Truth Tracker: Are Trudeau and the Liberal Government Benefiting from Student Debt?


TORONTO – NDP leader Jagmeet Singh, who has pledged to “immediately and permanently” end interest on federal student loans, has accused the Liberal government of profiting from student debt.

Five provinces already stop charging interest rates on these loans – British Columbia, Manitoba, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island – and Singh wants the federal government to do the same.

The New Democrats, who are polled to have attracted younger voters, have highlighted affordable post-secondary education as a key area of ​​their platform message. In addition to eliminating the interest burden, they have also committed to canceling student debt of up to $ 20,000 and doubling non-refundable Canadian student grants.

THE CLAIM

“Since coming to power, Trudeau has benefited from nearly $ 4 billion in interest payments on his student debt,” said Singh wrote on Twitter The last weekend.

“The fact is that in the six years that Justin Trudeau has been Prime Minister, if you look at the federal interest collected on student debt, it cost students $ 4 billion. And the Prime Minister was responsible for that.” for it, “he told reporters during a campaign freeze earlier this week.

CTVNews.ca is investigating whether this statement is correct or not.

CONTEXT AND ANALYSIS

This is not a new claim by the NDP that also made the indictment in 2019 before the last federal election. At the time, Singh said the Trudeau administration was “raking in billions of dollars in interest from young people” and that it was “wrong to make a profit on student loans.”

“Profit” is defined as the amount that has been or has been achieved after deducting expenses and other costs. As Investopedia defines it, “The financial benefit realized when the income from a business activity exceeds the expenses, costs and taxes associated with maintaining the activity in question.”

To test the validity of Singh’s statement, we looked at the numbers: how much is the government spending on the program, how much is it doing and other related details.

During the last election, the total federal student debt was estimated at nearly $ 17 billion, with nearly $ 3 billion in interest billed since 2015. 2020, according to information requested by CTVNews.ca from Employment and Social Development Canada (ESDC).

The government awarded $ 1.63 billion in Canadian student scholarships to more than 528,000 students in the 2019-2020 credit year, more than double the amount granted between 2015 and 2016 Statistical Review of the Canadian Student Financial Aid Program. It also made loans totaling $ 3.45 billion to nearly 608,000 students.

Combined with the past three years, the government has provided more than $ 13 billion in loans and approximately $ 5.6 billion in student grants. The amount spent on student grants over four years already exceeds the interest recorded by the government over the past five years.

The average Canadian student loan balance at the time of graduation for the 2019-2020 academic year was $ 13,549, according to the ESDC. Over the past 10 years, on average, it took a student a little less than six years to pay off their Canadian student loan, while 25 percent paid off their loans within three years, the agency added. According to a. That credit average rises to $ 28,000 at the end of a bachelor’s or master’s degree Statistics Canada survey published in November 2019, and the figure cited by the NDP.

But the government writes off hundreds of millions of dollars in loans every year for a number of reasons, including bankruptcy, extreme financial hardship, and settlements. The bulk of it comes from loans that haven’t been paid or approved in six years, the Canada Student Loans Program Annual report for the states 2018 to 2019. For the fiscal year 2020-2021, US $ 185.5 million in Canadian student loans were written off, according to the ESDC. In 2018, Ottawa wrote more than $ 200 million in outstanding student loan payments.

These figures also exclude other government costs, such as: Repayment assistance plansthat gives some borrowers a grace period from repaying the loan until they have earned a certain minimum amount. This means that the state takes over the interest portion or, depending on the various factors, can contribute to both the capital and the interest.

In addition, the government the accumulation of interest suspended on Canadian student loans for two years, starting April 2021 through March 31, 2023. Previously, the government had already set the interest rates with the floating rate to Prime instead of Prime plus 2.5 percent and the fixed rate lowered to Prime plus two percent , of prime plus five percent.

There is also no interest on the loans during the borrower’s school days or in the first six months after leaving the company. In the meantime, the eligibility criteria for loan waivers have also been expanded to allow more students with severe, permanent disabilities to be eligible.

These are all “costs” that the government incurs. Together with administrative costs, that adds up to an additional $ 137.1 million over the 2018-2019 period. In the annual report for this year The cost of the loan was $ 2.66 billionwhile interest income was $ 841.4 million.

That year, the Quebec, Nunavut, and Northwest Territories government allocated $ 492.3 million to support their own financial assistance. These three jurisdictions do not participate in the Canadian Student Loan Program, which uses a single application process for students seeking state and provincial grants for post-secondary education.

What about the $ 4 billion number that Singh used? If we have the amount in the “Canadian Student Loan Interest”Line from the Public accounts of Canada for the past five years (2016-2020), the total amount of interest collected is $ 3.63 billion. If we included 2015, the grand total is $ 4.25 billion.

However, this figure is the total amount of interest charged or booked on student loans, which ESDC says is different from the amount actually collected by the state. As of 2015, only $ 1.87 billion – or an average of $ 373.7 million a year – in interest payments has actually been received or withdrawn from borrowers on student loans, the ESDC told CTVNews.ca. That is less than half the amount that is recorded on paper.

“Interest is recognized as income the moment it is owed by a borrower … However, some interest is never paid by the borrower for various reasons,” said Saskia Rodenburg, a media spokeswoman for the department, in an email.

“Part of the interest is waived through measures such as the repayment assistance plan, severe and disability benefits, loan waiver for general practitioners and nurses, or in the event of the death of a borrower. In addition, some interest will be written off when all loan collection measures are exhausted. “

Eventually, the amount the government receives in interest will be paid back into the consolidated revenue fund, ESDC says, and will not be allocated to any area. All funds paid to the federal government are held in this central account with the Bank of Canada. Trudeau and the Liberal government do not benefit from the interest collected.

CONCLUSION

Although the government collects a very large amount of student loan interest each year, it is already significantly less than its student grant spending – which has also increased. Even without grants, government spending on bad debt, borrowing bills, interest subsidies, repayment programs, and administrative expenses for the 2018-2019 credit year exceeded $ 1.1 billion. That’s more than the $ 841.4 million charged in interest payments or the amount actually raised.

“[It’s] It’s hard to say the government makes money, ”Kevin Page, the chief executive officer of the Institute of Fiscal Studies and Democracy at the University of Ottawa and Canada’s first parliamentary budget commissioner, said in an email.

Whether or not there is interest on student loans is a separate question, but it is clearly wrong to say that Trudeau or the Liberal government “benefits” from this interest.

Modifications made by CTVNews.ca Michael Stittle




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