Tying student loan payments to income might seem like a good idea at first glance, but it is really a wolf in sheep’s clothing, according to a new study released by CAUT.
     
The study, "Income Contingent Loan Repayment Plans: The False Promise of Fairness" indicates that such plans, known as ICLRPs, are often framed simply as a student financial aid issue, but in fact represent “a new way of financing post-secondary education” through higher tuition fees.
     
“The impetus for ICLRPs is to increase the individual cost of post-secondary education while simultaneously reducing the government portion of funding … In practice ICLRPs encourage massive tuition fee hikes and the full deregulation of tuition fees,” the study says.
     
In Canada, various plans to set up ICLRPs surfaced in the last decade. The federal Liberal government of Jean Chrétien floated an ICLRP proposal as part of its social program review in the mid 1990s. Bob Rae, the former NDP premier of Ontario, toyed with the idea in the early 1990s, and resurrected the plan in his 2005 commissioned report for the Ontario government on post-secondary education. Certain factions within the current federal Conservative government have also long advocated ICLRPs, and more recently several provincial governments, including British Columbia, Alberta, Saskatchewan and Ontario, have seriously examined ICLRPs.
     
The study also found ICLRP proposals would increase student debt, lead to the elimination of student loan subsidies and limit the availability of needs-based grants.
     
“The underlying premise is that education is largely a private, consumer good that is over-subsidized by the state,” the study says. “The effect of ICLRPs on students from modest and low income families would be stark: much higher up-front costs, higher borrowing and a repayment period that stretched through most of their working lives. Seen from this perspective, there is little fair or equitable about ICLRPs.”
     
The report found that as students take on more debt under ICLRPs and are forced to pay back those loans over a longer time period, the interest charges could more than double the cost of the loan, hurting low-income students the most.
     
“On a $25,000 loan amortized over 25 years a student would pay an additional $30,613 in interest alone for their education,” the study says.
     
The report argues that a reform of Canada’s student loans system is needed, but warns that ICLRPs are not the solution.
     
“If we are serious about tackling the problem of student debt, then stabilizing and reducing tuition fees is a vital first step,” the study concludes. “Student financial assistance also needs to be recalibrated toward a system of non-repayable assistance so that those not fortunate enough to come from homes with the resources to help pay for an education do not pay for that misfortunate by starting their working life with mortgage-sized debts.”