Class is back in session this week for college and university students, and while the frosh parties ensue, there will be no doubt who will be serving the drinks, and who will be largely responsible for the hangover.
Public student loan programs across Canada will pump an estimated $2.7 billion into the pockets of students this year, adding to the some $28 billion of outstanding student debt.
A report issued last month by accounting firm Hoyes, Michalos & Associates revealed that some 18 per cent of insolvency filings handled in 2018 involved student debt — a 38-per-cent increase since 2011. Across the country, default rates for student loans sit at around 10 per cent, a shockingly high number when compared with the 0.24 per cent delinquency rate for mortgage debt and 1.2 per cent for other consumer debt, such as credit cards.
University students have long embodied a deep sense of exceptionalism — they believe that their education will provide for a life of comfort because, for the most part, it has. Men in Canada with college diplomas earn about 19 per cent more than those with only a high school diploma over the course of their careers. That number is even higher for those with a bachelor’s degree, who earn about 38 per cent more cumulatively. For women, the earning advantages of higher education are closer to 12 per cent and 58 per cent respectively. On the surface education is still a worthwhile investment.
But beneath the waters there are deep currents of uncertainty.
Today, the average undergraduate student leaving school with debt will owe over $27,500
While some graduates are still walking into the stable job complete with the perks and trimmings they were promised, an increasing number end up taking internships, contract and part-time work, or joining the ranks of their well-educated peers as baristas at Starbucks.
I don’t mean to make light of the shock caused by this disorienting plunge from the ivory towers that graduates have had built for them. There has been a real and fearsome toll in financial ruin, depression and drift for graduates. It’s no wonder that surveys show a majority of Canadian graduates have regrets about the student debt they took out.
Today, the average undergraduate student leaving school with debt will owe over $27,500.
The problem of spiralling student debt begs real solutions. Disappointingly, the only one we really hear of is to move the debt burden off the students’ balance sheet and onto the governments’.
The taxpayer already subsidizes about half the cost of post-secondary education through direct transfers to colleges and universities. It’s a 50-per-cent-off sale that cash-strapped provincial governments are struggling to keep on offer. Asking them to pay more isn’t an option on the table, nor should it be.
The hard-nosed reality is that if we’re ever to get our fiscal health back in order, it won’t be by chasing grand delusions.
A decade ago the financial crash stripped away layers of economic and regulatory delusion and revealed what the years of folly and frolic had obscured: that the social policy of homeownership-for-all had been built on shaky foundations.
The consequence of subprime lending should never have come as the surprise that it did. Lending billions of dollars to borrowers with no prospect of being able to repay it was always doomed to fail.
The shocked numbness of 2008 gave way to a forced resilience. Hatches were battened down, lending standards were improved, restraint and common sense were (largely) restored. When it comes to mortgage lending there is at least some reluctance to put the hand to the fire again. But has anything really been learned?
It can’t be ignored that the provincial student loan programs today are making many of the same mistakes that the maligned bankers did in the lead up to the crash by not doing enough to ensure that they are lending money to people who will be able to pay it back.
Governments across the country are pouring billions into post-secondary education every year, with hopes that the investments will improve the workforce. The only collateral against the billions in debt is the expectation of a future student’s earnings. There is much at stake.
Everyone knows that different fields of study have different economic payoffs. Graduates of social work programs start out making around $30,000 a year, while petroleum engineering students can expect closer to $100,000, for example. But this is a reality that the student loan programs don’t account for in making lending decisions. More importantly, prospective students don’t have an effective way of seeing how big these debt-to-earning differences are across different faculties, programs, or institutions. A new accountability system where loan repayment rates and average employment earnings across public institutions are made easily accessible could help students make more informed decisions about their education, and ultimately reduce the number of graduates defaulting on their student loans.
For many, education is about more than getting a good job, and nobody is making the case that students should be prevented from studying what interests them. But we’re allowing the tail to wag the dog in this way.
The learning, the pursuit of fulfillment, and the experience are all important here, but they have to be complimentary to a skill set that enables students to contribute meaningfully to society. To accept otherwise is to allow student loan programs to be destroyed by this folly.
Kieran Moloney is a fourth-year Public Affairs and Policy Management student at Carleton University.