Public Accounts Committee on Dec. 1st, 2020

[The Chair, Conservative, Kelly Block]

Good morning, everyone. It's good to see all of you. I call this meeting to order.

Welcome to meeting number 10 of the Standing Committee on Public Accounts. Pursuant to Standing Order 108(3)(g), the committee is meeting in public today to study “Report 2—Student Financial Assistance”, of the 2020 spring reports of the Auditor General of Canada.

Today's meeting is taking place in a hybrid format, pursuant to the House order of September 23.

To ensure an orderly meeting, I will outline a few rules as follows:

For those who are participating virtually, members and witnesses may speak in the official language of their choice. Interpretation services are available for this meeting. You have the choice at the bottom of your screen of the floor, English or French. Before speaking, click on the microphone icon to activate your own mike. When you have finished speaking, please put your mike on mute to minimize any interference. Unless there are exceptional circumstances, the use of headsets with a boom microphone is mandatory for everyone participating remotely. Should any technical challenges arise, please advise the chair. Please note that we might need to suspend for a few minutes as we need to ensure that all members are able to participate fully.

For those participating in person, masks are required unless you are seated and when physical distancing is not possible. Should you wish to get my attention, signal the clerk with a hand gesture. Should you wish to raise a point of order, please activate your microphone and indicate to me clearly that you wish to raise a point of order. With regard to a speaking list, the committee clerk and I will do our best to maintain a consolidated order of speaking for all members, whether you are participating virtually or in person.

I will now turn to our witnesses. Welcome.

Joining us today from the Office of the Auditor General of Canada, we have the Auditor General, Karen Hogan; Mathieu Lequain, director; and Philippe Le Goff, principal.

From the Canada Revenue Agency, we have Bob Hamilton, commissioner of revenue and chief executive officer; and Marc Lemieux, assistant commissioner, collections and verification branch.

From the Department of Employment and Social Development, we have Graham Flack, deputy minister, employment and social development; Atiq Rahman, acting assistant deputy minister, learning branch; and Marc Perlman, chief financial officer and senior assistant deputy minister.

As well, from the Financial Consumer Agency of Canada, we have Judith Robertson, commissioner.

For those of you who are making presentations, you will have five minutes to make your opening statements, and we'll begin with Ms. Hogan.

Ms. Hogan, you have the floor.

[Karen Hogan, Auditor General of Canada, Office of the Auditor General]

Madam Chair, thank you for this opportunity to discuss our report on student financial assistance, which was tabled in Parliament in July 2020.

Joining me today are Philippe Le Goff, who was the principal responsible for the audit, and Mathieu Lequain, who led the audit team.

At the time of our audit, the federal government had two programs to help students obtain financial assistance to attend college or university. These are the Canada student loans program and the Canada education savings program. The government considers this type of assistance to be an essential investment in Canada's labour force and economic growth.

This audit is important because there is a significant cost to the government when student loans are not repaid. In the 2018-19 fiscal year, that cost reached $500 million, and the Chief Actuary of Canada predicted that the value of unpaid student loans will continue to grow.

Our report does not cover any assistance to students related to the pandemic as it was completed in December 2019. However, the pandemic is a compounding factor that has come into play since we issued our report. It may well cause labour market conditions to worsen, thereby limiting prospects for young adults. This might jeopardize their ability to repay their federal student loans. As a result, the value of unpaid and defaulted student loans reported earlier in the year would increase.

Overall, we found a number of areas in which Employment and Social Development Canada could improve how it manages student financial assistance.

On the loan side of student financial assistance programs, we found that the department did not properly check that information on applications to the repayment assistance plan was accurate, such as income. The department has known about this integrity problem and about the resulting risk that ineligible students might participate in the plan since 2015. At the time of our audit, the department did not have access to the Canada Revenue Agency's tax information to verify applicants' income, a practice that is used at the provincial level and that the department recognizes to be valuable.

As of July 31, 2018, 24% of borrowers whose student loans were due were participating in the repayment assistance plan. That translates into more than 200,000 borrowers who were struggling to repay their student loans, with the total loan value of $3.6 billion. Almost nine out of 10 participants in the repayment assistance plan were making no payments. We found that Employment and Social Development Canada did not offer enough tools to help students understand their financial obligations under the Canada student loans program, despite recommendations from the Financial Consumer Agency of Canada to make this sort of information available.

Financial literacy is important, as for some students this is the first large financial commitment of their lives.

We also found that the Canada Revenue Agency did not have the tools it needed to maximize recovery once borrowers defaulted and student loans were transferred to the agency for collection. For example, the agency was using Employment and Social Development Canada's information system, which made it impossible for the agency to know exactly how much money was recovered by its own different activities and collection methods.

Finally, on the savings side of student financial assistance programs, we found that the government invested $1.1 billion in the Canada education savings program in 2018, but low-income families did not fully participate in the program. For example, even though the Canada learning bond is paid by the government without any contribution from families, about 62% of eligible children did not receive it as of 2018 because no account had been opened for them.

In our view, it's important that Employment and Social Development Canada undertakes an evaluation that considers both the loans and the savings components of federal student financial assistance. This type of comprehensive review would work to ensure that the system is consistent and effective in achieving the objectives of promoting access to and completion of post-secondary education. We made five recommendations to Employment and Social Development Canada, and the department has provided us with an action plan. The committee may wish to ask the department what progress it has made to address our recommendations.

Madam Chair, this concludes my opening remarks. We'd be pleased to answer any questions the committee may have. Thank you.

[The Chair, Conservative, Kelly Block]

Thank you very much, Ms. Hogan.

We will now go to Mr. Hamilton for five minutes.

[Bob Hamilton, Commissioner of Revenue and Chief Executive Officer, Canada Revenue Agency]

Madam Chair, thank you for the opportunity to appear before you to discuss this report.

As you know, I am accompanied by Marc Lemieux, Assistant Commissioner of the Collections and Verification Branch at the Canada Revenue Agency.

For the CRA portion of the audit, the Office of the Auditor General examined whether ESDC and CRA analyzed student loan recovery activities and adjusted procedures accordingly to maximize the funds recovered for the federal government.

The Auditor General acknowledged that the CRA did not have the necessary tools to maximize the recovery of student loans in default. The methods available for the agency to recover student loans were more limited than those available to the agency under the Income Tax Act.

In the report, the Auditor General of Canada made five recommendations. None are addressed to the CRA. One audit recommendation does mention the CRA. To address that specific audit recommendation, ESDC is working with us to establish an information-sharing agreement, expected by the spring of 2021. This will enable CRA to strengthen verification of borrower marital status, income, spousal income and number of dependents against tax data during the repayment assistance plan application process.

Thank you, Madam Chair. I'm happy to answer any questions you may have.

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Hamilton.

We will now move to Mr. Flack.

[Graham Flack, Deputy Minister, Employment and Social Development, Department of Employment and Social Development]

Thank you, Madam Chair.

The report's recommendations align with our continuous work to strengthen the Canada student loans program, while making post-secondary education more affordable and accessible to all Canadians.

The government has made significant investments in recent years, including increasing Canada student grants and expanding its eligibility to make post-secondary education more affordable.

Since the onset of the pandemic, the government has taken measures to address the impacts of COVID-19 on students, which included temporarily suspending the repayment of student loans and applicable interest, and doubling Canada student grants for the current school year.

The government has also taken steps over the years to make student loan repayment more manageable. Most notable was in budget 2008, where the government announced the introduction of the repayment assistance plan, which was subsequently approved by Parliament and implemented in 2009.

RAP is a form of an income-contingent repayment system that allows student borrowers to repay only what they can reasonably afford given their income and family size. The government contributes to their payments such that the loan is paid off within 15 years of leaving school. In 2016, the government made it more generous by increasing the zero payment income threshold to $25,000. This is a benefit, effectively like a deferred grant, and should not be viewed as a loss. In fact, the department has made and continues to make efforts to raise awareness of RAP, so that eligible borrowers can take advantage of it while they're trying to integrate into the labour market, but do not have sufficient revenue.

Spending on the RAP is very different from the write-off loss due to default. Therefore, we report separately on the two on the public accounts. Parliament has chosen to use to grants to help students in financial need. The RAP is a means to assist students in precariously financial situations through the payment of their loan.

We agree with the OAG that we can improve on informing Parliament on program costs. We are already taking steps to do so. However, we intend to continue reporting program spending such as the RAP and write-off loss separately.

While we have made great strides, we know that there is still more work to do. We acknowledge the longer-term issues raised by the Office of the Auditor General. We agree with their recommendations, and we are taking action to address them.

Student loan repayment continues to be one of the priorities for the Canada student loans program. Our efforts in this area need to be coordinated with the provinces and other delivery partners.

Given the work that the department has already undertaken, we are confident that we will be able to implement our action plan, though some of the timelines may need to be reassessed due to the pandemic.

With respect to student financial literacy, we agree with the Office of the Auditor General that more needs to be done to improve financial literacy among young Canadians.

To this end, Employment and Social Development Canada, in consultation with the Financial Consumer Agency of Canada, developed a financial literacy plan in 2017 to inform borrowers of their repayment obligations and provide them with financial literacy tools.

The department has already launched a virtual repayment counsellor on the National Student Loans Service Centre web portal. New financial literacy content continues to be added on repayment options and obligations.

The department also has a plan to consult with provincial partners and external stakeholders on mandatory financial counselling for borrowers.

Finally, the OAG has recommended a comprehensive evaluation of both the Canada student loan program and the Canada education savings program.

While our ongoing evaluation work has focused on the impact of the two programs individually, the department has been working with Statistics Canada for several years now on developing appropriate data sets that would allow us to do a comprehensive evaluation to examine the interaction between the two programs.

After much technology and privacy work to link those data sets, that has now been completed. Our first evaluation of the interactions between the education savings program and the Canada student loan program is underway. With better understanding we will be able to take appropriate steps to reduce financial barriers to students.

All of the efforts we have been undertaking have ensured that the default rate on student loans continues to decline, from a high of 28% in 2003-04 to its current all-time low of 8%.

Some of this success can be attributed to the repayment assistance program, which provides support to borrowers in financial difficulty so that they can get back on their feet and focus on their careers. The use of this model—

[The Chair, Conservative, Kelly Block]

Thank you very much, Mr. Flack. Your five minutes is up.

I will now turn to Ms. Robertson for five minutes.

[Judith Robertson, Commissioner, Financial Consumer Agency of Canada]

Thank you. Good morning.

Madam Chair, members of the Standing Committee on Public Accounts, thank you for inviting me to appear before you today.

The Financial Consumer Agency of Canada is a federal agency that operates independently. We are primarily funded by the financial institutions that we regulate. Our mandate is to protect financial consumers in Canada, and we do that in two principal ways.

First, we supervise the federally regulated financial entities, primarily banks, for their compliance with the consumer protection measures in legislation. Second, we strengthen the financial literacy of Canadians through programs, tools and resources to help them make informed financial decisions, as informed consumers are better protected consumers. In addition, we undertake research and experimentation to provide the evidence to support these efforts.

All of this work is carried out in close collaboration with many organizations and individuals in the public, private and non-profit sectors. This enables us to extend our reach and our impact across the country.

As you know, financial literacy is a vital skill that people develop and augment as they go through the various stages of life, and starting young makes a difference. We thus undertake various activities focused on helping people develop good financial habits early in life.

For example, young Canadians were a key target audience of ours during the tenth annual financial literacy month, which just wrapped up yesterday. We hosted a webinar in collaboration with the Canadian Bankers Association that targeted young graduates.

We've also developed and piloted educational training materials for post-secondary students in collaboration with the Canadian Association of Student Financial Aid Administrators and Colleges and Institutes Canada. We chair a federal government committee of departments and agencies, which includes ESDC, that exchanges information and coordinates efforts on financial literacy.

These are just a few examples of how FCAC is helping advance financial literacy. As you can see, collaboration is central to our efforts, and our partnerships have proven to be a successful way to develop and deliver financial education initiatives.

Turning to the Auditor General's report, FCAC welcomes the recommendation that involves our efforts to strengthen the financial literacy of post-secondary students in collaboration with ESDC.

FCAC and the Canada student loans program team have a long-standing and positive relationship. Our joint focus is to help student loan borrowers improve their financial literacy and better manage their finances.

As discussed in the Auditor General's report, our two organizations have been working together to include the financial literacy tools and information in ESDC's National Student Loans Service Centre portal.

We are pleased to report that over the past year, FCAC's educational materials have been added to the student loan portal as well as to the personal dashboards of student borrowers. They include links to FCAC's budget planner and information on how loans and credit cards work and on consumer rights related to credit products. There are also tips on paying back student loans and setting up an emergency fund.

Going forward we will continue to build on our close partnership with ESDC and support its efforts to make enhancements and to integrate new content into the portal.

In closing, I'd like to bring your attention to the fact that we recently announced the launch of public consultations to renew our national strategy for financial literacy. The first national strategy was adopted in 2015 and successfully laid out a road map to where we are today. These consultations for a new strategy will help us plan for the future. We invite anyone who is interested to share their ideas.

In closing, FCAC is committed to continue advancing financial literacy in Canada, with the support of federal government partners like ESDC and other stakeholders.

This completes my opening statement. I would be happy to answer any questions that you may have.

[The Chair, Conservative, Kelly Block]

Thank you very much.

Thank you to all our witnesses for your opening statements.

We will now go to our first round of questioning, which is six minutes. We will start with Mr. Lawrence.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Thank you very much, Madam Chair, and thanks to all of our guests for being here. I really appreciate your time. I know that during the pandemic it's particularly difficult to get time away for committee but we do appreciate it and I do think it's important.

I'm going to start with you, Mr. Flack. When we look at the repayment assistance plan recipients, they are required to submit monthly pay stubs, but they are not required to file annual tax returns, as is the case in the Ontario program. During this pandemic, the government has often required businesses and non-profits struggling through some of the most difficult times in their lives to have income tax returns. Why are these business owners being forced to file and show their tax returns before they can be helped when we don't require this in the repayment assistance plan?

[Graham Flack]

Madam Chair, the way the RAP operates is that it largely deals with individuals who face sudden income loss. For sudden income loss, the income tax return that CRA has from the previous year is not actually useful for us in determining that.

For example, if we had someone who lost their job today and applied under the RAP, even if I had access to that person's data at CRA, the data would be for their 2019 tax year and it would not allow me to evaluate whether they were eligible for the repayment assistance program. We have to do that evaluation based on their income in the previous month. That's the way the program is structured. It's not retrospective and looking at their income in the previous year because indeed their income from the previous year would have been higher to be able to do that. That's why, for individuals who suffer that sudden loss, we have to use pay stubs and other methods to assess whether they're doing that.

Where the CRA data would be very useful for us is looking retrospectively where you have individuals in the program for a longer period of time. Since the program was set up in 2008, the government has never looked at making it obligatory for individuals to file taxes. The rules around filing taxes are rooted in whether an individual has sufficient income. For example, if they have no income, there would be no obligation to file taxes and we would have to find another way. That's something we can certainly look into. It's just not something that's been in place since Mr. Solberg set up the program in 2008.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

To be clear, so that I understand the program, if the person had made a million dollars in 2019, and lost their job on January 1, 2020, they would still be eligible for the RAP program. Is that correct?

[Graham Flack]

Atiq, can I turn to you on that? I don't believe there's an asset test.

[Atiq Rahman, Acting Assistant Deputy Minister, Learning Branch, Department of Employment and Social Development]

That is exactly correct, Madam Chair. It's based on income; it's not based on their savings or assets. If somebody loses their income, they become eligible at that point.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

For an individual who is only making $30,000 a year in the previous year and hasn't had their income drop, and a person who made a million dollars in 2019 and did have the income drop, the person making $30,000 would not be eligible, but the person who made a million dollars in the previous year would be. Is that correct?

[Graham Flack]

They could be eligible, depending on whether they have family members. We look at two factors. It's $25,000 if they're single, but if they have additional family members, the number is higher. It's closer to $59,000, I think.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

You understand my point there.

Thank you very much for that, Mr. Flack.

Moving on from there, Mr. Hamilton referred to an information-sharing agreement that's supposed to be in place in the spring of this year. Mr. Flack, you equivocated there a little bit.

Will we have that plan in place by the spring? What is the spring exactly? Is that March or Mary or when is that in 2021?

[Graham Flack]

Yes, we have a tentative agreement now. The target is to get that signed in March. The reason it has taken time is that we had to negotiate this with the provinces as well, because they needed to be supportive of this. The other reason this has taken time is that sensitive tax information will be accessed by a third party provider who provides the loans. That has resulted in some extensive consultations with CRA to ensure that the full integrity of that information is protected.

That's been the reason for the delay.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Okay.

I'll move to you, Mr. Flack. Sorry, I'm taking up all of your time here. The Auditor General has noted that over 20% of borrowers under the student loans program made no repayments, highlighting that there are obviously some major issues in the program.

That's what I wanted to focus on there. We're at 20%. What is the target? Are we still at 20% with COVID? Has that number gotten worse? I sort of assumed it would have. What is our target there? What's the number we want to get to? What are other jurisdictions at?

[Graham Flack]

In fact, there is not a target around that because the program is designed to be what we call an automatic stabilizer. In the event, for example, of a recession, one would expect to see younger people losing their jobs in greater numbers than others, and one would expect to see, temporarily, much higher numbers resort to the program.

I think the repayment program was a deliberate design by Parliament to say that in the case where a large group of individuals get into serious difficulty financially because of the broader economic effects, the government shall provide more support. It's not unlike the employment insurance system. We don't have a target on a given year for what it is. It's an entitlement based on income.

The number of people who are not repaying the loans reflects the fact that those individuals are below the income threshold that Parliament has set for which those individuals are entitled to, in effect, a deferred grant to cover the costs of their loans.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

Excuse me.

Madam Chair, I know I'm running short of time. Can I get one more question in?

[The Chair, Conservative, Kelly Block]

You're out of time. I'm very sorry. You're at six minutes and two seconds.

[Philip Lawrence, Conservative, Northumberland—Peterborough South, ON]

I want Mr. Longfield back.

[The Chair, Conservative, Kelly Block]

We will move on to Mr. Fergus.

[Greg Fergus, Liberal, Hull—Aylmer, QC]

Thank you very much, Madam Chair.

Good morning to all the witnesses.

Ms. Hogan, it is a pleasure to see you appear before the committee again.

My questions are about the relationship between the.... Perhaps I should say it in English.

My questions concern the financial accountability of the recipient of the loans to the department and the relationship between that and falling into default or being delinquent on their loans.

If we look at recommendation 2.35, I know the Auditor General indicated the following:

To prompt borrowers to be more diligent about repaying their student debt, Employment and Social Development Canada should inform credit bureaus about student debts in default.

Madam Hogan, are a lot of students defaulting on their debts?

I'm just thinking back to the time when I was young and I wasn't perhaps the most responsibly financial person there is. Would you find that there would be a better solution than reporting them to the credit bureau, which would, of course, put a stain on their credit record, which can carry forward, just as they're starting in life and their careers?