Pile of books and money, student debt. (MarkgrafAve/Getty Images/iStockphoto)
Iain Reeve feels he got a bit of a raw deal when it comes to his education.
The 34-year-old Vancouver researcher at a private-sector union was sold a dream when he graduated with a PhD in political science from Simon Fraser University.
When he queried his academic advisers about his job prospects upon graduation, “All the advice was: ‘You’d make a good professor,’ ” recalls Mr. Reeve. “I never heard a single dissenting voice saying the market was bad.”
And it was.
When Mr. Reeve graduated in the summer of 2014, he sent out 70 résumés. “The jobs just weren’t there,” he says. Worse, he faced the repayment of an $80,000 student loan – the cumulative effect of an undergraduate degree, an MA and a PhD.
Having secured some interest relief from the loan, which he has since reduced to $70,000, found a research job, and met a partner without student debt, things are looking a bit more optimistic. But Mr. Reeve concedes the $750 to $900 monthly payment eats into the couple’s budget – he says they plan to move out of their Vancouver rental to save money. And having a kid is currently just a discussion.
“I think our generation has been sandwiched with higher education costs – we’re getting squeezed from every direction,” says Mr. Reeve. “I’m definitely going to be paying [the student loan] in my 40s.”
Mr. Reeve is one a growing number of graduates shouldering high levels of student debt into the 30s and 40s – which affect rent and mortgage payments, travel and starting a family. According to a 2015 survey of graduating students by the Canadian University Survey Consortium approximately 50 per cent of students report having student debt, most often from government student loans (40 per cent). The average debt among those reporting any debt is $26,819, with 29 per cent of all students reporting debt of $20,000 or higher.
And given the same survey shows that about 38 per cent of graduating students plan to apply to grad school, and 22 per cent expect to apply to a professional school after graduation, that debt load is usually a lot larger.
Scott Hannah, president and CEO at the Credit Counselling Society in New Westminster, B.C., is seeing greater numbers of clients in their 30s and 40s who are struggling to pay back student debts. “It takes longer to complete the degrees,” he says. Or, for some, “the program they entered initially isn’t the program they ended up with,” leading to extra years of study, more student loans, and possibly a different income post-graduation.
The impact on lifestyle can be significant. “It certainly stretches a person’s budget,” says Mr. Hannah. “For some, the home will probably be a condo. The chance for that person to get a house in their 40s is slim.”
Craig York found this out when he wanted to purchase a home in 2014 with his wife. With $27,000 in student debts after graduating with a BA from the University of Victoria in 2010, the 31-year-old credit counsellor discovered that obtaining approval for a mortgage wasn’t going to be easy. “Because I was carrying this debt and because of the monthly payments, we needed a guarantor for the mortgage,” he says. “We couldn’t qualify on our own.”
Mr. York was lucky: His in-laws stepped in and acted as guarantors. But his life since the purchase of the home has included lifestyle modifications. For one, the couple bought their home in Surrey, well outside more desirable Vancouver, “because of the affordability piece,” he says. “We had fewer options.” As well, he saved well in advance of the birth of his child to ensure there were no surprises. “We’re pretty creative. Right now, we’re doing cloth diapers instead of disposable,” he says.
There are still the $300 monthly student loan payments, which have reduced his debt to $19,000. “I’ve had to adapt my budget to accommodate those payments,” Mr. York says. “If we didn’t have that $300 payment, we would definitely have more money – and we’d find a place to spend it.”
Mr. Hannah is an advocate of repaying student debt, a process which he concedes takes sacrifices. “It may be that a two-car household goes down to a one-car household,” he says.
He advises people to sit down and prioritize their debts, putting student debt repayment at the top of the list. But he’s conscious that this process isn’t foolproof: some simply can’t make it work. “For most people, the challenge is keeping up with the payments.” In that situation, he recommends appealing to have the terms of the student loan extended by the National Student Loans Service Centre.
Allen MacLeod, a licensed insolvency trustee and president of D&A MacLeod in Ottawa, says there are also more drastic options for people who are struggling with student debt payment, don’t have assets such as a home, and haven’t secured well-paying employment. One is to make a consumer proposal to the Canada Revenue Agency to lower loan payments.
Failing that, Mr. MacLeod says that under the Bankruptcy and iIsolvency Act, after seven years after graduation, a former student can declare bankruptcy and have the student debt removed. “One of the first things a student would look at is filing an assignment of bankruptcy,” he says.
There are also ways around the seven-year waiting period. Mr. MacLeod says a 2013 court case, Canada (Attorney General) v Collins, found that each student loan is considered a separate and distinct debt. That means that debts from seven years ago will be considered separate from the debt accrued at later dates, making students who are still studying eligible to declare bankruptcy. Formerly, a person could only declare bankruptcy and get their debt erased if they had not studied in the seven years prior.
Mr. MacLeod argues that although bankruptcy affects credit for six years, “if you’re not paying a student loan, the damage to credit is done already. There’s no use having a great credit rating if you can’t service your debt.”
Bankruptcy is no longer an option when a person has acquired assets, such as a home and a registered education savings plan (RESP), says Mr. MacLeod, both of which can be seized by the CRA. In such a case, repayment is the only option and he recommends a visit to a mortgage broker to refinance the debt into their home.
“If you have a house, say, ‘We’d like to refinance this,’ ” he says. “Get a second mortgage at 10 per cent to 12 per cent.” Mr. MacLeod says that although the mortgage interest rate is high, it’s amortized over a longer period. “It’s a lot but it’s only 4 per cent more than what the student loan charges,” he says. “Have that debt, that mortgage come due when the first mortgage matures, and put it all in one package and then you’re taking care of it.”
Mr. MacLeod feels people in their 40s shouldn’t be worrying about student loans. “If you’ve made an effort to pay back that debt, if you’re able to pay that debt back in a reasonable amount of time, at the very least, consider: ‘Should I file a bankruptcy?’ ” he says.
“In the end, in terms of what is better for Canada, you want that person who is stuck with that student loan to have a secure future so when they retire the taxpayer won’t have to look after that person.”