If you feel overwhelmed by debt from student loans, you’re not alone. Research undertaken by Western’s CIBC Centre for Human Capital and Productivity has found that, on average, student borrowers face more than $10,000 in debt in the Canada Student Loans Program following graduation.
“The costs of post-secondary schooling have risen dramatically over the past 10 to 20 years, with students now borrowing substantial sums from government student loan programs, and sometimes, private student lenders or banks,” Lance Lochner, a co-author of the study, explained.
“While many onlookers are concerned about the inability of lower income students to finance their education, others are concerned about high debt levels accumulated by some students, and their ability to repay those loans.”
Some disturbing numbers are to be found in the study, including the fact that 14 per cent of borrowers who entered the CSLP’s Repayment Assistance Program defaulted on their debt within the first three years after finishing school. In addition, half of Canadian loan recipients are earning less than $10,000 annually at the time they default.
“Our results strongly point to the fact that student loan repayment problems are largely due to a lack of resources,” Lochner said. “Low income and a lack of parental financial support are the main drivers of student loan repayment problems in Canada.”
Utku Suleymanoglu, one of Lochner’s collaborators in the research project and a PhD candidate at Western, agreed with this assessment, pointing out there is evidence to suggest even more factors are at play.
“Indeed, in our study we find that post-schooling income is the most important factor determining a student’s ability to repay his or her loan, and this is in agreement with previous literature on this topic,” he said.
“However, this is not the only factor—we see borrowers with relatively high levels of incomes also experiencing repayment problems,” Lochner added.
The study suggests that one of these other factors could simply be a matter of priorities—namely, the belief about the importance of student loan repayment among debtors. It reports that repayment problems are 10 per cent higher among those who say they would stop paying their CSLP loan first if faced with debt from other sources.
Unsurprisingly, numerous studies show that many students who default on their student debt face difficulties with other payments, such as credit card debt.
A biology student entering his fifth year at Western, who wished to remain anonymous, commented that student debt repayment would be his top priority.
“I owe just under $10,000 in OSAP, and I have a student line of credit as well but I’ve managed to pay off what I use each year,” he said. “I assume it will be my top priority to pay it off and be debt-free as soon as possible once I find a stable career.”
Unfortunately, difficult economic circumstances are making the search for a stable, long-term career difficult for many with student debt. Indeed, the study highlights that two-thirds of student respondents reported that a lack of income was the most important reason for missing payments.
This is also one of the primary factors leading students with debt to seek assistance from their family, which in turn has an important role in determining ability to pay off debt. According to the study, students whose parents are willing and able to assist them in making payments are much less likely to experience repayment problems.
“I would avoid asking my parents for assistance, though I’m sure they would help me if I asked and they had the ability to,” the student said. “I feel like my parents have given me more than enough as it is.”
Regardless of its cause, it’s becoming clear that the issue of rising student debt, and an inability to repay it, needs a solution.
“I would argue that we need to think more creatively about how we deal with students facing financial hardship,” Lochner said.
“As the costs of higher education rise in Canada, there will be growing pressure to shift some of those increases onto students and their families.”