Student loan changes are progress, but not a real solution

No loan repayments until you earn more than $25,000... but then what?

As of the first of November, changes to student loans in Canada mean that no one making less than $25,000 will have to make payments against their loan. It’s progress, sure, but who is it really helping? It would seem that it only helps the most desperate of borrowers who make only a little bit more than minimum wage. It means that student loans won’t sink someone who is barely scraping by… but is that really good enough?

Another change coming into effect is that federal grant amounts increased by 50 per cent. An eligible student receiving the largest Canada Student Grant of $2,000 before would receive $3,000 now, which is certainly something that may ease borrowing in the years going forward.

While these are both good economic moves and signs of some progress, they stop short of being a solution to funding post-secondary education. Without meaningful and realistic repayment options, borrowers are still going to face some big payments after school.

As a minimum, $25,000 makes sense. Someone earning that much money should not be required to make loan payments… but what happens at $25,001? If you’re earning that much right out of school, it’s unlikely your next salary bump is going to take you to the level where you can pay the full amount.

So rather than going from requiring no payment to a full payment, there should be a sliding scale based on income. Top earners will naturally repay their loans the quickest, while low earners will take their time, easing the stress of trying to repay loans while living paycheque to paycheque.

Australia has a great model for this: their lower limit is $54,869 (C$55,977), at which point they’re required to pay four per cent of their income towards their loan. The percentage tops out at eight per cent for those earning $101,900 or above. Furthermore, all amounts are indexed to inflation, so they won’t go out of date as quickly. There is no mention by the government of doing the same for Canada, meaning if this $25,000 amount sticks, it could be below what a full-time minimum wage worker earns annually after just a few years.

So while I’m glad to see a government that has at least tried to address post-secondary funding in Canada, the proposed changes stop short of being a real solution. We can only hope that the next federal budget includes even more changes to make post-secondary education more accessible.