Government Student Loan Default: Differences between Graduates of the Liberal Arts and Applied Fields in Canadian Colleges and Universities

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INTRODUCTION

DESPITE GREATER PROPORTIONS of youth pursuing postsecondary education in the last few decades, student debt has reached unprecedented levels. In 1982, individuals with student loans who graduated from a community college typically borrowed $4,000. (1) In 1995, this figure climbed to nearly $10,000 (Finnie 2001a), and $12,600 in 2000 (Allen and Vaillancourt 2004). Similarly, graduates of undergraduate programs owed on average $6,000 in 1982 and nearly $14,000 in 1995 (Finnie 2001a). By 2000, borrowing students typically owed $19,500 in government student loans, where approximately 14 percent of university and 5 percent of college borrowers had government student debts exceeding $25,000 (Allen and Vaillancourt 2004).

Rising student debt levels have been attributed to two key factors. First, reductions in government funding of postsecondary institutions have resulted in higher tuition fees. Between 1989 and 1997, for example, the average tuition increase exceeded 90 percent (see Michael and Kretovics 2005; Schwartz and Finnie 2002). Second, beginning in the 1990s, federal and provincial government expenditures on postsecondary education have been redirected toward providing students with loans, as opposed to student or institutional grants (Schwartz and Finnie 2002). Hence, the financial burden of postsecondary education has shifted from the government to students. Increases in the cost of schooling and levels of borrowing have also coincided with rising enrollment levels and tuition fees since these data were collected in Canada (Statistics Canada 2009). Likewise, similar trends have also been identified in the United States (Arum and Roksa 2011; Brint and Rotondi 2008; NCES 2009).

The Canada Student Loans Program (CSLP) is the primary form of government student assistance in Canada and is part of the Government of Canada's Human Capital Agenda (Clift, Hawkey, and Vaughn 1998; HRSDC 2009). The CSLP is intended to enable low socioeconomic individuals to defer the costs of their postsecondary education by borrowing against their future earnings (Sweet and Anisef 2005). Students apply for both federal and provincial loans using a single application by which the students' financial needs are assessed. During the repayment term, the provincial and federal loans are consolidated and students repay both portions of their loan through the National Student Loans Service Centre (NSLSC 2009). CSLP provides over $1.9 billion in loans to over 330,000 qualifying students annually (HRSDC 2004).

The repayment of student debt in the form of government loans is an important social issue that requires special attention. During the 2000 to 2001 academic year alone, over 400 million tax dollars were spent absorbing defaulted loans (HRSDC 2007b). (2) Moreover, important changes have been made to the CSLP in the 2005 to 2006 academic year that have potential implications for the future. First, the federal loan limit has been increased from $165 to $210 per week of study in order to keep pace with rising tuition fees (HRSDC 2007a). As in the past when limits increased, student debt levels will likely rise for those graduating in 2010, as students generally borrow the maximum allowable (Finnie and Schwartz 1996). Second, the eligibility requirements have become more lax as a result of the smaller amount of money parents are expected to contribute to their child's education (HRSDC 2007a). Since students will likely borrow even more money for their education in the future, student loan default rates could potentially increase.

The purpose of this paper is to identify which postsecondary graduates are most likely to default on their government student loans within two years after graduation. This study provides a timely analysis of a topic that is of central concern to students, guidance counselors, academics, and policymakers. It will be especially informative for new cohorts of students as they make financial decisions about their postsecondary education payment options that play an important role in their financial well being over the course of their careers. …