OSAP loan defaults threaten college graduates’ financial future
The number of loans issued through the Ontario Student Assistance Program (OSAP), which is jointly funded by the Canada-Ontario Integrated Student Loan program, has grown significantly.
In 1964-65, more than 37 percent of full-time post-secondary students received a loan but by 2012-13, this share increased to over 50 percent. Financial aid is beneficial for supporting students, and should be a priority for the government. But without a well-paying job post-graduation, a large debt load can often lead to recent graduates defaulting on loans, which has adverse consequences for the province and country, but most severely to the young individuals.
The average amount of debt incurred post-graduation and net of grants is $22,207 for a university student, $13,083 for a college student, and $11,334 for a private career college student. While university students have the highest debt load overall (based on a four-year degree), the amount of debt on a per year of study basis was approximately $5,552 in 2012-13, which was less than college students’ $6,542 annual debt per year (based on a two-year diploma), and certainly lower than the $11,334 debt that a one-year private career college program student incurred.
Of all the loans issued in the 2010-11 school year, fewer than 1 in 10 was not repaid giving an overall default rate of 9.6 percent. But default rates for students of colleges and private career colleges are substantially higher. Despite the fact that from 2004 to 2013 the OSAP default rate for private career colleges decreased from 25.9 percent to 18.8 percent, it is alarmingly high when compared to university graduates, whose default rate was around 5 percent in 2013. The same is true for college of applied arts and technology students who showed default rates close to 15 percent in 2013.
Even though the loss for the Ontario government pales in comparison to the overall budget – in the 2012-2013 fiscal year, losses from defaulted student loans amounted to $70 million – these defaults have serious, long-term consequences for the graduating students by putting their future financial independence and stability at risk. Defaulted debt can affect individuals’ ability to obtain further education loans, as well as car loans, mortgages, and credit cards, limiting their consumption possibilities and financial wealth. Moreover, declaring personal bankruptcy, while unpalatable in any case, is not an option for students unable to repay their OSAP. According to the Bankruptcy and Insolvency Act declaring bankruptcy does not exclude student debt until at least 7 years after the last course taken as a part-time or full-time student.
To solve part of this problem, the government of Ontario should review the repayment rules for OSAP to take into account the choice of education institution – colleges and universities – and differences in average unemployment rates and wages between the groups. In 2013, data from the Labour Force Survey show that the unemployment rate for individuals with post-secondary certificates or diplomas was on average 5.6 percent, while for workers with bachelor’s degrees it was around 4.9 percent. The wage difference between university and college graduates was around $9,000, with the average annual wage for those with a post-secondary certificate or diploma around $42,000. If employment conditions are even more unequal for recent graduates, the loan practices for OSAP should take them into account, not only to set repayment caps – which are already in place, but do not discriminate between education institutions –, but also interest rates and repayment schedules.
While the Ontario government has put into place programs to ensure default rates stay relatively low or at least keep them from increasing, the default rate remains high for college students – in public and private institutions. OSAP is clearly beneficial, yet the effects of defaulted claims to individuals’ financial health are simply too high, especially as tuition rates and the number of loans issued continue to climb. The Ontario government should examine the reasons behind the high default rates for college graduates, and then look to rewrite OSAP loan terms to lower the risk of default for these students.
 Employment and Social Development Canada, Canada Student Loans Program: Statistical Review, 2012-2013, 2014; David K. Foot & Barry Pervin, “The determinants of postsecondary enrolment rates in Ontario,” The Canadian Journal of Higher Education, 1983, Vol. 13, No. 3, pp. 1-22.
 Bankruptcy and Insolvency Act, R.S.C. c. B-3, 1985, 178(1)(g).
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