Coalition Editorial on Debt Reduction in Repayment

Canadians having trouble paying off their mounting student loans shouldn’t assume their applications for debt relief will be approved by the federal government.

Documents recently obtained by the Coalition for Student Loan Fairness show that the federal government’s frequently-lauded loan remission program, Debt Reduction in Repayment (DRR), is routinely denied to nearly half of the borrowers who apply.

[1] Debt reduction recipients (PDF)

Debt Reduction in Repayment is supposed to help borrowers who have exhausted all other options to pay off their federal student loans. The strict eligibility criteria stipulates that borrowers must have used up all available Interest Relief, not fallen behind on their regular payments even though they can’t afford to pay their loans, and consistently maintain a very low income — as dictated by the government’s income guidelines. In other words, a borrower must show that he or she is desperately poor for an extended period of time.

Borrowers who meet these guidelines are eligible to apply for three separate loan reductions totaling up to $26,000 dollars – limited, of course, by how much they owe.

Historically, DRR has always been steeped in mystery. The Canada Student Loans Program’s Annual Reports reveal only the total number of borrowers who have been approved for the program annually, as well as the total dollar amount awarded to the group as a whole. That said, the overall numbers have always been unimpressive. For example, in 2005/06 fiscal year, the program crowed that a total of $26 million in DRR was awarded to needy students. To put this in perspective, this figure is only marginally more than the program plans to spend on its new website ($23 million).

Still, publicly available DRR statistics have never revealed how much individual borrowers have received in a given year, or how many were declined annually.

Recent DRR figures obtained by the Coalition through an access to information request offer a first glimpse into the program like never before. In 2007, 45 per cent of borrowers who applied for DRR — 1304 people — were declined. Although only partial figures are available from 2006, it is known that 208 people were declined between August and December of that year. If one averages this refusal rate over the entire year, at least 500 people were declined in 2006; this means that the number of declines is increasing significantly – more than doubling between 2006 and 2007.

This is a remarkably high refusal rate for a loan remission program. By contrast, according to Freedom of Information documents obtained by the Coalition last month, the BC provincial loan remission program declined only 39 of 196 applicants in 2007 – a refusal rate of approximately 19 per cent.

Moreover, only two in 18,000 borrowers since 2001 have received $20,000 or more in debt relief from the feds. In other words, it is nearly impossible to qualify for the maximum DRR benefit.

Overall, the figures expose a worrisome trend – more people are being declined every year since 2003 for debt relief. For example, while 329 borrowers received between $4,000 and $4,999.99 dollars in 2005, only 245 did so in 2006 — only 170 in 2007. The downward trend is the same for borrowers receiving anywhere from $2,000 to $10,000 in debt relief since 2005.

The findings are all the more surprising when you consider that even though more Canadians are now officially in loan repayment (510,000), and therefore are more likely to need debt relief, fewer are being approved for loan remission.

The evidence shows that DRR is not effectively meeting the needs of loan borrowers in financial distress. Thousands are routinely declined for the program, even after waiting years to qualify under the government’s existing eligibility guidelines. DRR should be revamped, so more struggling borrowers can get help they need.

Julian Benedict is a co-founder of the Coalition for Student Loan Fairness, a national, non-profit organization, working to advance student loan reform in Canada.