Student Loan interest rate in the media

CREDIT: Debra Brash, Times Colonist In February, students across the country, including Yukio Stephenson of the University of Victoria, participated in demonstrations organized by the Canadian Federation of Students rally to denounce tuition fee increases. A new group called the Coalition for Student Loan Fairness is taking a different tack, focusing on the burden borne by students under existing loan programs. But the common denominator is the heavy debt load many students take on while attending university.

The B.C. government should reduce the interest it charges on student loans if it truly wants to remove barriers to post-secondary education, says a newly formed national advocacy group.

The Coalition for Student Loan Fairness says that this week's Campus 2020 report, released by former attorney general Geoff Plant, did not address what is a key financial issue for students.

The Canadian Federation of Students estimates the average B.C. student graduates with a debt of $27,000. Loan fairness coalition spokesman Julian Benedict said high interest rates contribute to that figure.

While the B.C. government can borrow at one per cent below prime, it charges 2.5 per cent above prime or more to students. For both Canada and B.C. student loans, the interest is a floating rate of prime plus 2.5 per cent, or a fixed rate of prime plus five per cent. Students can choose either.

"Most people are paying 8.5 per cent currently in B.C.,'' Benedict said. "It's a significant profit there for the government.''

Advanced Education Minister Murray Coell said yesterday that lowering the interest rate isn't in the government's plans.

"It's not something we're looking at this point. But Campus 2020 does recommend that we review the student loan system, so we're going to be looking at that recommendation,'' he said.

When asked how the province can justify charging students that rate, Coell said: "I think one of the things that you need to take into consideration is, in the first four years, or six years that someone's borrowing, they aren't charged any interest at all. So the taxpayer actually pays the interest on their loan for the first four or five years. They don't start repaying until they're finished. That's the historical background of it.''

An Advanced Education Ministry spokeswoman said yesterday that government makes no profit out of the interest rate it charges. Last year, it paid $38 million in interest subsidies as part of the program while collecting $26 million in interest. Through its loan forgiveness initiative, the province forgave $66 million in loans last year for 28,000 students.

According to University of Victoria data, the cost for a typical single student to attend classes for eight months, including tuition, books and all living expenses, is about $15,000 a year. Tuition itself for undergraduates is about $300 per course with most students taking between 12 and 15 courses a year.

The coalition was formed on April 12 and has more than 500 signatures on its online petition. It calls for several measures including the reduction or elimination of interest rates for student loans, improvement in access to grants, interest relief and debt reduction, the creation of a federal student loans ombudsman, the consolidation of the myriad loans some students are forced to juggle, and reform to what it says are questionable practices by some collection agencies.

"We started up our organization in response to a general sense among all student loan borrowers that we are not really having our voices heard in the debate for education,'' Benedict said in an interview. "There are literally thousands and thousands of student-loan borrowers out there and they're not getting any representation.''

Benedict said there was no discussion in the Campus 2020 report about the relationship between existing student debt and how that prevents many from returning to school for more education.

B.C. and Canada have among the highest interest rates for student loans in G8 countries, Benedict said. New Zealand charges no interest for student loans, he said. Benedict said out of his own student loan payment of $400 per month, $285 goes to interest.

B.C. students apply for loans through the province, but the loans are funded on a 60-40 per cent basis by the federal and B.C. governments, respectively. According to B.C. data, 88,000 students in B.C. currently have loans.

Canadian Federation of Students B.C. chairman Scott Payne said the federation supports the coalition's efforts to change the system.

jrud@tc.canwest.com