Student-loan scheme levies more interest than need

The federal student-loan program is charging more interest than necessary and forcing thousands of grads to default, according to a report by the Coalition for Student Loan Fairness.

The Vancouver-based group said the government borrows the money to fund the program at an average rate of 4.15 per cent.

But when students repay the loans, starting six months after graduation, they pay between 8.5 and 11-per-cent interest, more than double what it costs the government to borrow the money.

The report also found that 75 per cent of those who default do so in the first three years after graduating.

"The No. 1 way that the government can reduce defaults is to reduce the interest rates on student loans," said Julian Benedict, the coalition's founder.

Benedict said the U.K. and the U.S. charge 3.37-per-cent interest on student loans, while Germany charges no interest at all.

The money grads spend to pay down the interest could be better spent saving for retirement or investing in the economy, Benedict said. And the government would be better able to recoup the principal they loaned out if grads don't default or declare bankruptcy.

Some grads say that even with jobs they have trouble balancing living costs and loan repayments.

"I've probably already paid back the principal, if you look at what I've paid in interest," said Matthew Bernard, who graduated with his second degree in 2001.

Bernard, 34, works for a federal government department and his wife is a teacher. But he says they still can't save for their future.

"I don't own a house, I have a beater car," said Bernard, who lives in a basement suite.

Bernard says his debt is around $35,000.

Lesley Harmer of Human Resources and Social Development Canada said the Canada Student Loans Program is under review.

"The process will result in changes that will be announced in budget 2008," she said.