Auditor finds $2.4B in unpaid student loans, says feds must step up recovery efforts
The UBC sign is pictured at the University of British Columbia in Vancouver, Tuesday, Apr 23, 2019. THE CANADIAN PRESS/Jonathan Hayward
TORONTO -- A new report from the federal auditor general has found that Employment and Social Development Canada (ESDC) did not take enough steps to ensure that post-secondary students who received financial aid understood their repayment obligations, contributing to $2.4 billion in unpaid loans.
In the report, tabled Wednesday, the auditor general said that the ESDC did not efficiently manage financial assistance to post-secondary students, including properly verifying borrowers' eligibility for the Repayment Assistance Plan.
The federal government invested over $1 billion in the Canada Education Savings Program in 2018 and provided more than $2 billion in financial aid through the Canada Student Loans Program.
According to the audit, the ESDC did not thoroughly assess the impact of these programs on students' ability to access post-secondary education or the obstacles that keep students from being able to repay their loans.
As of March 31, 2019, the value of outstanding student loans in default is $2.4 billion, most of which is "at risk of non-repayment" the auditor general said. The auditor also found 87 per cent of recent borrowers were not making repayments on $2.9 billion in loans with the government making it easier to access loan relief.
The federal government temporarily paused the repayment of student loans between March 30 and Sept. 30, 2020 amid the COVID-19 pandemic.
Despite repeated requests from the Financial Consumer Agency of Canada, the audit found that ESDC has yet to ensure that the Student Loans Service Centre web portal includes financial literacy tools to help students understand their repayment responsibilities. ESDC said in a statement issued Tuesday that it is working on this and other recommendations outlined in the audit.
In the statement, ESDC said it agrees with the recommendations from the auditor general and they "align well with work already underway to strengthen" Canada’s student loan system while "making post-secondary education more affordable and accessible to all Canadians."
In addition, ESDC said it is working with provincial and territorial partners and the Canada Revenue Agency to improve eligibility verification for the Repayment Assistance Plan in addition to establishing stronger collection strategies.
"Our government has been clear: we will always have students’ backs, and we will continue our work to build strong, robust and resilient student financial assistance programs -- both now and into the future," the statement read.
While the Canada Revenue Agency is responsible for recovering student loans in default, the audit found that the agency did not have all the necessary tools to perform this task.
The auditor general also noted that the ESDC needs to ensure its approaches to recovering unpaid loans are consistent. The department informs credit bureaus when people start falling behind in their payments because it considers this practice an effective way to prompt debt repayment, according to the audit.
However, when delinquent loans are transferred to the Canada Revenue Agency for collection, ESDC stops informing credit bureaus.
The Chief Actuary of Canada said in the report that the value of student loans that are not repaid to the federal government is significant and is expected to increase, adding that non-repayment of loans could become a burden for taxpayers.
To maximize repayment of student loans, the audit recommends ESDC ensures “proper, systematic verification of applications” for the Repayment Assistance Plan and develop performance indicators that take into account the full impact of the program on the non-repayment of student loans.
The auditor general said ESDC should also further assess the reasons for student loan non-repayment "in order to develop appropriate solutions" and should conduct a thorough evaluation of both federal student financial assistance programs.
Following the auditor general's report, Employment Minister Carla Qualtrough said in a statement that providing students with financial support to access post-secondary education remains a priority for the federal government.
"Each year, the federal government’s student financial assistance programs support hundreds of thousands of Canada's young people -- both through non-repayable grants and repayable loans. These are investments in our future; when all of Canada’s young people can get ahead, we build stronger communities," Qualtrough said Tuesday.
ESDC said it will continue to evaluate the impacts of Canada's student loan programs to ensure they meet the needs of students and families and "effectively reduc[e] financial barriers to post-secondary education."
The federal government announced in April a $9-billion package of COVID-19 aid measures aimed at students.
Parliament passed the suite of measures in early May, which allowed the Canada Emergency Student Benefit program to launch. As of June 18, 578,850 students or recent graduates have received a total of $1.2 billion in funding through the program, which offers $1,250 a month from May to August for most applicants, and up to $2,000 a month for students with dependents or with disabilities.
As part of the student aid package, the government has committed to creating an additional 76,000 jobs in sectors that need help or are on the front line; is spending millions on extending scholarships, grants, and fellowships as well as doubling the Canada Student Grant program; and has launched a new Canada Student Service Grant that would see young people receive up to $5,000 towards their fall tuition if they volunteer in a sector needing assistance.