ADDRESSING STUDENT DEBT IN NOVA SCOTIA

ADDRESSING STUDENT DEBT IN NOVA SCOTIA Prepared by: Canadian Federation of Students - Nova Scotia December 2010

For more information on this brief contact: Canadian Federation of Students - Nova Scotia 111-1657 Barrington St. Halifax, NS B3K 3R4 (902) 425-4237 (t) (902) 425-4256 (f)

SUMMARY OF RECOMMENDATIONS»» Reduce the debt burden on students by reducing tuition fees and other compulsory ancillary or auxiliary fees for all students.»» Immediately increase the Nova Scotia Student Grant to 60 per cent of every student s provincial student loan, and introduce a plan to move to an entirely grant-based student assistance program.»» Reinvest money allocated for the Graduate Retention Rebate into upfront, needs-based grants.»» Make supplemental grants available to students for disabilityrelated and costs related to caring for dependents. These grants should be needs based and reflect accurate assessments of the costs related to disabilities and family care.»» Repeal Regulation 67 of the Employment Support and Income Assistance (ESIA) Act, allowing students to access social assistance benefits.

Introduction Over the past two decades, severe cuts to public funding for universities and colleges has shifted the burden of paying for education onto individual students and their families through a flat tax: tuition fees. Currently, average undergraduate tuition fees in Nova Scotia are $5, 495, some of the highest in the country. Graduate students in Nova Scotia pay the highest graduate fees in Canada at $7, 350. 1 Largely, the federal and provincial governments have justified massive increases in fees by suggesting that providing loans, and some grants to those students who cannot afford to pay the large, upfront costs of a college or university education ensures that any student can access post-secondary education. In order for the Nova Scotia Student Assistance Branch to fulfill its mandate to provide needs-based assistance to students who would be unable to attend post-secondary study because their family resources [are] not sufficient to cover their educational costs 2 student financial assistance policy cannot be divorced from policy decisions regarding funding for our institutions and tuition fees. Policies that maintain high up-front costs for postsecondary education, regardless of how much assistance is provided, continue to result in students graduating with high debt loads. A model that requires low- and middle-income students to take on debt in order to pay for their education is at its heart an inequitable system. A debt-based system ensures that those students who are able to pay their fees up front face less of a financial burden than those students who are forced to borrow money in order to cover their costs and end up paying their loan principle and interest on money they need to access education. Throughout the current student financial aid consultations the government has suggested they are considering implementing a debt cap, where the government would determine what level of student debt they consider to be reasonable and/or manageable and make either grants or loan forgiveness available to students and graduates whose debt exceeds that level. While a debt cap is intended to reduce the debt burden on students and graduates and improve access to post-secondary education, such a policy change in isolation would be difficult to manage and prohibitively expensive. In the recent Report on the University System in Nova Scotia, government consultation Tim O Neill recommends that the government deregulate tuition fees and lift the ceiling on how much a student may receive in student financial aid. If the government enacts these policy recommendations, it would be difficult to anticipate the costs associated with the student loans programme. Increasing tuition fees at a capped rate would also increase the cost of a debt cap programme. Tuition fee increases result in even higher levels of student need and as student need increases, the government will have to spend more money on grants and debt forgiveness in order to enforce the debt cap. If the province were to implement a debt cap wherein the government covered a student s full need over and above the cap amount, but allowed tuition fee increases to be set by universities, the programme costs would be uncontrollable and unmanageable. Conversely, providing additional funding for postsecondary education and driving down student need through tuition fee reductions would create a system of student financial aid that both reduces student debt and is cost effective This brief provides alternative policy recommendations that fulfill the government s goals of reducing the debt burden on students and improving access to college and universities. The Federation makes many recommendations that focus on moving Nova Scotia Student Financial Assistance away from being a loansbased system and towards a grants-based system, which is a more efficient, effective, and equitable way to provide assistance to students. These changes are meant to coincide with tuition fee reductions that would reduce the up-front cost of post-secondary education, and also ensure that this system of grants is a manageable expense. 2 Canadian Federation of Students - Nova Scotia

Public Support Consistently, Nova Scotians have expressed their support for a quality, affordable, and accessible post secondary education. There is broad public support for tuition fee reductions and for more up-front, needsbased grants. During the province s 2010 Back to Balance financial consultations, investing in education and keeping university graduates in the province were highlighted as key priorities for Nova Scotians. Suggestions on how to retain graduates included reducing loans in favour of investing in more grants, and reducing tuition fees. 3 In response to a question regarding what the government should invest in now for long-term economic growth, investing in education was the number one priority of participants. Investing in youth and increasing immigration in the province were also priorities Nova Scotians identified for investment. 4 Post-secondary education must be a key component of any effective youth retention or immigration strategies in the province. In a 2007 Decima poll commissioned by the Canadian Federation of Students Nova Scotia, the Nova Scotia Government and General Employees Union (NSGEU), and the Association of Nova Scotia University Teachers (ANSUT), almost 90 per cent of Nova Scotians surveyed said that they support reducing tuition fees, and the vast majority of survey respondents identified inadequate financial aid and high fees as their main concerns for why young Nova Scotians would be unable to attend post-secondary education. Similarly, in November 2007, the province undertook province-wide consultations to ask students and other community members for input into the student financial aid programme. The province organized seven public meetings, an online survey, and invited stakeholder groups to provide submissions to government on their view of student financial assistance in Nova Scotia. The primary recommendation from that review was: Front end grants, debt management, loan forgiveness, and interest relief programmes need to be examined and implemented where possible to ease the burden on borrowers. 5 Consistently respondents said that student debt in Nova Scotia is too high, and that there is a need for more non-repayable assistance for students and graduates. Interestingly, even though tuition fees were explicitly excluded from the review, many individuals still identified the need to reduce tuition fees in order to improve access to post-secondary education. 6 User Fees The stated scope of this review is to solicit public input on the student financial assistance programme. It explicitly has excluded exploring the cost of education: tuition fees. A policy review of student financial assistance that does not take into account the high cost of post-secondary education is not only incomplete, but also deeply flawed. The costs students incur for their education largely determine the cost and sustainability of a grants and loans programme. In particular, the current student financial assistance review comes out of several recommendations contained within the Report on the University System in Nova Scotia. Specifically, the report suggests that more loans and grants to students could assist students in managing unprecedented increases in the costs of post-secondary education resulting from the deregulation of tuition fees. When tuition fees in Nova Scotia were last deregulated, students faced average annual increases of eight per cent, and in some years, increases were as high as 25 per cent. 7 While rent, food, books, and other expenses tend to rise at a steady rate, tuition fee increases over the past 20 years have outpaced inflation, and almost tripled between 1991 and 2009. Tuition fee increases were even more significant for international students and students in professional programmes such as law, medicine and dentistry. As a result of such policies, students in Nova Scotia paid the highest tuition fees in the country between 1989 and 2009. As just one illustration of the extreme financial burden high fees put on students, in a five-year period between 1992 and 1997, when tuition fees were rapidly increasing, student bankruptcy in Nova Scotia increased by over 250 per cent. 8 High bankruptcy rates and high default Canadian Federation of Students - Nova Scotia 3

rates actually pushed CIBC to stop providing student loans even with a risk premium from the government. 9 While tuition fees skyrocketed, minimum wage in Nova Scotia increased only 64 cents in real dollars between 1991 and 2005 10 and between 1996 and 2007 weekly earnings for Nova Scotians fell by five per cent in real dollars. 11 Low earnings in Nova Scotia and the high cost of post-secondary education, has put post-secondary education out of reach for many families in Nova Scotia and left others with larde student debts to pay off. Rampant job losses in Nova Scotia and the current trend of high youth unemployment, mean there is an increasingly pressing need for accessible and affordable post-secondary education to ensure that both young people and workers can get the training and education they need for to find meaningful employment. Research has shown that youth from lower-income families are less likely to pursue or complete postsecondary education. Statistics Canada found that in 2009, youth from families with incomes above $100,000 per year were twice as likely to enroll in university than youth from families with incomes of $75,000 or less. 12 Looking to sectors where data is available on the impact of fee deregulation mainly professional programmes there is consistent research that higher fees have resulted in steep enrollment declines of low- and middle-income youth. In a 2004 study that looked at the impact of tuition fees increases for medical school in Ontario (fees increased from $5,000 to $14,500, similar increases to those currently being considered by the government), researchers found that the number of medical students coming from families with household incomes of $40,000 or less dropped from 23 per cent to 10 per cent. 13 The most effective way of reducing student debt is to reduce tuition fees. By eliminating the upfront financial barrier of tuition fees, the government also saves money on back-end debt reductions programmes and tax credits because fewer students are required to use these programmes. As tuition fees increase, the cost of providing a loans and grants programme also increases. Therefore, to be able to adequately plan for the future of student financial assistance, tuition fee reductions and increasing grants to students must be considered together. Legislated tuition fee reductions would provide a longterm vision for tuition fee levels, and give both students and the Student Assistance Branch the necessary information to plan for the future. The Federation recommends that the government reduce the debt burden on students by reducing tuition fees and other compulsory ancillary or auxiliary fees for all students. Moving from a debt-based to a grants-based programme The principle of a debt-based system of student aid is that the upfront cost of tuition fees should be shifted to the after-study period and increased based on the accrual of interest. This programme requires a large and complicated institutional bureaucracy at the federal, provincial, and institutional level to monitor students and borrowers through both study and repayment. A system based on grants that provides non-repayable assistance up-front is a more equitable and more efficient programme. In 2009-2010, the Nova Scotia Government lent more than $28 million to students, paying close to $3 million on in-study interest. 14 Currently, the government spends one dollar on administering student loans for every three it lends to students. Replacing the debt-based system of student financial assistance with a system of up-front, needsbased grants would eventually eliminate the costs associated with monitoring students and graduates through repayment, and streamline the system of administration. By directly reducing student debt through grants, the province would also save money on debt management costs including in-study interest, repayment assistance, and defaults. More public funds would directly reach students, improving access for those students who currently cannot access assistance or who are forced to borrow money and to pay back the principle plus interest after graduation. Currently, the Department of Education provides 20 per 4 Canadian Federation of Students - Nova Scotia

cent of a student s provincial student loan in the form of a non-repayable grant. In 2009-2010, the government spent just $6.8 million 15 on these grants to students. This figure is below the $8 million that was originally budgeted for the programme and less than half the estimated cost of the Graduate Retention Rebate a tax rebate provided to students regardless of need. The majority of the funding required for this programme could come from transferring money from ineffective measures for student financial assistance to up-front grants, and through the re-investment of savings from in-study interest and other government programmes. Tuition fee reductions could further reduce the investment required for such a programme, through reducing student need. Even with these measures, because of the federalprovincial loan system, students would still graduate with debt loads approaching $20,000 after a four year degree. This further underscores the need for student financial assistance to be considered in partnership with tuition fees. Lower fees, paired with this more generous student financial assistance system is the most effective way to meaningfully reduce student debt. The Federation recommends that the government immediately increase the Nova Scotia Student Grant to 60 per cent of every student s provincial student loan, and introduce a plan that would shift student financial assistance in Nova Scotia away from a debt-based system and towards a grantsbased system. Following the announcement of the province s decision to move to a direct lend student loan system and the creation of the Nova Scotia Student Grant, then Minister of Education, Karen Casey, indicated that cost-savings realized through these programmes would be re-invested into student financial aid. 16 The Federation supports the re-investment of savings from these programmes into strengthening the student financial aid programmes available to students. Since 2007, the province has realized over a million dollars in annual cost-savings from these new programmes. 17 This money should be re-invested into the student financial assistance programme, over and above the money already committed to other programmes. Tax Expenditures Over the past decade, several jurisdictions in Canada, including Nova Scotia, have offered various tax credits, tax rebates, and savings schemes, purporting that these expenditures can help improve access to post-secondary education and help graduates and their families manage student debt and give them incentive to stay in their home province. These types of expenditures are an ineffective use of public money, and do little to address the current crisis of student debt in the province. Nova Scotia has had different incarnations of tax relief for graduates and their families over the past several years. The current programme is the Graduate Retention Rebate programme. Education Minister, Marilyn More, has stated clearly in the provincial legislature that this programme is not intended to improve access, but rather to retain those students who manage to make it into university or college and graduate. 18 However, according to the Maritimes Provinces Higher Education Commission (MPHEC), less than one per cent of graduates in the Maritime provinces have sited tax incentives as a reason to stay in the region. 19 In other provinces, tax incentive programmes have been largely ineffective. In Manitoba, a Freedom of Information Act request showed that the government had spent less than one third of the money it had committed to their tax incentive programme. The Graduate Retention Rebate is available regardless of financial need. This substantial expense does not go to those students or graduates who are in most financial need, and may be going to graduates who would already be staying in the province because they have access to a job. The tax rebate is budgeted to cost $14 million per year more than double what the province paid out in upfront needs-based grants last year. Canadian Federation of Students - Nova Scotia 5

The Federation recommends that the government reinvest money allocated for the Graduate Retention Rebate into upfront, needs-based grants. Access to Social Assistance Due to the increased costs of post-secondary education, students with high need, such as students with disabilities and students with dependents, are forced to turn to the Department of Community Services for financial assistance for their living expenses while in school. In 2000, the government changed the Employment Support Income Assistance (ESIA) Act to exclude students from receiving assistance and, instead, directed them to student financial assistance for their costs. This effectively shut many high-need students out of university. A 2005 study found that a student with a dependent would face an income deficit of $180 to $415 per month. 20 Recently, the Department of Community Services has attempted to address this problem through pilot programmes that provide exceptions to the law. These programmes are ineffective and under-used because of rigid eligibility criteria and complex application processes. One of such programmes, Career Seek, was only able to fill two of its available fifty spots in its first year. When the ESIA Act was changed in 2000, 1,600 students had been receiving assistance from Community Services while enrolled in post-secondary education programmes through the Family Benefits programme. 21 Currently, the Nova Scotia Government provides $20 per week to students with dependents. This cost does not come address the income deficit previously mentioned, nor does it address costs faced by students with disabilities or students with dependents with disabilities. The Nova Scotia government should look to models like Quebec, where students have grants available to them to address these deficits. If highneed students have access to needs-based grants that adequately address their costs, complex pilot programmes would be unnecessary. The Federation recommends that supplemental grants be made available to students for disability-related and costs related to caring for dependents. These grants should be needs based and reflect accurate assessments of the costs related to disabilities and family care. Even with additional grants available, there are several circumstances where access to social assistance programmes would significantly improve the quality of life of high-need students and better meet their needs. For example, access to pharmacare and subsidized housing for low-income students could help reduce costs while attending school. Currently, Regulation 67 of the ESIA Act prevents students from accessing social assistance, even if they have demonstrated need for income assistance supports. The Federation recommends that Regulation 67 of the Employment Support and Income Assistance (ESIA) Act be repealed, allowing students to access social assistance benefits. Debt Reduction in Repayment Largely, student financial assistance provided to students and graduates in repayment has focused on the goal of managing student debt. Currently, Nova Scotia has three options for students or graduates who may be struggling to pay their student loans. The Repayment Assistance Programme, which replaced the previous interest relief programme, reduces payments on student loans to ensure that no student loan payment is more than 20 per cent of a borrower s income. The Payment Deferral Programme allows a student to defer payment on their student loan for up to a year, the full length of an approved internship, residency or apprenticeship or while articling. Under this programme, however, interest continues to accrue on the students loan and is added to the principle. The final option for students struggling to pay their student loans is to renegotiate their loan for a 15-year term, which reduces their monthly payment, but unfairly penalizes lower income students by 6 Canadian Federation of Students - Nova Scotia

extending their payment period and the overall cost of the principle and interest of their student loans. All of these programmes require some form of application or identification process. Any student assistance programmes distributed during repayment should aim to not simply manage debt, but to reduce the principle that a student owes. Eliminating the option of renegotiation for 15 years, ensuring that no student is in repayment for longer than 10 years, and extending eligibility for repayment assistance for the duration of loan repayment would help ensure that student loan payments were not an unnecessary burden on students and graduates. Student Loan Programme Enhancements While the Federation is recommending a shift from a loans-based to a grants-based system, there are several reforms that also need to be made to the current loans programme including: 1. Extending interest-free status to all borrowers enrolled in the Payment Deferral Programme. 2. Extending full eligibility for financial assistance to part-time students. 3. Increasing pre-study and study period income exemptions. 4. Lower or eliminate parental contributions. 5. Reduce the time period required for a student graduating from secondary school to be considered independent. 6. Reduce current interest levels with the goal of eliminating interest on student loans. Conclusion If the government is committed to improving access to post-secondary education especially for students from low-income families and marginalised communities, reducing the debt burden on students and their families, and keeping graduates in the province it needs to make affordable and accessible post-secondary education a priority. Increasing funding to post-secondary education and reducing tuition fees will not only assist the government in achieving these goals but will also significantly drive down the cost of providing student financial assistance. Investing in post-secondary education is essential to ensuring the economic success of Nova Scotia. As a province with 11 universities, Nova Scotia has the opportunity to become a major center in the global knowledge economy. Currently, students are facing huge financial barriers to accessing post-secondary education and without immediate action the province will miss out on the opportunity to create a highly-educated and highlyskilled workforce. Notes 1. Tuition Fees. Statistics Canada, 2010. 2. History. Nova Scotia Student Financial Assistance Branch, 2010. Web. 15 Nov. 2010. [http://studentloans.ednet.ns.ca/content/ history-1] 3. Getting Back to Balance Summary Report. Fourth Wave Strategy Inc: 2010. 4. Ibid. 5. Nova Scotia Student Assistance Review Summary of Public Consultations. Compass Point Management Group, 2008. 6. Ibid. 7. O Neill, Tim. Report on the University System in Nova Scotia. Government of Nova Scotia, 2010. 8. McLaughlin, Peter. CIBC drops student loans: Too many not being paid back, bank says. The Daily News. 5 June 1997. 9. Ibid. 10. Saulnier, C. Response to the Minimum Wage Review Committee Report of January 27, 2009. Halifax: Canadian Centre for Policy Alternatives Nova Scotia, 2009. 11. Dufour, M. & Haiven, L. A Hardworking Province.: Is it Enough? Halifax: Canadian Centre for Policy Alternatives Nova Scotia, 2008 12. Berger, J., Motte, A., & Parkin, A. (Eds.). The Price of Knowledge: Access and Student Finance in Canada (4th ed.). Montreal: Canada Millenium Scholarship Foundation, 2009 13. MacKenzie, Hugh. The Tuition Trap. Toronto: Ontario Confederation of University Faculty Associations, 2005. 14. Department of Education data. 15. Department of Education data. 16. Direct-lend Initiative Makes Student Loans Cheaper. Department of Education [Press Release]. 29 January, 2008 17. Department of Education data. 18. Hansard,October 21, 2009. In response to a question from MLA Kelly Regan. 19. Intentions of Maritime University Students Following Graduation: A Survey of Class of 2007. Maritimes Provinces Higher Education Commission, 2008. 20. Reed, Katherine. (2005). Fairness in Education for Single Parents. Nova Scotia: Canadian Centre for Policy Alternatives. 21. Ibid. Canadian Federation of Students - Nova Scotia 7

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