In the Fall Economic Statement last Thursday, Federal Finance Minister Chrystia Freeland announced that the government will eliminate student loan interest not just on loans going forward, but also retroactively. This was not out of the blue – the government promised this in the last election.  It remains, however, a disastrous idea.  Hundreds of millions of dollars a year for no real net benefit (at least in the field of education).  I have already laid out why this is a dumb idea on several occasions: here, in particular.  But let me just refresh everyone’s memory by posing a few questions.  

Does this measure help students?  No, it does not.  It does not put a single new dollar in their hands.  One would have thought, given the general shouting about the cost-of-living crisis, that governments and student groups would be more focused on measures that increased aid limits – that is, on things that get more money into student hands right now, rather than enriching them a few years from now.  Alas, no.  Some might make the argument that making loans interest-free might increase access, in the sense that it makes education cheaper in the long run.  If you run into anyone like that, do ask them for any empirical evidence whatsoever that student loan interest rates affect the decision to attend school because no such evidence exists.  

(None.  Zero.  It’s a baseless argument.  Even the government isn’t leaning on this line of reasoning.)

Does this measure help low-income borrowers in repayment?  No, it does not.  Low-income borrowers in repayment already avoid paying interest through the Repayment Assistance Program (RAP).  Under RAP, individuals whose income falls below a given threshold pay no principal and income is assumed by the government.  Currently, that threshold is $40,000/per annum and in their 2021 manifest the Liberals promised to raise it to $50,000 p.a.  In other words, no one making less that the median income for all individuals aged 25-34 (including those outside the labour force – it’s about 35^th percentile for working incomes) would have to pay any interest at all in any event.  And even above that level, loan repayments are going to be heavily attenuated: only once one reaches about $65,000 will someone with an average-sized loan ($30,000 or so) be required to make full repayments on the loan: anyone between $50 and $65,000 will already implicitly be receiving loan assistance.

The only people who gain by this measure, therefore, are ex-students earning median income.  It is unclear to me why on earth these people deserve a subsidy.  Thought, it is not unclear why they are being targeted: young voters are a part of the Liberal coalition, and in last fall’s election there was a worry among Liberals that they were being outbid by the NDP for this group of votes.  And so, not worrying a damn about the cost or effectiveness of the policy, here we have a new policy which is going to run costs into the hundreds of millions of dollars a year.

One justification I have heard is the depressing “but it will help young graduates deal with higher cost of living (by which they often mean housing).”  Assuredly so.  But if that’s a problem, why deal with it through a student aid program?  Why not deal with the source problem directly?  Why use a tool primarily designed to help low-income people study as a tool primarily designed to help 20-somethings get a foot in the housing latter?   At least when Joe Biden did something similar on loan forgiveness, he had the good sense to put an income cap on beneficiaries.  But not our government, oh no.

As for cost of this policy in an era of rising inflation and in conjunction with a jump in income repayment thresholds to $50,000, I can only repeat what I wrote last March: we’re looking at a situation where between half and two-thirds of the value of every dollar will need to be written off at the time the loan is issued.  That’s a couple of billion dollars a year. 

Just think what the feds could do with a couple of billion dollars more in research spending.  Think what it could do with a couple of billion for Indigenous post-secondary education.  And yet instead, our frankly broken policy making system instead gives us…whatever you call this waste of cash. 

To quote that great American philosopher Paula Poundstone, “this is why we can’t have nice things”.