House of Commons Hansard #65 of the 38th Parliament, 1st Session. (The original version is on Parliament's site.) The word of the day was students.

Topics

Bankruptcy and Insolvency ActPrivate Members' Business

1:40 p.m.

Liberal

Lui Temelkovski Liberal Oak Ridges—Markham, ON

Mr. Speaker, I appreciate the opportunity to speak about why we need to preserve the integrity of the Canada student loans program and ensure access to higher education in Canada by voting against Bill C-236.

In the Speech from the Throne the Government of Canada pledged to build a Canada where the creativity and talents of all Canadians are maximized. The role of government is to give Canadians the tools and opportunities they need to make the most of their lives. We understand that investing in the skills of our citizens is simply one of the best investments we can make as a nation.

By 2007, 70% of the new jobs in Canada will need some form of post-secondary education, whether it is a trade, a college diploma or degree, but as many as 42% of working age Canadians lack the necessary literacy and other essential skills to meet these requirements. Recognizing the urgency of the situation, the Government of Canada has made skills development and learning a priority.

Certainly part of the answer lies in opening up access to post-secondary education. Among OECD countries Canada has the highest rate of participation in post-secondary education. Canada has one of the most effective student financial assistance programs in the world.

Through the Canada student loans program we are doing much to help students cope with the rising cost of post-secondary education. Over the last 40 years the Canada student loans program has earned respect across the country by helping countless students meet the cost of post-secondary education. About 330,000 Canadian students a year currently benefit from this program, which last year lent $1.6 million to students in need.

We recognize that more must be done to improve access to education. More must be done to help students cope with the rising costs and high debt load upon graduation. That is why we have made improvements to the Canada student loans program.

Members may recall that the 10 year prohibition on discharging student loans was introduced in 1998 as a means of improving the integrity and accountability of our student loans program in Canada. By increasing the prohibition on discharging loans to 10 years and introducing improved measures to assist students in financial difficulty, we were able to significantly reduce the number of students declaring bankruptcy in Canada.

If a student goes bankrupt, the student loan stays on the books for 10 years, allowing the student time to settle down, find a job and begin making payments. The Government of Canada recognizes that it is wrong to penalize students with bankruptcy and a bad credit rating right after completing their studies when their potential for earning has yet to be realized.

Over the years the Government of Canada has made significant improvements to the Canada student loans program. New debt relief measures were introduced to help students manage their debt and avoid declaring bankruptcy. These include interest relief and debt reduction in repayment. Interest relief is a debt management measure which provides students who are experiencing temporary financial difficulty in repaying their student loans with up to 54 months of relief on loan repayments. While students are on interest relief, they are not required to make any payments of either the principal or interest on their loans. During that time the Government of Canada pays the monthly interest on the loan.

Debt reduction in repayment is a targeted debt management measure. It is available to help students who have exhausted interest relief, but continue to remain in financial difficulty.

Debt reduction in repayment reduces the student's loan principal by up to $10,000 and aims to lower the monthly loan payment to an affordable level relative to his or her income. In the event that a student continues to remain in financial difficulty following this reduction, he or she may be eligible for two additional reductions of up to $5,000 each in 12 month intervals.

In implementing debt management measures, our goal was to encourage more student borrowers to make use of them as an alternative to declaring bankruptcy and creating bad credit histories.

These programs have been a tremendous success. They have helped many Canadian students avoid declaring bankruptcy and get back on their feet again.

Since their introduction in 1998, more student borrowers are taking advantage of these debt management measures. In fact, in 2001-02 over 140,000 student borrowers accessed the interest relief program at a cost of $77 million.

In the 2003 federal budget we introduced new measures to allow borrowers who declared bankruptcy to be eligible for new loans, interest relief and debt reduction in repayment. These new amendments came into effect last May. This change has helped literally hundreds of Canadian students complete their studies.

New changes to debt management measures were introduced in the last federal budget. They include measures to increase the income threshold used to determine eligibility for interest relief by 5%, and to increase the total amount of debt reduction in repayment from $20,000 to $26,000.

Bill C-236 asks Parliament to revert to the two year rule used before 1998. We know from experience that the two year rule simply does not work. It does not give Canadian students the time they need to become established, find well paying jobs and begin making payments on their loans.

Before changes were made to the bankruptcy rules, more than 53,000 students declared bankruptcy between 1990 and 1997 at a staggering cost of $445 million to the government in unpaid student loans.

By extending the period to 10 years, the Government of Canada has been successful in helping to curb the number of bankruptcies of recent student borrowers. Only 5,945 student borrowers declared bankruptcy between 1998 and 2000. During that same period approximately 230,000 borrowers received interest relief and over 900 borrowers benefited from debt reduction in repayment.

As a matter of fact, high bankruptcy rates between 1990 and 1996 were the catalyst for the government's decision to introduce new measures to lower student bankruptcies, such as the 10 year rule.

Allowing students time to make their way in the world after graduating is the right thing to do. That is why I am urging members to vote against Bill C-236.

Bankruptcy and Insolvency ActPrivate Members' Business

1:45 p.m.

Conservative

Peter Van Loan Conservative York—Simcoe, ON

Mr. Speaker, in today’s changing economy, education is a critical ingredient. This is the case both for individual improvement and advancement, and for the development of human and social capital, essential to growing our country’s economy.

The Conservative Party understands the importance of higher education to improving the condition and standard of living of our families. We know the important role of education in making the cultural fabric of our communities stronger, and our individual lives intellectually rich and fulfilling.

And the Conservative Party understands the critical contribution of a skilled and educated workforce to the innovation, productivity and competitiveness of our economy.

Encouraging higher education and personal skills development is seen by the Conservative Party as fundamental to a strong economy and a brighter future for all Canadians. Learning and higher education in particular, is a positive social good that particularly benefits the individuals involved, while at the same time enriching all of society.

This bill to address the issue of problem student debt is well-intentioned. While I share the objectives of making it easier for graduates to cope with student debts, I am not convinced that the proposal before us today is good policy

We believe that the current law, providing that any student debt survives a bankruptcy for 10 years after a student leaves school is too long. But 2 years, as proposed in this bill, is too short, and may well encourage unnecessary bankruptcy declarations to shed debt, before individuals have an opportunity to become fully contributing workforce members and citizens for whom bankruptcy brings other adverse consequences.

Responsibility is also a value we want to promote--and we should be encouraging individuals to honour their obligations to their fellow citizens, whether that be by paying their taxes or paying their student loans. That is why we feel a five year period is an appropriate middle ground.

For those who feel student debt should be treated the same as any commercial debt, we should remember that there is a difference.

The criteria for commercial lending is credit worthiness and availability of assets for security. Student loans, however, are awarded on the exact opposite criteria—a lack of financial assets and a lack of income. Student loans are more like a social program than a commercial loan.

That is why we cannot understand the way this Liberal government is operating the Canada Student Loans program as a profit-making centre today. When banks lend to their best customers, those borrowers pay prime rate. A typical loan to an average customer is prime plus 1%.

Yet this Liberal government is charging students prime plus 2.5% on floating rate loans, and a staggering prime plus 5% on fixed rate loans.

Is it any wonder students are having trouble coping with debt. When the compounding factor is considered, it is not long before young people, trying to establish themselves and start families, find themselves sinking towards bankruptcy.

Right now, at posted floating rates, the government is charging 6.75% on student debt, money the government has borrowed at an average of 3.8%—that is a pretty good margin. It shows how the Liberal government is using the Canada Student Loans program to make a profit, rather than to assist young Canadians in achieving an education and building brighter futures.

We in the Conservative Party have been calling on this government to stop this practice of gouging students with excessively high student loan interest rates, and to lower the rate to a more conventional prime plus 1%.

Lowering student loan interest rates is a much better solution to student debt than having more young graduates start their working lives by going into bankruptcy. That is why we prefer lower student loan interest rates to a policy of making it easier to default on debt and go bankrupt.

While we have been calling on the government to restore fairness to student loan interest rates, we continue to have only uncaring, insensitivity in the Liberal indifferent response. In fact, notwithstanding higher tuitions, and rising debt burdens, this Liberal government seems blissfully unaware of the challenges students face today.

In the Conservative Party, we do not want the financial costs of education to be a barrier to learning. Fear of mounting student debt and bankruptcy cannot be allowed to prevent young Canadians from pursuing their dreams. If the financial burden of education is discouraging students from achieving their best, and enjoying the benefits of higher education, then all of us, and all of Canada, will be poorer for it.

This legislation is well-intentioned, but flawed. And its greatest flaw is that the answer to student debt problems lies not in easier bankruptcy, but in more manageable debt loads, with lower, fairer student interest rates.

That is why we, in the Conservative Party, once again are calling on this government to lower student loan interest rates to prime plus 1%. That is what Conservatives believe. And that would be a change for the better.

Bankruptcy and Insolvency ActPrivate Members' Business

1:55 p.m.

Liberal

Wajid Khan Liberal Mississauga—Streetsville, ON

Mr. Speaker, I am happy to have the opportunity to speak on a bill that concerns the future of young Canadians in our country.

I commend the member for Halifax for encouraging us to revisit the timelines and procedures we have in place for the repayment of Canada student loans by those facing financial difficulties.

It seems that the bill is asking us to take a very simple step. Currently, students or recent graduates who declare bankruptcy cannot discharge their Canada student loans for 10 years following their declarations. The bill requests that we change the 10 year period to a 2 year period. We can presume that the intention behind the bill is to ease the financial responsibilities of those who declare bankruptcy by discharging their student debt earlier.

Unfortunately, the issue is more complex than we might at first think. We will need to examine closely the repercussions of taking such a step.

Let me first acknowledge that students today are facing increased costs of post-secondary education and, as a result, increased debt loads. It is not easy for them to finance their education and that is where the Canada student loan program comes into play. Without these loans, many Canadian students would never make it to college or university. It is our way of levelling the playing field, of increasing access to post-secondary education for all Canadians regardless of their socio-economic status, their gender or their ethnic background. Everyone can apply and everyone is treated equally.

For most students, post-secondary education helps them develop the skills and experience they need to launch their careers and find employment. With this employment, they are able to pay back their student loans over time.

Some students, however, face financial difficulties and have problems meeting their loan repayment obligations. Between 1990 and 1997, for example, 53,000 students and recent graduates declared personal bankruptcy to discharge this obligation, at a cost to taxpayers of $445 million in defaulted federal student loans. That is an average of over 7,500 students and $63.5 million per year. Incidentally, that was when we last had the two year rule: after a two year waiting period following bankruptcy, student debt was automatically discharged.

Not surprisingly, the Government of Canada became concerned about the high number of bankruptcies taking place in the 1990s. We did not and we do not want young Canadians to make such a drastic move so early in their lives. They often do not realize the negative impact that declaring bankruptcy will have on their credit rating and their future financial and personal well-being.

In 1998 the Government of Canada decided to act. We brought in the Canadian opportunities strategy, which introduced new measures to help young Canadians manage their student debt. For the first time all students were eligible to get tax relief for interest payments on their student loans.

Interest relief was extended for a maximum of 30 months to up to 54 months during the first five years after leaving school. The measure provides students in financial difficulty with relief of loan payments. While on interest relief, students are not required to make any payments on their loans, of either principal or interest.

Students were able to extend their loan repayment period from 10 years to up to 15 years in order to lower their monthly loan payments to more manageable levels.

Debt reduction in repayment was introduced to provide students remaining in financial difficulty five years after leaving school with a reduction in loan principal of up to $10,000 or 50% of the loan principal, whichever was less.

These debt management measures were introduced in tandem with a change to the bankruptcy rule from two years to 10 years to help students manage their debt and provide an alternative to bankruptcy.

As a direct result, the number of student loan bankruptcies in defaults declined significantly. Between 1998 and 2000, only 5,945 borrowers declared bankruptcy, representing $42 million in federal student loans. This is less than half the average annual figures for the previous seven years.

As demonstrated by the Canadian opportunities strategy, we are doing much to support students as they work to repay their student loans. In doing so, we are also making sure that bankruptcy is absolutely the last option and one they will hopefully never have to take.

The 2003 federal budget announced further enhancements by extending eligibility for debt management measures to students who, despite their best efforts, found themselves in bankruptcy. As of May 11, 2004, students who declare bankruptcy may be eligible for both interest relief and debt reduction in repayment. In addition, new Canada student loans are available to students who declare bankruptcy while still in school so that they can finish their post-secondary studies and meet their obligations to repay outstanding student loans.

The 2004 federal budget further enhanced existing measures to provide even more support for borrowers who face financial difficulties. These include: increasing the amount of debt reduction available from $20,000 to $26,000; and increasing the income thresholds used to determine eligibility for interest relief by 5%.

If we are doing all of this to support Canadian students, why not go one step further and change the 10 year rule back to the 2 year rule that we had before 1998? It is for three very important reasons: we need to be fair; we need to be realistic; and we need, most of all, to be accountable.

First of all, we need to be fair to Canadian citizens. We are using taxpayer revenues to finance Canada student loans. Canadians are therefore investing in the future of their country by investing in the future of its young people. As investors, they have every right to expect that legally binding agreements will be respected and student loans will be repaid.

We need to be fair to other students by treating them equally and affording them all the same rights and responsibilities under the Canada student loans program. Canadian students have the right to apply for a student loan, but they also have the responsibility to pay back that loan, even when times get tough. We are responsible to them, but they are responsible to us.

We need to be fair to future students. The Canada student loans program has existed for 40 years. We must ensure that it remains an economically viable program for the next 40 years and beyond.

Our parents benefited from student loans and many of us have benefited from student loans. We must protect this program so that our children can also benefit. We cannot do that if the money loaned out today does not get paid tomorrow.

Bankruptcy and Insolvency ActPrivate Members' Business

2:05 p.m.

The Acting Speaker (Mr. Marcel Proulx)

The time provided for the consideration of private members' business has now expired and the order is dropped to the bottom of the order of precedence on the order paper.

It being 2:06 p.m., the House stands adjourned until Monday March 7 at 11 a.m., pursuant to Standing Orders 28(2) and 24(1).

(The House adjourned at 2:06 p.m.)