Higher Education Strategy Associates

Tag Archives: Student Loans

March 30

What’s Next for Student Aid

A few months ago, someone asked me what I wanted to see in the budget.  I said i) investment in aboriginal PSE, ii) system changes for the benefit of mature students and iii) changes to loan repayment (specifically, a reduction of the maximum loan payment from 20%  of disposable income to 15%).  To my great pleasure, the government came through on two of those wishes.  But there is still a lot of work to do yet.

Let’s start with the Post-Secondary Student Support Program, which the Government of Canada gives to individual First Nations to support band members’ education costs.  The Budget provides a $45 million (14%) bump to this program but also said the Government would “undertake a comprehensive and collaborative review with Indigenous partners of all current federal programs that support Indigenous students who wish to pursue post-secondary education”, which I think is code for “we’d prefer a new mechanism which is somewhat more transparent than PSSSP”.

Let’s just say I have my doubts about how easy this collaborative review will be.  Indigenous peoples – young ones especially – have a lot of issues with the federal government at the moment, and it will be difficult to try to manage a focussed review of this one subject without a lot of other agenda items intruding.  I’ve written on this subject before, and there certainly are ways which the funding could be arranged to be managed more efficiently.  That said, some of these ways involve taking management away from band councils and giving it to some other aboriginal organization operating at a larger scale and not all bands are going to find that appealing.

Anyways, the takeaway is: if the feds are expecting a replacement to PSSSP to be in place by fall 2019, they’d better get to work yesterday.

Now, what about the new measures for mature students/adults returning to school?  This was a welcome budget initiative, because the policy discussion has perhaps been focussed too heavily on traditional-aged students for the past few years.  There are however, maybe two cautions I would put on the initiative and how it will roll out.

The first is the budget description of the $287M over three years for programs benefitting these students as a “pilot project’.  I am fairly certain that is PMO-speak, not ESDC-speak.  First of all, I’m moderately certain the law doesn’t allow pilots; second, the idea that provinces are willingly going to spend time and money re-jigging all their program systems to accommodate program changes that are inherently temporary in nature is kind of fanciful.  So I suspect what’s going to happen here is that over the next few months CSLP is going to come up with a bunch of different ways to help this population (change cost allowances for older students, and maybe for dependents too), re-jig how prior-year income is calculated, raise loan limits for this population, raise grant eligibility, etc etc) and then roll them out in roughly ascending order of how irritating they are for provinces to program.  It’s not going to be a big bang, which may limit how well the policy is communicated to its intended targets.

But there’s a bigger issue at play here which the government missed in its haste to get a budget out the door.  One of the biggest problems in funding re-training are the artificial breaks in funding and jurisdiction that occur at the 12-month mark.  If your program is shorter than that, you’re covered by various provincial labour market initiatives and on the whole your compensation is decent.  Longer than that, you’re on fed/prov student aid, which in general is not as generous (and more to the point is repayable).  It would be useful for the two levels of government to work together to provide a more seamless set of benefits.  Perhaps regardless of program length, learners could benefit from 8 months of the more generous treatment and then move on to a slightly less-generous mixed loan/grant system.  This wouldn’t be a quick shift: my guess is that even if you now started talking about how to achieve this, it would still take four or five years for a solid, specific solution to come into view (if you think universities are slow, try federalism).  But still, now’s as good a time as any to start, and perhaps the dollars attached to the mature students programs may be a good conversation starter.

My third wish – the one that didn’t get any traction in this budget – was for improvement in student loan repayment.  I’m not that disappointed in the sense that I’m not greedy (no budget would ever have given me 3-for-3), but I do think there I work to be done here.  Perhaps this gets enacted as part of the follow-up to the Expert Panel on Youth being chaired by Vass Bednar and due for release at some point this spring (although who knows, if the Naylor Report is anything to go by, we could be waiting into 2019).  Or perhaps not: it’s not like CSLP hasn’t already been given a huge whack of work for the next couple of years.

But if that’s the worst problem we have in student aid in Canada, I’d say we are in pretty good shape.


(As a coda here, I’d just like to pay tribute to the Canada Student Loans Program’s Director-General, Mary Pichette, who is leaving the public service shortly.  Mary’s been involved two big rounds of CSLP reform: the one in 2004/5 which first created the grants for low-income students, and second the ones around the 2016 budget (not just the increase in grants but the many smaller but still important changes to need assessment as well. 

 I won’t say –I’m sure she wouldn’t want me to – that those two reforms were down to her.  But they were down to teams that she led.  She did a lot over her two stints in the program to make the policy shop more evidence-based and her legacy is simply that she’s made life easier for literally hundreds of thousands of student across the country.  They can’t thank her, but I can.  Mary, you will be missed.)

March 02

Bravo, New Brunswick

Readers may remember that about this time last year, I was giving the Government of New Brunswick a bit of stick for a botched student aid roll-out. Today I am pleased to give credit where it is due, and congratulate the folks in Fredericton for fixing the problem and developing a much better student aid system.

Let’s go back 12 months to pick up the story.  In February 2016, the Ontario government had come up with a fabulous new system which basically made a promise of grants equal to or greater than average tuition for students from low to mid-family incomes.  At family incomes above that, students received a declining amount of money out to about $110,000 at which point the grant flattens to a little under $2,000 (a remnant of the government’s ludicrous “30% tuition rebate” from 2011) and then falls to zero a little over $160,000.  With a bit of clumsiness this eventually, sort of, got branded as “free tuition for low- and middle-income students, which it isn’t, quite, but close enough for advertising.  Cue what is seen to be a major policy success.

It was such a success that New Brunswick decided to copy it later last spring.  Like Ontario, they built on the change to Canada Student Grants and eliminated some of their own tax credits (including the egregiously wasteful graduate tax rebate) to fund a “Tuition Access Bursary”, which guaranteed a grant equal to tuition (up to a maximum of $10,000, which was more generous than Ontario) for students from families making under $60,000. Which is great, right?  Well, yes, except the problem is, there was no phase-out for the grant.  At $59,999 in family income, there you were raking in $6500 or so in grants and at $60,001 you got $1200 in grants (the federal middle-income grant) and that’s not great social policy.  Making it worse was the fact that families in that $60K to $70K would also be losing a lot of money in tax credits that both the federal and provincial governments were ending in order to pay for this new benefit; my back-of-the envelope calculation was that in this range, parents were going to be about $1,200 worse off as a result of the change.

In any case, because I and others pointed out this flaw, the government after a brief period of defensive blustering decided it was best to go back to the drawing board and revisit the formula.  They did so and last week came up with a new “Tuition Relief for the Middle Class”, which basically involved taking a sliding declining scale of grants for families earning between $60-100,000 onto the existing Tuition Access Bursary (which has been renamed the “Free Tuition Program”).  Arguably, the New Brunswick program is now somewhat better than the Ontario program because 1) it’s not just “grants up to “average” tuition”, a caveat which I suspect is going to leave a lot of people slightly cheesed off when the program starts and 2) It still manages not to subsidize people up to that absurdly high $160K + threshold that Ontario insists on maintaining.  Ontario gets points for making its aid portable, though – New Brunswick’s program is only available to students who study in-province, which I think is a shame.

The announcement – which you know, hey guys, it’s a good news story! – was marred somewhat by some media sniping about how the number of beneficiaries is about 30% short of what was estimated last year.  To me this is neither here nor there: government cost estimates on year 1 of a new program are often a matter of throwing numbers at a dartboard.  The good news is that there is still money to either raise the entry threshold for the Free Tuition Program or (better still) expand the debt relief program or top up the amount of money available to high-need mature students and parents through the New Brunswick Bursary Program.

Now, all we need for this to be perfect is for New Brunswick to come up with a smart, credible monitoring program to examine the effects of these changes on participation over the next few years.

(New Brunswick folk: that’s on the way, right guys?  Right?  Well, you know where to find me if you need a hand…)

Anyways, as I say, credit where it is due.  Well done, New Brunswick.

December 01

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.

October 06

Does the Canada Student Loans Program Make Money?

You’ll remember a couple of weeks ago I took the Ontario NDP to task for an absurd meme about the provincial government “profiting” from student loans. But it occurred to me later than though there is no way the charge sticks against the provincial government, it arguably might about the federal government’s Canada Student Loans Program (CSLP), which both borrows more cheaply and lends more dearly than the provincial government. So I decided to find out.

The data I am using in this blog comes from the latest CSLP Actuarial Report, which was published in 2012 (and hence presumably written in 2011). This is done periodically by the Chief Actuary of Canada (the same guy who makes sure the Canada Pension Plan is solvent). I suspect a lot of his data after 2011-12 is off because of the large jump in loan program usage after Ontario introduced the 30% tuition rebate midway through that year. The Actuary also assumed interest rates were going to rise throughout the decade (they haven’t), and more controversially, assumed enrollments would fall substantially over the same period (which they have in certain regions but not nationally). So to avoid these and other issues, I am simply going to use the 2011-12 projections, which have the least doubt about them as they are the least contaminated by dubious projections.

Here’s a quick summary of the estimated cost of the program: In-school (Class A) interest – that is, the interest government pays on student loans while students are in school and hence paying no interest – is $128 Million (which is *tiny* considering that there are 400,000 borrowers per year – credit here to prolonged slow growth and the lowest interest rates in living memory). The Repayment Assistance Program, which subsidizes repayments for low-income borrowers in repayment, is another $169 Million. Then on top of that is the provision for bad debt. Based on long-term trends, the government puts aside 12.4% of every dollar lent on the assumption some people will default. That, plus the interest on the loans left outstanding comes to $376.2 million. Grand total: $673.2 million.

(There are also $650-odd million in grants plus $280 or so million in alternative payments to Quebec, Nunavut and NWT and $140 M in administration fees, which brings the total cost to a little over $1.7 billion or so, but put that aside for the moment.)

So to go back to our example from last week, the question is whether or not CSLP meets the Elizabeth Warren test for “profiting from students”: that is, does net income from the interest paid by students more than cover the cost of interest subsidies and defaults? Income from loans comes from the spread between the rate at which the government of Canada borrows (currently hovering around 1% on ten-year bonds) and the rate at which it lends to students (prime +2.5%, or currently 5.2%). The rates were slightly different in in 2011-12 but the 420 basis point spread has stayed pretty consistent. Which is a whole lotta basis points – it’s over three times the spread Ontario gets on its loans – and quite a lot of room in which to “make money”.

A lot, but not quite enough. The projection for revenue on interest paid for 2011-12 was $521.4 million. The cost of borrowing was $166 million, meaning that “net” revenue – that is, earning on the spread between loan costs and loan revenues – was $355 million. So the huge spread the federal government has on student loans more or less covers the cost of defaults, but still leaves the government’s Consolidated Revenue Fund to pay nearly $300 million for loan costs such as Class A interest and RAP, not to speak of another billion or so for the Canada Student Grants, the alternative payments and administration.

The lesson to be learned from all this is that student loan programs are expensive. Even if you charge stonkingly high rates of interest with huge spreads, loan losses from defaults and interest subsidies will eat those up and more. There are no profits to be seen here.

March 29

Who Won and Who Lost in the CSLP Re-Shuffle

(Warning to readers: today’s blog is a long read about student aid policy.  Skip it if this kind of wonkery isn’t to your taste.)

Last week’s historic changes to the Canada Student Loans Program – which saw the elimination of the Education and Textbook Tax Credits, and an increase of 50% in Canada Student Grants – is a very complicated piece of policy to analyze.  Remember that there is no new money in this set-up: any new money given to one set of students through grants is money taken away from another set of students in tax credits.  So it’s reasonable to ask the question: “who won and who lost?” because governments sure as heck aren’t eager to spell this stuff out.

If you want to refresh yourself on the details of the tax credit/grant switcheroo, go back to our budget analysis document and read pages 2-6.  Got it?  Good.  Then we’ll begin.

Winners and losers get divided up along three axes: by geography, by “family” income, and by full-time/part-time status.  We’ll start with geography, and move down from there.

Quebec: Every single full-time student in Quebec loses $558 from the disappearance of the tax credits.  What they will get back is uncertain. The Canada Student Grants program does not operate in Quebec, so no one will “win” by getting money from that source.  Instead, the government of Quebec will receive something in the region of $500 million from the government of Canada over the next four years in “alternative payments” (that’s a rise of about 40% on what the province currently gets).  Will the government invest all that money in student aid?  We don’t know because the government is being non-committal at the moment.  If it does, how will it do so?  Again, no clue.  So we have literally no idea who the winners and losers will be in Quebec.

The Rest of Canada, Bar Ontario: Again, every single FT student will lose $558 in tax credits.  If they are considered “low-income” (I’ll come back to this), they will – once the changes are fully phased-in for 2017 – get an extra $1,000 in grants and thus be “up” on the deal by $442.  If they are not at all eligible for grants, they will be “down” $558.  What happens to the students in between – the so-called “middle-income students” – is a little unclear.

First, who are “middle-income students”?  The definition varies by province and family size (see Tables 10A and 10B here), but if you’re a dependent student from a family of four, it means (roughly) those from families earning between $45,000 and $85,000; if you’re a single independent student, it means those earning between $23,000 and $43,000 (most independent students are low-income and eligible for maximum grants, but not all of them take advantage of the program).

Now, if all you look at is the 2016-17 changes to Canada Student Grants (+$400), and you subtract the $558 in missing credits, you might think “holy cow, these middle-income students are out $158!”  Which, to be honest, I did briefly on budget night.  But the program changes aren’t ending in 2016-17.  In 2017-18, CSLP wants to stop giving out these grants as a step function, and smooth the curve, roughly like so:

Figure 1: CSG Value by Income Level, 2015-16 vs. 2017-18















(Caveats on graph: that’s for a family of four in Ontario; mileage may vary by province and family size, and we don’t know exactly what the smoothing formula will look like.)

This is a very different kind of picture.  Those just above the low-income/middle-income cut-off become massive winners – their annual grant amount will increase by almost $2,200.  However, at the other end of the spectrum, those just below the middle-income cut off – say, families making about $80K – will see changes of less than $558, and so need to be counted among the “worse-off”.

But this still isn’t the final story, because there’s another CSG change scheduled for 2018-19, which will involve extending the middle-income cut out-off somewhat (my understanding is that for our hypothetical family it will be slightly north of $100,000/yr).  That won’t help the people just below $80k, but it will make “winners” out of a number of people in the $80-100K range.

Figure 2: CSG by Income Level, 2015-16, 2017-2018, 2018-19















(Caveats on this graph are same as previous, only this time we have even less idea what the exact formula will look like.  Think of it as an artist’s rendering of a bunch of vague statements in the Budget and the Liberal Manifesto.)

Based on this, what we can probably say is that all independent students will end up as net beneficiaries (if they bother to apply for aid), as will all dependent students coming from families with incomes below $100K (bar a few with incomes in the $75-80K range).  Above that line, there will be losers to the tune of $558/year.

Ontario: The situation in Ontario is a little more complex because in addition to the CSL changes there are the similar changes to the provincial program announced in the February provincial budget.  Because the province is killing both its own education amount tax credit and its own tuition tax credit, every student (and/or their family) is losing $1,176 in combined tax relief.

Now, who actually wins and loses is difficult to tell at the moment because we really have no idea what the provincial formula will look like.  Based on a tiny sliver of information contained in charts 1.16 and 1.17 of the Ontario Budget, my understanding is that dependent students from families making under about $80,000 are net winners – in some cases by a thousand dollars, or even a bit more.  Above $110,000 it’s all net losers – students from families above this level will keep the grants they currently have but lose all their tax credits.  In between, the best guess is that all will be net losers; however, the exact amount of the loss will depend on the nature of the CSLP 2018-19 changes.

That’s dependent students – what about independent ones?  Here, it’s *very* difficult to tell.  Unlike the federal grants, current Ontario grants are restricted to dependent students, and the language in last month’s Budget is ambiguous as to whether independent students will have access to the new grants. I think it’s telling that none of the examples given in this Ontario budget backgrounder are independent students; this implies that the province simply hasn’t yet figured out what the rules for these students will be.  So for the moment we simply show how the winners and losers will break out among independent students.

(Nota bene: if you’re wondering why the Ontario change seems to have a worse winners-to-losers ratio than the federal one, it’s because money in the system is not conserved.  If you read the text of the budget carefully, you’ll note that some of the money from the eliminated tax credits is going to universities and colleges – students themselves will, on aggregate, receive less money in total after the change than before.  Less money = fewer winners.)

Part-Time Students:  You’ll notice that I’ve been focusing on full-time students: that’s because the calculus is quite different for the country’s half-million or so part-time students.  Part-timers receive a smaller amount of education and textbook credits: only $168 federally.  They all lose this amount; part-timers in Ontario will also lose an additional $100-200 or so depending on how much tuition they are paying.  The federal system makes up for this in a tiny, tiny way by increasing bursaries for part-time students – something which currently only about 13,000 students receive.  The Ontario system does not give money to part-time students at all.  So for this demographic, it seems that nearly everyone loses from the re-shuffle.

So, what do we conclude from all this?  Two things:

1)  Part-time students everywhere, and (possibly) mature students in Ontario, don’t do very well out of these changes.

2)  In the main, among dependent students at least, there will be a growing gap in net prices by family income.  In Ontario, families with below median incomes will see their net tuition fall by $1,000 or so; those with incomes in the top quartile will see an increase of nearly $1,200.  Basically, tuition is becoming a much more progressive user fee.  And that’s altogether to the good.

February 26

A Great Day for Student Assistance

I was going to stay off the blog this whole week (I need a reading week, too!), but there was a budget in Ontario yesterday.  A weird and wonderful (if somewhat under-documented) budget, which is going to change the way we think about student aid, tuition, and affordability in Canada for decades to come.

Here are the basics: all of Ontario’s different grants and loan remission programs are being merged together into one big up-front grant program (all the provincial education tax credits are getting merged in there too, though I haven’t seen that actually mentioned in there).

There is absolutely no new money here – in fact, there’s actually a slight reduction because some of the tax credit dollars are going to be diverted to institutions.  It is simply a re-casting and re-profiling of existing money, which – crucially – takes all those hidden, opaque and often-delayed subsidies and turns them into grants available at the time when tuition is due.   But what that means is that all those students who currently receive more in subsidies than they pay in tuition will actually be able to “see” this for the first time.  It’s mainly an exercise in re-packaging.

But boy, what a re-packaging.  The government is now announcing what we here at HESA have been saying for some time: in “net” terms, tuition is free for low-income students.  And now, all of a sudden, you have the government, the Toronto Star, and the Canadian Federation of Students all saying tuition is “free” for low-income dependent students.  It isn’t, of course.  Fees are the same as they always were, and the offsets are reasonably similar, too.  In most cases, students aren’t getting a whole lot of new money (to the extent students are getting extra cash, it seems to be mainly those in the $50-100K family income range, but it’s hard to tell because a lot of this is still pretty sketchy, and dependent on the federal Liberals following through on their promise to revamp tax credits and grants as well).  Ignore the hype: this is not about bold new investments, it’s about changing perceptions through simplification.

And yet, the biggest change on the perception front was something that was not actually in the budget, but rather was signalled to stakeholders in the budget lock-up.  Starting in 2018-19, OSAP will be moving its processes forward in time so that students can have student aid decisions at the same time they get acceptance letters.  This means that institutions will be able to do “net billing”.  So whereas, now, students get acceptance letters, a bill for tuition, but then have to wait several weeks to find out what kind of aid they will get, in future they will receive a letter saying “Welcome to University of X; tuition is $6,500, and you have qualified for $7,000 in grants”.  The difference this will make to perceptions of affordability is enormous, and it’s a hugely positive step.  Every other province should adopt this step, immediately.

Not everybody wins.  From what I can tell, students from families above $110,000 in income or so will be slightly worse off due to the disappearance of tax credits, as will some part-time and independent students.  The first of these shouldn’t bother anybody, but the latter should.  And if you’ll allow me a small kvetch, yesterday’s announcement is probably too focussed on traditional-aged students (whose parents vote), and not enough on the mature students who are probably the least well-served by the current aid system.

But that’s for another day.  For the moment, let’s just admire this as a bold piece of policy, which renders transparent an already-generous student aid regime and thereby makes it that much more effective.  Congratulations are due to the folks at the Ministry of Training, Colleges and Universities for cleaning away a couple of decades of kludges, and bringing some much-needed coherence to student aid policy.

And to their counterparts in Newfoundland, Nova Scotia, New Brunswick, Prince Edward Island, Quebec, Manitoba, Saskatchewan, Alberta, and British Columbia: this is the future. What are you waiting for?

November 20

Quick Takes on Student Aid Around the World

Three quick hits:

Islamic Student Loans in the UK.  Loans and Muslim students are always a hot topic.  That’s partly because there are a number of Muslim students who don’t like the idea of loans with interest (not very many, but enough to be noticeable), and partly because certain soi-disant “progressive” white kids like to use Muslims’ reticence about interest as an excuse to argue that loans are effectively racist, and therefore should all be replaced by grants (yes, really).  So it’s interesting to note that buried in all the hoopla of the recent UK Green paper on higher education is a firm commitment from the UK government that it will move ahead with offering Shariah-compliant loans, making it the first non-majority Muslim country to do so (Malaysia has had them for some time).

Now this isn’t wholly surprising; the government indicated about a year ago that it was headed in this direction, after a series of public consultations on the matter.  The results of that consultation are here, and anyone interested in student aid should read from about page 6 on, because it goes into some useful detail about how to design Shariah-compliant loans that are neither more nor less generous than “mainstream” loans.  In the end, it recommends a “takaful” system, which is basically a co-operative lending fund in which participants mutually insure each others’ liabilities (n.b., for true student aid nerds: the mutuality aspect actually makes this system somewhat resemble the Yale Tuition Postponement option, which I described back here).

I said four years ago that the Government of Canada should consider offering Shariah-compliant loans.  Now that the UK government, in conjunction with Islamic banking experts, has done the heavy lifting on this, it’s time to pick up that torch.

How Difficult is it to go Full Australian?  Many people admire Australia’s HECS system (or HELP.  Or HECS-HELP.  It’s all a bit confusing because they keep changing the name).  No fees required at time of enrolment.  No real interest on the “contribution” (let’s not call it a loan).  No repayments required until the borrower is making $50K/year.  Repayment tied to income after that.  And from a convenience point of view, the idea that collection is handled through payroll witholding is pretty sweet.

It’s a system that of late has attracted a lot of attention in the US, especially because its own income-based relief program (which is HECS-ish in the way that our own Repayment Assistance Program is) would work a whole lot better if relief was automatic, which effectively would require a payroll withholding system.  But making HECS work is actually pretty complicated.  It requires a certain type of tax system, as well as practices in tax collection, and they don’t necessarily translate well. The trade-offs required to do this – some of which would apply here in Canada too – were well explained in a recent New America Foundation paper called Promise and Compromise: A Closer Look at Payroll Withholding for Federal Student Loans.  It’s a useful reminder of how tough some of the practical issues in student loan collection really are, and how going “full Australian” is much more difficult than casual admirers appreciate.

Malaysia Gets Tough on Loan Defaulters.  Really Tough.  For years, Malaysia’s loan system, the PTPTN (which longtime readers may recall has it’s own quite excellent anthem, available here) has been a disaster where repayment is concerned.  When I was there four years ago, I worked out that the agency was barely recouping a third of its money on an NPV basis.  More recent investigations by local researchers come to similar conclusions.

The government has gradually been tightening the system, mostly by starting to squeeze out private higher education providers (quite numerous in Malaysia).  But now it has decided to get tough by actually imposing a travel ban on people in student loans arrears.  The ban apparently applies to about 600,000 Malays, or about 2% of the country’s population.  This is actually somewhat more draconian than Kenya’s practice of refusing to renew the passport of anyone in arrears on their loans.  Interestingly, all student loans in Malaysia are required to have a guarantor (usually parents), but the government actually thinks a travel ban on the kids is politically more palatable than asking parents to make good on their guarantee.  Which of course makes you wonder what the guarantee was for in the first place.

Have a good weekend.

October 05

Party Platform Analysis: The New Democrats

I’m going to have to go a little off-piste for the analysis of the New Democratic platform, because its launch was so odd.

The platform was unveiled last Thursday morning.  In Saskatoon.  While Mulcair himself was in Montreal.  This meant that the  event was not covered by any of the national press (the biggest outlet that filed a story was the Ottawa Citizen).  The announcement itself was unaccompanied by any backgrounder, which meant that many key details were missing, including cost estimates.

On a purely political level, this is incomprehensible.  It seems as if the party didn’t actually want their proposal to be covered.  But why make a billion-dollar (see below) spending commitment if you’re not going to publicize it?

Then again, maybe it’s better no one made a big deal about it given some of the silly things their candidates said at the event, such as “debt is up 30% since 2006”, which may be true if you look at federal loan volume, but that’s because so many more people are going to school.  You know, because of access.  In fact, over that period, the incidence of debt is down slightly, while the average value (in real dollars) is up slightly, making the whole file a bit of a wash.  Another candidate made a different, utterly ridiculous statement: “governments shouldn’t profit on student loans!”  I don’t know whether she got that line from Elizabeth Warren or Donald Trump (both have said it), but it’s not even vaguely true, and suggests she knows nothing of how income from student loan interest funds the in-school zero-interest period, the repayment assistance program, and covers the substantial losses the program experiences with defaults.

Anyways, it’s too bad the packaging of the event was so embarrassing, because the substance isn’t so bad.  The details, as we know them, are as follows:

First, the NDP proposes to spend an extra quarter of a billion dollars over four years on student grants.  That’s all we know.   Is it to enrich the current Canada Study Grants (i.e. more money to the same people), or is it to extend the current Canada Study Grant (i.e. give the same money to more people)?  Or is it for something new entirely?  We have no idea, because the NDP – unlike the other three parties – declined to provide more backgrounders about its policies.  Why this is considered acceptable in this day and age is a question for others to answer.

Second, the government plans to “eliminate interest on student loans”.  As far as I can tell, no one asked if they meant eliminate interest on all existing loans, or just those consolidated from 2016 forward, or just those issued from 2016 forward.  So we don’t know.  The fiscal consequences of this are huge.  If all loans suddenly become interest free, that’s a hit on the order of $2 billion over 4 years.  If it’s all loans consolidated (i.e. going into repayment) then my guess is this is on the order of $700 million or so, and if it is just loans issued then we are talking about maybe $300 million.

(Huge caution: my numbers are very back-of-the-envelope, based on incomplete public data and an inability to model the second-order effects of interest abolition such as savings on RAP and default.  Take it as a good-faith attempt to project costs based on limited data. And a total unwillingness of the NDP to reveal any program details or cost assumptions.)

It’s a bit difficult to evaluate the pledge without knowing the costs, but I think we can say two things about the Thursday announcement:

One, regardless of the price tag or details, this platform is substantially better than the usual NDP policy of “let’s cut tuition fees”.  It’s more targeted at students in need, and doesn’t run you into all kinds of problems of federal-provincial co-ordination (in contrast to the NDP promise on child care, which runs precisely into this set of problems).  That’s a huge improvement over most previous NDP platforms, and the party deserves some love for it.

Two, the zero-interest platform is kind of “meh”.  It’s good in the sense that it’s a benefit focused on students with need.  But no study I’ve ever seen has suggested that student loan interest rates makes an ounce of difference to access.  It’s a cost, but one small and well-hidden enough that it seems to have no bearing on the decision to attend post-secondary.  And it’s not entirely clear what problem this is designed to solve: student loan repayment burdens have fallen by more than a third over the last decade.  All this subsidy will do is raise the returns to education slightly – a windfall benefit to those who have already decided to make the investment.

A final note: the NDP appear not to be making any announcement on science/innovation.  Along with the Tories and Greens, that makes three parties who are making no commitments in these areas, which may mean something fairly dire for granting councils in future.

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.

Page 1 of 41234