Mr. Speaker, Bill C-236 proposes a substantial change to the existing rules respecting the treatment of student loans in bankruptcy. It is therefore essential that we do a thorough assessment of the proposals that are being made to make a proper determination.
The present rule is that an individual who goes bankrupt cannot have his or her student loan debt discharged unless at least 10 years have passed since he or she was last enrolled. This is in sharp contrast to the rule applicable to the debts which are typically discharged nine months after assessment in bankruptcy has been filed.
The 10-year rule was introduced in 1998 following a period in which losses to the Canada student loans program through personal bankruptcies had risen greatly. Many of these bankruptcies were occurring shortly after the individual left school. This type of behaviour represented a risk to the viability of the Canada student loans program. Indeed for the 1995-96 year alone, the fiscal cost of bankruptcies involving student loans totalled more than $100 million.
Since then the cost of bankruptcies has been reduced dramatically. In 2000-01, the last year where complete data is available, the cost of bankruptcies to the Canada student loans program was only $5.8 million.
While curbing the potential scope of abuses under the bankruptcy system, the government proceeded with vast improvements to the financial assistance to a student under the Canadian opportunities strategy, including improved access to the Canadian studies grant program, the investment of $2.5 billion in Canada millennium scholarships, a tax credit on student loan repayments, extension of interest relief periods, and the introduction of the debt reduction in repayment measure. These measures have been designed to provide students in financial need with viable alternatives to declaring bankruptcy.
Under the interest relief program it is now possible to go five years after leaving school without being required to make a payment on a student loan. During that time the Government of Canada bears the cost of interest on that loan. In 2001-02 over 140,000 Canadians took advantage of these generous provisions at a cost of $77 million.
Moreover, for borrowers who still experience financial difficulties after interest relief measures have been used up, there is then an actual debt reduction mechanism available allowing the borrowers to permanently dispose of over $26,000 in student loan debt.
I would also stress that the government has stayed on top of this issue. It has responded to the concerns regarding these support measures. In the last three years alone the budgets have contained measures to extend relief or to make relief measures more accessible to people experiencing hardships.
While some may argue that students are unfairly singled out, it is clear from these details that the Canada student loans program is quite generous to those legitimately facing financial problems.
We must also respect the fact that student loans are made available based upon a drastically different basis than a consumer loan. There is no examination of credit worthiness of the borrower. No collateral is required. The loans are interest free during the study periods. The schedule of repayment is flexible and accounts for the financial situation of individuals.
With these mechanisms available, there is some question as to the need for further relief through the Bankruptcy and Insolvency Act. It is reasonable to assume that any provisions for discharge of student loans must show coordination between the Bankruptcy and Insolvency Act and the provisions of the Canada student loans program.
Bill C-236 creates unnecessary overlap between the relief provisions of the Canada student loans program and the Bankruptcy and Insolvency Act.
The point is that there are relief measures available short of bankruptcy. Should those not be used as the first step?
Unfortunately, the bill therefore does not reflect existing relief measures, preferring rather to simply dismiss the debt when other options exist. This poses a very real risk to many students who take a few years to truly develop their full earning potential. It is at that point that their ability to pay becomes more certain and a fuller assessment of the appropriate relief can be made. The bill before us would bypass the measures in place to assist borrowers in favour of walking away from the debt entirely.
Bill C-236 would result in substantial financial cost to the government. In addition to loans financed directly, there are risk shared loans which could affect a large number of people as well. These risk shared loans are funded directly by financial institutions with a risk sharing mechanism which brings in government. The change proposed would likely require contractual agreements and additional compensation to those lenders.
This is the effect only at the federal level. Provincial student loans programs are also captured by the present rules so any change would result in any further levelling of costs there.
I am pleased to tell members of the House that in keeping with the ongoing improvements that have been made to this program, we are reviewing the bankruptcy discharge provisions in the existing legislation. This follows on consultations across the country held by Industry Canada with the participation of a wide range of stakeholders, including student representatives, as well as a more recent report on solvency law issues by the Senate Standing Committee on Banking, Trade and Commerce. That report recommended a reduction in the discharge period to five years and perhaps less in cases of hardship.
Building on this input, officials of both Industry Canada and HRSDC are now examining the many comments and the existing provisions to ensure the Bankruptcy and Insolvency Act and the Canada student loans program are properly integrated and reflect a fair and reasonable standard of discharge for student loans.
In conclusion, the government wants to stress that the period of discharge of student loans must properly take into account measures under the Canada student loans program, the relief available, the continued Liberal access to loans and the costs associated with bankruptcies.
On the face of it, Bill C-236 does not do that. As a result, it fails to provide a fair and reasonable alternative to current provisions of the Bankruptcy and Insolvency Act pertaining to student loans. The government cannot support Bill C-236.