That, in the opinion of this House, the government should consider the advisability of amending the Canada Student Financial Assistance Act to include an income contingent loan repayment system in order to:
(a) reduce the cost to taxpayers of financing post-secondary education by reducing the number and dollar amounts of loans defaulted upon, by charging accumulated interest, rather than simple interest on defaulted loans, and by reducing the number and dollar amounts of collection fees for defaulted loans;
(b) allow post-secondary students greater flexibility and fairness in financing their education through extended loan repayment period based on a fixed percentage of individual income;
(c) ensure that post-secondary institutions in Canada receive the funding necessary to maintain the high quality of services they presently provide.
Mr. Speaker, I rise today in support of this motion. Before speaking to the merits of it, I would like to give a broader reason for Parliament, not just Reformers and not just the government but all members, to send a positive signal to young people by endorsing this proposal.
All of us as parliamentarians and members of the older generation pay lip service to the value of youth and the importance of the younger generation of Canadians. But actions speak louder than words. Often the actions of Parliament and the government send a very different message. For example, the chronic and systematic overspending by governments of our generation have piled up a burden of debt and taxation which we are passing on to the younger generation.
This is a terrible legacy and unless we address it, the principal effect of this generation of politicians on the well-being of the next generation will be essentially negative rather than positive.
Therefore I feel it is important for Parliament and the leadership of the country to offer something of real value to young people, something that by its very nature sends a message that states: "Yes, we realize your importance; yes, we recognize your value to the future of the country; and, yes, we are prepared to invest in you and not just pass on our debts".
During the last federal election campaign I made two proposals on the subject of higher education which seemed to provoke a very positive response from younger people. One was the proposal to give students more control over the spending of education dollars by distributing federal cash transfers in support of education in the form of non-repayable vouchers.
The other proposal that evoked a good response was the proposal embodied in this private member's bill. It is also a proposal mentioned in the government's human resources development discussion paper and that is the proposal for an income contingent loan repayment program.
I should mention that in the national leaders' debate that was held in Ottawa during the election campaign where the questioning from the audience was very controlled, the one and only question from a younger person in that audience had to do with how students facing higher tuition and education costs are going to finance their education in the future. I suggest that this income contingent loan repayment program provides the best answer we can think of to that question.
I would like to review the current situation briefly. Everyone knows students require money to finance their education. I know something about this personally. Sandra and I have five children, three of whom are of university age. The principal sources of funding for students are these: income earned by students themselves, and many students today are carrying two jobs in addition to their education to try to make their way through; family funds, if those are available, but those are often very restricted in many families; scholarship funds which are usually tied to academic performance and other criteria; and, borrowed funds.
At present the principal federal act for securing borrowed funds for students is the Canada Student Financial Assistance Act, the old Canada student loans act. Under the provisions of that program the government guarantees loans by private lenders, namely the banks, to students with the cost of the loan being subsidized by the government as long as the student is enrolled in full time studies. The student usually begins paying the loan back about eight months after leaving school. In the event of default the lenders are reimbursed and the loan is usually sent to a collection agency under contract with the government.
The principal defects of the current system are that it provides insufficient funding for students facing rising tuition and education costs and the fact that one in five students ends up defaulting on their loans.
Reform has asked: Is there not some superior alternative? We believe it exists in this income contingent loan repayment program. Since that is a mouthful I will refer to it from here on as the ICLR program.
Simply put, this is a program designed to allow students to pay back their student loans over a period of time after graduation based on their annual income, with collection being organized through the income tax system. After graduation a student would begin to repay their student loan based on their ability to pay as determined by their earnings. Precisely how much a former student pays back each year would vary from year to year depending on income. The specific amount set as a percentage of income would be paid through the income tax system. If the student's income does not reach a specified minimum amount, the payment would be deferred until earnings increased.
This payment system depends on an accurate flow of income statements after the individual has left the institution of higher education. Revenue Canada, producing the full details of a former student's income and whereabouts through the income tax form, would be the collector of the loans. We like the idea of income contingent loan repayments for three reasons.
It would help to maintain the high quality of educational services in this country. As the finance minister pointed out in the last couple of days demands on public resources are enormous. The availability of those resources is increasingly limited. Both federal and provincial jurisdictions are wrestling with how to refinance post-secondary education.
As governments contribute less and less funding and costs increase, the quality of education will decline unless new sources of revenue are found. Lack of laboratory equipment, growing class sizes and enrolment caps are a direct result of the decreasing government contributions in the face of escalating educational costs.
Any workable resolution to the underfunding of higher education must depend on more financing from non-government sources, including increased student fees. However one cannot increase tuition and other fees to students without making the cost of a university education even more prohibitive than it is under the current system.
If however students were permitted to repay loans on an income contingent basis over a longer period of time, the burden of higher tuition fees would be more manageable. Private lenders and the federal government would also be able to provide more and larger loans at lower risk because the loans would be secured by the enhanced future earnings of the graduate and backed up by the collection powers of Revenue Canada.
Another reason for supporting this scheme is that it provides greater fairness and flexibility for students. The current student loan system has many defects, most of which result in high default rates.
Prospective borrowers are subjected to traditional means tests that take into account their parents' and their partners' income. Students whose parents are relatively well off are often ineligible for student loans even if they receive no assistance from their parents. Students are obliged to repay their loans at the same rate and at the same level after graduation, regardless of their employment and income position.
The high default rate which results from this system has two particular negative effects. It invites abuse of the system by irresponsible borrowers to the detriment of those who really need the loans. It also makes it harder to maintain public support for the student loans program because taxpayers are often left holding the bag. The income contingent plan by contrast links the payment to the ability to pay and makes repayment more certain to the benefit of both students and taxpayers.
Under the current act taxpayers pay the difference between the simple interest paid by borrowers and the accumulated interest that private lenders demand. The taxpayers subsidize interest costs while the borrower is in school. The taxpayers end up footing the bill for loans where borrowers default and pay the collection fees charged on the defaulted loan. The cost of default has become a substantial burden on the entire system. Earlier this week Peter Moon of the Globe and Mail sketched out the dimensions of this burden.
Currently about one in five borrowers default on their student loans. About two-thirds of these eventually repay but only after the federal government assumes the debt from the bank and has launched some form of collection activity. The other third, about 7 per cent of all student loans, are carried as bad debt. There is currently about $1 billion in bad loans outstanding owed by 180,000 former students. Eventually about 2 per cent of all student borrowers use bankruptcy to evade payment of their loans.
Under an income contingent system these costs would all be substantially reduced. The savings associated with minimizing collection costs in particular would be major. The government spent about $23.3 million in collection costs last year to recover about $100 million worth of debt. With a total value of defaults approaching $1 billion the potential earnings of the collection agencies is now estimated to range up to $300 million.
To sum up, Reformers advocate the adoption of an income contingent repayment system for loans for three reasons. First, it is a cost-effective, fair and flexible system for students. It enables them to invest more in education, thus helping to fund and maintain Canada's high quality system. Second, it provides fairness and flexibility for students by dispensing with traditional means tests and by allowing former students to repay their loans over a longer period of time based on their income. The third reason is that it reduces the cost to taxpayers by minimizing defaults, dispensing with interest subsidies and minimizing collection costs.
I would like to spend a moment or two comparing the Reform and Liberal government commitments to financing higher education. I often note that some of the government's best ideas are ones that have been appropriated from the Reform Party. Canadian governments have gone out of their way to ignore this type of proposal for about 40 years, as well as the experiences with it in Australia and New Zealand. However only weeks after my motion was placed on the Order Paper experimentation with ICLR appeared in Bill C-28.
During the debate on that bill, Reformers suggested that the whole system of student loans should be overhauled with a system of income contingent loan repayment. A few months later, lo and behold, the social policy discussion paper proposed just that. We do not mind when the government borrows good ideas from Reform. Our only concern is that it takes it so long to do it. We hope it does not bungle the implementation.
There is however one significant difference between ICLRs as the government is proposing and ICLRs Reformers propose. Unlike the Liberal government's proposal, Reformers do not see student loan reform as a means of offloading government debt onto students or abdicating the federal government's role in the funding of higher education.
We see income contingent loan repayment as a replacement for the current system of student loans and as a supplement to federal educational transfers. We believe the cash portion should be transferred directly to students in the form of non-repayable vouchers.
On the other hand, the government's social policy discussion paper recommends eliminating the cash portion of federal education transfers. This would reduce the EPF portion of federal education funding by over 40 per cent and students would have to meet this shortfall.
This is why students are so concerned about the government's proposals. Students are not stupid; they know the difference between a repayable loan and a non-repayable voucher. While ICLR is a valuable proposal in and of itself, students and prospective students legitimately fear that the sudden elimination of federal cash transfers will damage the quality of education, restrict access and saddle them with massive personal debt.
In conclusion, I want to say just one word about the support of the ICLR system and where it should come on the list of Parliament's spending priorities. Everyone in the Chamber knows the Reform Party has made its reputation by calling for spending reductions that would balance the federal budget within the term of this Parliament. However as indicated in our zero in three plan for eliminating the deficit which we tabled last winter, one of the few areas where Reformers do not advocate spending reduction is in the area of financial support for post-secondary education.
Make no mistake: Reform's fiscal goal is to eliminate the deficit. However post-secondary education as an investment in Canada's future is so important to us that we are prepared to make massive spending reductions in other areas in order to maintain current funding levels for education.
I suggest to the House that of all the things the government does, of all the money it spends, its one true investment in the future is its investment in the education and training of the younger generation of Canadians.
In this light, the inadequacy of the proposals put forward by the Minister of Human Resources Development in his discussion paper with respect to financing education frankly leads us to question the government's competence to set spending priorities in the exercise of social reform or deficit reduction.
I ask the House and I ask members opposite: Is $1.1 billion in federal subsidies to the CBC more important than the funding of the education of young people? I do not think so. Is $40 million in federal funding for multiculturalism more important than funding the education of young people? I do not think so. Is $50 million spent on bilingual bonuses for civil servants more important than the funding of the education of young people? I do not think so. Is $1.4 million spent on a film glorifying the murderers of Pierre Laporte more important than the funding of the education of young people? I do not think so. Is over $3 billion in federal funding for subsidies to private business more important than the funding of the education of young people? I do not think so.
In conclusion, I hope the House will support this motion to reform student loans, especially in light of the proposals in the government's social policy discussion paper. Let us send a clear signal to the young people of the country that our highest priority is their education, their knowledge and skills, and their future.