Our study shows that tuition hikes are taking their toll on graduates. Higher debt upon graduation is just not sustainable, contributing to many graduates declaring insolvency much earlier than in the past.
Graduates are declaring insolvency much sooner after graduation. The average age of an insolvent student debtor in 2018 was 34.6 compared to 35.7 in 2011 after peaking at 36.1 years in 2012.
While more likely to be in their https://worldpaydayloans.com/payday-loans-oh/london/ 30s, three in 10 student debt insolvencies are filed by those aged 18-29 and insolvency among recent graduates is increasing.
To have student debt dissolved in a bankruptcy or consumer proposal, the debtor must have been out of school for at least seven years. This is why the average age of an insolvent debtor is in their mid-30s. They have been out of school, and struggling with repayment, for years. Those who file insolvency with student-related debt still owe an average of $14,729 in student loans representing 32% of all their unsecured debt.
Federal and provincial student loan and grant programs such as OSAP have helped increase enrollment in college and university programs among young Canadians but have also resulted in high post-secondary dropout rates. Historical studies 6 by Statistics Canada report a university dropout rate of 16% and a college dropout rate of 25%. Yet these are people who unfortunately still must repay their accumulated student loans, a challenge when they are unable to find suitable employment. Students who did not successfully complete their studies can also have their student debt eliminated, but must wait for their end of study date to be more than seven years before they file their consumer proposal or bankruptcy.
Job-related challenges lead to student debt default
While most student debtors cite poor management of finances as the number one cause of their debt problems, almost one-third (29%) stated that job-related or income issues contributed to their financial problems.
The Canada Student Loans program reported 2 a three-year default rate of 9% in 2015-2016. While the default rate is on the decline, this is due primarly to increased use of the Repayment Assistance Program (RAP). CSL reported a total of 305,769 borrowers in the Repayment Assistance Plan, roughly 12% of all direct loan borrowers. What is revealing is that the first year RAP uptake rate has increased over the past five years.
Graduates leaving university often end up working in unpaid internships, part-time positions, and minimum wage jobs. They are increasingly unable to find a stable job with enough income to support both student loan repayment and living expenses. This has contributed to an increase in the percentage of insolvent debtors with unpaid student debt.
If this cycle continues for the minimum seven years after they attended school, and they are still struggling with repayment, a bankruptcy or proposal becomes an alternative for debt relief.
People filing insolvency with student loans are working, in fact, 86% reported being employed. It is the quality of their job and income that is at issue.
The average income for an insolvent student debtor in 2018 was $2,430 4.7% below that of the average insolvent debtor without student loans.
Delaying financial obligations and accumulating post-graduate debt
Repaying student debt after graduation takes more than just simple budgeting to pay back this level of loans. The obligation to pay back debt at such an early age creates a cash flow crunch when most are earning a lower than average income. Individuals struggling to repay student debt are unable to build an emergency fund, save for a home, and keep up with student loan payments. Some turn to credit card debt to makes ends meet, and a staggering number of insolvent student debtors use payday loans. In 2018, 45% of student debtors had at least one payday loan at the time of their insolvency.
