Student Loans

Do you know what annoys me in this article? The fact that people make it sound really helpful that they will tie repayments on loans to income and hence lower them in some cases. And sure, in the short term, if you have no money coming in, that seems helpful. But if your payments aren't covering your interest and taking a bite out of the principal, all you are doing is extending the length of the loan repayments and significantly increasing the total amount you will need to pay back in the end. There has to be a better way, I think.

Ottawa farming out bad student loans to agencies
David Akin, CTV News

OTTAWA — The federal government is spending millions of dollars to collect outstanding student loans, resources that critics say could be better used to make a post-secondary education in Canada more affordable.

CTV News has learned that Ottawa has signed 176 contracts with 12 collection agencies to collect student loans.

Those agencies earn a commission for every dollar they collect.

The combined value of those contracts is $180.8-million.

The contracts were signed on behalf of the government by Service Canada, a relatively new government department set up by the Liberals last year to be a sort of one-stop shop Canadians could use to access a variety of government programs and services.

In its first six months of existence, Service Canada signed contracts with third-party suppliers worth $217-million, including the $180-million designated for collection agency fees.

"We're the only OECD country that doesn't have a grants system and yet all this money from Service Canada is going to collection agencies. You've just got to shake your head," said Denise Savoie (NDP-Victoria), the NDP's education critic.

Government officials say that while the government must account for and publish the full value of the collection agency contracts, in truth, only a fraction of that amount will be paid out because many of the accounts turned over to the agencies will be uncollectable.

Still, with millions of dollars up for grabs, there is a strong incentive for collection agencies to aggressively pursue each account.

"The first person I dealt with was rude, demanding payment. He told me to go take out a loan, to get my family to get the money, to do whatever I had to do to get the money," said Marcel Wattier, who graduated in 1998 from college owing more than $30,000 in principal and interest on his loan.

The lending bank turned his account over to a collection agency after he had moved and changed phone numbers. The bank believed that, in changing phone numbers, he was trying to evade lenders.

In fact, he continued to make payments on his loan and now owes just $4,000.

Once, a collection agent challenged a decision he made to move, asking why he moved to a place where the rent was more expensive.

"I told them it was none of their business," Wattie said.

Another agent working for the same firm, Accounts Recovery Corp., told him to cash in $1,200 he had saved in a Registered Retirement Savings Plan (RRSP).

"He basically hounded me almost every day for about a month until I finally relented and said, ok, I'll go cash in the RRSP," Wattier said.

He is now working at two jobs to pay off his loan.

"I haven't been able to save any money. I live paycheque to paycheque to paycheque to pay the bills."

The collection agency contracts were signed while the Liberals were in government. The Conservatives have taken steps to transfer responsibility for collecting the loans from Service Canada to the Canada Revenue Agency (CRA).

Diane Finley, the Minister of Human Resources and Development, says transferring the loans to the CRA will be more "efficient" and should cut down on the frequency with which the federal government has to hire collection agencies.

Finley also says she plans to meet with her provincial counterparts and other interested parties to make the student loan system, including re-payment terms, more affordable.

"There has to be a balance," Finley said.

Last week, the C.D. Howe Institute released a report calling on the federal government to change the system so that repayments would be geared to a graduate's income level.

The study's authors say income-contingent repayment schedules would allow students to reduce the risks associated with investing in higher education and increase access for students from low-income backgrounds.