Student debt insolvencies on the rise
Student debt in Canada is in a crisis. We say this because we see the negative consequences of more and more young people taking on student loans, in higher amounts. In 2018, student debt contributed to more than 1 in 6 (17.6%) insolvencies in Ontario 1 , a record rate since we began our study nine years ago. Extrapolate this Canada-wide, and that means that roughly 22,000 ex-students filed insolvency in 2018 to deal with their student debt.
That may not seem like a lot but put in perspective with the number of student loan borrowers in relation to the overall population, the young age of these borrowers, and the relative health of the economy in recent years, and it is an epidemic.
In this report, we take an in-depth look at the student loan crisis in Canada and the profile of the average insolvent student debtor. We explore who are defaulting on their student loan debt and why they are filing insolvency at an increasing rate.
Note: In Canada, consumer insolvencies include both personal bankruptcy and a consumer proposal, both student debt forgiveness options under the Bankruptcy & Insolvency Act.
Student debt in Canada
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It’s hard to get a handle on the amount of student debt outstanding in Canada. As of the school year, Canada Student Loans (CSL) was administering a portfolio 2 of $18.2 billion dollars in loans to more than 1.7 million borrowers.
In , Canada Student Loans disbursed $2.6 billion in loans to 490,401 students. While loan disbursements dipped in the most recent year, over the past ten years, CSL has disbursed 47% more in loans to 31% more students than in the previous ten years.
However, on top of the federal government guaranteed loan program, graduates are also financing their studies through additional provincial student loans and private loans.
For students in full-time study in participating jurisdictions, approximately 60% of their CSL assessed financial need is funded by the Government of Canada through federal student loans, while the province or territory covers the remaining 40%. How much is in loans, and how much is grants, varies by province based on political objectives. In Ontario in for example, OSAP funded 3 almost $1.7 billion in financial aid, only $200 million of which was repayable loans, with the remainder being grants. The year before funding of just over $1 billion was split 60% grants and 40% loans.
A National Graduates Survey 4 , conducted by Statistics Canada, revealed that while government loans are the most common source of debt for students, 27% of graduates from the class of 2009-2010 used only non-government loans and 25% relied on both government student debt and non-government debt.
While the average undergraduate completed university with an average debt load of $26,300 in 2010, if students supplemented government student debt with a student credit card, bank loan or student line of credit, their average debt balances upon graduation ballooned to $44,200. That means that the average student using private loans on top of their government-guaranteed loans increased their debt load by 68% through private lenders.
Rising tuition contributing to insolvencies
The average undergraduate tuition for a Canadian university 5 is now $6,838, and tuition has risen at an annual rate of 3.7% over the past ten years. In Ontario, the average tuition is now $8,838, up an average 4.6% per year over the past ten years. And this is before compulsory fees, costs of books, school supplies, and residence.
Much of the cost of post-secondary education is being financed by student loans. Despite the introduction of the Canada Education Savings Grant program and tax-sheltered RESPs, over 40% of post-secondary students 4 finance their education through loans either government-guaranteed Student Loans or private student debt. This number rises to 50% for university undergraduates.
