smaller than they were fifteen years ago thanks to lower taxes and interest rates. As a result, it’s likely most borrowers would be able to shoulder more debt. But it’s a trade-off: more money today will mean more burden tomorrow.

There are some other changes worth noting as well. The most important – and from a personal point of view the most satisfying – has to do with required spousal contributions. Eleven years ago I wrote a piece called I Love You Brad But You Reduce My Student Loan Eligibility, which outlined the absolutely ludicrous expectations re: spousal contributions embedded in the Canada Student Loans Program. At the time, the clawback was effectively 80% on all income over $12,000 which was – and I am using the technical term here – totally bananas. It effectively cut off anyone with a working partner from student assistance. As of next year, the threshold for contributions will be raised substantially (the exact level has not yet been fixed but my impression is that is probably in the $30,000 range) and expected contributions will only amount to 10% of marginal income over that level. That’s excellent news: it’s going to put much more financial resources at in the hands of adult learners in married or common-law relationships. Similarly, CSLP plans to cease treating money obtained by First Nations students through the Post-Secondary Student Support Program (PSSSP) as a resource – thus giving those students access to much more money as well.

Overall, this is the biggest change to need assessment since the introduction of the Canada Student Financial Assistance Act in 1994. But there is a catch to all this: because student loans are a joint federal-provincial responsibility, for these changes to work smoothly both federal and provincial governments have to agree to assess things similarly. But these changes cost money and provinces don’t have much of it. Ontario and Alberta have already essentially adopted the flat contribution policy, but it’s not clear either will accept the rest of the package, although I have a hard time imagining Ontario not doing so. The others, though: there is at least a chance that some will choose not to go along with the deal, and stick to the current system of need assessment (in program jargon, this is called “dual assessment”). In such provinces, there will be no simplification of the student aid form because the province will still require the various pieces of information about different types of income. And dual assessment makes it harder, not simpler, to explain aid awards. But since Ontario and Alberta make up something close to 75% of the Canada Student Loans Program, the feds may not be that fussed by other provinces not making the leap.

In any case: the Canada Student Loans Program is making things a lot easier for students and that is to be applauded. It might not work out quite as well as it could because of some legitimate difficulties provinces face in following suit. But overall: this is really good news. Kudos to those in Ottawa (and Gatineau) for making it happen.

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8 Responses to Important Changes to Canada Student Loans

  1. JRG says:

    Alex, I’m wondering if you could help me understand why student debt appears to be increasing, but in Alberta, for example, student loans are capped at $15K (and of course, it’s a higher cap if you’re in medicine or other more expensive program). With a cap, won’t the amount of debt be the same for any student, assuming the loan is their only source of funding and that they finish university or college in a normal amount of time?

    I also see a lot of great changes in the loan system, especially since they no longer consider your assets as much. But there is a big disadvantage to the capping, which is that for mature students like myself that already own a house, for example, and have been single, living on a single income, the student loan amount will cover about 1/3 of my monthly fixed costs, and as a full time student, being able to work enough to cover the rest is nearly impossible. Luckily, I was able to qualify for bursaries through my university that will get me through this year, but it was a surprise to me that the system had changed like this because it seems to favour a new high school graduate that will live in residence and doesn’t account for older students that might have other financial needs and considerations. When I did my first university degree years ago, students were provided loans based on their actual need (or at least as the government assessed their financial information, so I’d like to think you would be granted closer to what you would need each month as opposed to how the capped system functions).

    • Alex Usher says:

      1) That;s a cap on provincial loans not combined fed-prov loans. In practice the cap on undergradaute loans in Alberta is closer to $50K. PLenty of room for variation (and increase)
      2) The kid in residence actually probably isn;t a great example because rez is so expensive, but I certainly get what you mean: the expenditure assumptions which underpin the system assume everyone lives like an 18 yr old. We’ve worked with ESDC on this issue and have certainly made some recommendations; I don’t think they are yet finished tinkering with the system, so we may see something in the next year or two.

  2. Sandra says:

    Can someone clarify…. with the proposed changes, will family income be less of a factor in a student qualifying for a certain amount of support in the form of a loan than it was before? Like after the maximum contribution of $3000 dollars based on all sources, will everyone be eligible for the same maximum amount? Also, will the 30% rebate still apply based on parental income, as it did in the past in Ontario?

    Perhaps this is not yet detailed in the plan. Just wondering.

    • Alex Usher says:

      No, nothing changes on that front. Assessment of parental income for dependent students remains unchanged (beyond the usual annual indexing).

  3. Jordan Carlson says:

    How would a shift to dual assessment work with BC Student Loans? My impression has been that since it’s a joint-application, it goes through one assessment process for both BC and the Canada Student Loan programs… is that wrong? Or is BC already on board with these changes? Would it shift back to having to fill out separate forms or otherwise break the current process if BC doesn’t agree to these changes?

    (Largely curious because I have BC Student Loans and know there’s some kind of harmonised agreement between BCSL & CSL, but don’t know the details.)

    • Alex Usher says:

      Provinces using dual assessment still use one form, but it means its using two sets of rules to evaluate the data from that form (one for provs, one for feds). Assuming BC does *not* harmonize to the new changes, the BC form won’t change at all because BC will still need all the same data it needed last year for its algorithm. The feds will need less data. if it does harmonize, then the form could become much similar because there would be a whole bunch of data that neither algorithm would need.

  4. Kevin Hegedus says:

    Will monies in a TFSA effect how much I can receive for a student loan?

    • Alex Usher says:

      Good question. I believe so. Generally speaking they expect people to use their liquid assets to pay for education before govt steps in to help. There have been some moves to simplify student aid and go to “flat contribution” systems which get rid of certain types of income/asset checks, but I don’t know if this is one of them. Will check and try to get back to you.

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