In 1982 Jaimie Fuller enrolled as a University of Toronto music student. Over the next two years she supplemented her income as a parttime waitress by borrowing $3,900 from the Ontario Student Assistance Program (OSAP), a plan that the chartered banks fund, with guarantees from the federal and provincial governments. Then, in her third and fourth years, Fuller borrowed enough money from OSAP to enable her to give up her job and study full-time. By the time she graduated with a bachelor of music degree in June, 1986, the flutist owed $16,900. After the standard sixmonth grace period, the Toronto-Dominion Bank demanded monthly payments of $380, but Fuller could not meet them. Finally, in April, Fuller declared bankruptcy. “It was a tremendous relief,” said Fuller, who asked that her real name not be used pending a Supreme Court of Ontario decision on her claim. Meanwhile, she added, “at least I have got my creditors off my back.”
Declaring bankruptcy is a last-
ditch solution for anyone in financial difficulty, and such action is rare among recent university graduates. But Fuller’s case underscores the problem that an increasing number of undergraduates will eventually have to face. With the high cost of tuition and other expenses, many students
One borrower said that harassment by collection agencies is ‘the psychological equivalent of breaking their legs'
turn to Canada’s student loan programs for assistance. But when they graduate they often find themselves saddled with heavy debt at the starting point of their careers. The salaries they make in entry-level positions—if they find jobs at all—may cover such basics as food and shelter, but leave little for loan repayment.
Many ex-students who default on such loans complain that banks and collection agencies harass them. And that, in turn, has led them to criticize the current student loan programs. Among the graduates’ complaints: inequities in the system, unsympathetic administrators and a lack of so-called “forgiveness” mechanisms. But loan officers maintain that they make every effort to arrange flexible payback schedules—and collection agencies deny that they are guilty of hardline tactics. Declared Richard Jackson, an OSAP official: “It’s not a man at your door with a baseball bat.”
At the root of the problem is the enormous cost of postsecondary education-costs that continue to escalate. Statistics Canada reported last month that tuition fees at Canadian universities have increased by up to 10 per cent from last year—with the highest in Atlantic Canada, where they range from $1,450 to $1,750, followed by British Columbia ($1,350 to $1,700), Ontario ($1,000 to $1,500) and the Prairie provinces ($1,000 to $1,300). As well, Statistics Canada estimated that students in residence now pay $2,100 to $4,000 for room and board.
When the cost of books and other living expenses are added on, it is not surprising that many young people
borrow the money to finance their educations. The availability of funds and the easy terms sweeten the temptation and further aggravate the problem. One 28-year-old philosophy graduate, who is about $6,000 in debt and has been eluding a collection agency for the past 2 V2 years, said that the loan plans “amount to loansharking, because the government guarantees bank loans to people who need not—and cannot—show any
promise of being able to repay as they enter the most financially hard-up time of their lives.” Then, he said, a mere six months after the borrowers graduate “the collection agencies start harassing thiem—which is the psychological equivalent of breaking their legs.”
Since 1964 Canadian university graduates have defaulted on loans totalling $259.5 million. Still, the loan agencies maintain that they are sympathetic to the ex-students’ plight. Said Mary Meloshe, director of the Ottawa-based Student Assistant Directorate, which administers the Canada Student Loans Program: “The majority want to repay, and we try to recognize the student’s ability to repay. We are not looking to impose unreasonable hardship on an ex-student borrower.”
Student loans, typically about $6,000 per borrower, are calculated on the cost of tuition and books, and include a living and transportation allowance-minus the amount that a
student can contribute, including parental support. The students borrow money from the banks in the form of government-secured loans at interest rates just above the prime rate. As well as guaranteeing the loans, the participating government covers the interest up to six months past graduation. At that point, graduates are supposed to start paying back the loan, including interest, over a period that can range up to 9 ¥2 years. If the bor-
rower defaults, the government then pays off the bank and transfers the delinquent account to a collection agency. Said Meloshe: “We are quite unforgiving if there are reports of abuse. But we try to ensure that the collection agencies do not harass the students in trying to reclaim the debt. As well, they advise the students of the availability of interest relief.”
But Cary Thompson, who graduated from the University of British Columbia in 1986 with a BA in art economics and a $12,000 debt, says that interest remission programs discourage students from supporting themselves. Thompson, 24, said that when her first payment was due, she was a waitress earning minumum wage, but was still expected to make the payments in full. Her payback schedule was later adjusted, but, she said, it was only when she became ill with bronchitis and stopped working that she qualified for interest relief. Thompson added that student loan programs should feature more flexible repayment plans. The
current system, she said, is a “disincentive to getting a postsecondary education.”
Other former students say that the amount of the loan should reflect the graduate’s chosen field of employment. Said Tracy Neiser, a 25-year-old dancer/waitress who graduated in 1985 with a bachelor of fine arts degree from Toronto’s York University and a $10,000 debt: “Student loans should bear some relation to the earning potential of the education. Someone becoming a professional, like a doctor, would be able to pay back a large loan. Someone with a fine arts degree, like dance or theatre students, obviously can’t.”
But however controversial the student loan programs are, many students are grateful that they exist at all. One is Ed Hawco, who spent two years at the University College of Cape Breton and four years at St. Francis Xavier University in Antigonish, N.S., borrowing increasing amounts every year through the Canada Student Loan Program. He now faces a debt of $16,000, with repayment terms of roughly $250 a month over a 91/2-year period.
Hawco graduated with a BA in sociology and psychology in May, and-his first payment is due in late November. But the 27-year-old, who recently
moved to Montreal to take a job as a photographer’s assistant at $12,000 a year, said, “There’s no way I can meet that first payment, and I don’t know how I’m going to pay any back at all, at least for this year.” On the one hand, Hawco said, “it is frightening to graduate with a $16,000 debt.” But he
added, “Thankfully the system is there, because otherwise I couldn’t have gone to university.”
In an attempt to find solutions to the debt-load problem, the Council of Ministers of Education, Canada, along with Secretary of State David Crombie, has produced a report on student funding that Crombie said will help to form federal and provincial loans policies in the future. Crombie said that the report, expected to be released within a few weeks, will likely make recommendations to alleviate what he calls “undue stress” on former students. Declared Crombie: 1 “To simply assume that people can start paying six months after leaving university— that only makes sense if you have a job. We are long past debtors’ prison.” But on a more realistic note, he added, “The point is, where do you draw the line?”
The story you want is part of the Maclean’s Archives. To access it, log in here or sign up for your free 30-day trial.
Experience anything and everything Maclean's has ever published — over 3,500 issues and 150,000 articles, images and advertisements — since 1905. Browse on your own, or explore our curated collections and timely recommendations.WATCH THIS VIDEO for highlights of everything the Maclean's Archives has to offer.