Hon. Yoine Goldstein:

Honourable senators, the global financial crisis reminds us yet again that Canada's competitive advantage is due, in no small measure, to the access afforded to Canadians to our first-class post-secondary education system. We must continue to ensure that the conditions to access student financial aid are fair and balanced and that there are no barriers to the growth of a highly educated workforce.

 

When I first introduced a very similar bill in the Thirty-ninth Parliament, I stated that post-secondary education is, in many ways, invaluable, but it does not come cheaply. Indeed, as tuition fees have grown, students must increasingly call upon the support of government loans to acquire the education they need to find employment in this increasingly knowledge-based economy.

 

Student debt is an inescapable reality for many young Canadians. It is imperative that our government adopt a practical and compassionate approach when dealing with individuals who have trouble repaying their student loans.

 

At present, bankruptcy legislation does not permit former students experiencing extreme financial difficulty to apply to be discharged from their student loans until many years have passed since they left school. This rule applies even if it becomes clear much earlier that a former student is unable to repay the loan and will not be able to do so in the foreseeable future. As a result, potentially hundreds of young Canadians have been forced to suffer unreasonable financial hardship because of loans obtained in good faith that they are unable to repay because of circumstances beyond their control.

 

Bill S-201 amends the Bankruptcy and Insolvency Act to permit former students experiencing extreme financial difficulty to be discharged from their student loan debts in bankruptcy proceedings. This provision will assist young Canadians who borrowed money to pay for post-secondary education but are unable to repay those loans, whether because of a change in the job market, illness, disability or personal crisis.

 

Canada's competitiveness in a global economy depends in large measure on the knowledge and skills of its citizens, especially given the growing portion of advanced technology. A highly trained workforce increases Canada's productivity, drives innovation and attracts foreign investment. An educated workforce benefits the Canadian economy and Canadian society as a whole.

 

According to Industry Canada:

 

Human capital has a crucial role in the knowledge economy — skilled and educated workers are needed to maximize the benefits of the new technologies.

 

The Canadian Chamber of Commerce recently released a report which stated that, by 2010, 75 per cent of all new jobs created will be highly skilled, meaning that those without skills will be hard pressed to find work. By 2010, only 6 per cent of jobs will be open to those with less than a high school diploma. The report begins by stating plainly and clearly:

 

There is a skilled labour shortage facing Canada.

 

Improving access to post-secondary education is the key way to meet this demand. When asked how to address the problem of worker shortages, many firms respond that increased funding for education, along with more financial assistance for students, would help alleviate the shortage, because the high cost of post-secondary education is a barrier for many potential students.

 

In fact, the cost of post-secondary education in Canada has risen dramatically over the past 20 years, with the average annual cost of university and college fees more than tripling between 1990 and 2005. Professional schools experienced the most dramatic tuition hikes, with the cost of medical school in Ontario, for example, skyrocketing 500 per cent from under $3,000 in 1989-90 to roughly $15,000 in 2003-04. For many families, these costs are prohibitive, and students are forced to borrow money if they wish to attend college or university.

 

Not surprisingly, rising tuition costs have been accompanied by growing levels of student debt. The rules regulating access to student loans have been relaxed through a number of measures. Consequently, more students are borrowing more money to finance post-secondary education. From 1990 to 2006, the proportion of Canadian undergraduates with debt at graduation rose from 45 per cent to 59 per cent, and the average debt load for undergraduates with loans more than doubled from $11,636 to $24,047.

 

In 2003-04, government student loans were the second largest source of funding for post-secondary students, covering approximately 19 per cent of their costs. In 2005-06, the Canada Student Loans Program loaned roughly $1.9 billion to 350,000 post-secondary students. Its total outstanding loan portfolio that year was $8.2 billion owed by 990,000 current and former students.

 

Honourable senators, more assistance is needed to help students pay for post-secondary education. However, in addition to improving access and funding, we need to make sure that other types of legislation do not discourage young people from pursuing post-secondary education. Even if measures are taken to reduce student expenses and provide new kinds of financial support, it is likely that government student loans will remain an important source of funding for university and college students.

 

The large number of Canadians affected by student debt and the growing size of the average student loan, make it essential that a rational, yet compassionate approach be adopted in dealing with former students who find themselves absolutely unable to repay the money they have borrowed.

 

Data is beginning to emerge that high debt levels affect the choices that people make after they graduate from school. For example, college and university students might complete one degree or diploma but then decide not to pursue further studies if they already have a lot of debt. Studies have shown that students who go on to graduate or to professional schools usually have much less debt than those who stop after one degree. This finding suggests that student debt could be preventing Canada from having more highly skilled workers such as doctors and engineers. There are also significant concerns about equity, since those from wealthier backgrounds are presumably more likely to complete their education without amassing significant debt and are then more likely to continue their studies.

 

Honourable senators, student debt will not disappear, and the way the government deals with students who borrow money to invest in post-secondary education matters a great deal. Bankruptcy is supposed to provide individuals and businesses with a way of dealing with debts they cannot pay back and permitting them to eventually "start over" so they can, once again, play an active role in the economy and the social fabric of this country. Bankruptcy allows individuals, entrepreneurs and investors to cope with the risk inherent in any business venture by allowing them to be freed from their debts if an entrepreneurial venture does not turn out as planned. Without the last resort availability of bankruptcy, people would be much less willing to take financial risks or invest their money in new ventures, which would greatly inhibit economic growth.

 

Similarly, when students borrow money to pay for post-secondary education, they are taking a risk by investing in something that is likely, but not guaranteed, to benefit them and society. Student borrowers should have the right to declare bankruptcy in a timely fashion, just like other investors, and be relieved from their debts, just like any other investor.

 

However, despite the importance of providing individuals with a means of "starting over," and notwithstanding the benefits of using bankruptcy to help investors cope with risk, student loans are treated differently than any other kind of loan in bankruptcy proceedings. Unlike, for example, a small business owner who has borrowed money, a former student cannot be freed from a government student loan in bankruptcy proceedings until he or she has been out of school for seven years. If an individual with a student loan is negatively affected by a dramatic change in the job market, or if the individual suffers a personal catastrophe of some kind, few options are available to that person once interest relief and debt reduction programs have been exhausted.

 

In conducting research for this bill, I discovered stories about young Canadians who have had personal misfortune compounded by financial difficulties relating to the repayment of student loans. For example, there are young Canadians who have graduated from college or university with significant debt, only to be diagnosed with a terminal illness and told they cannot work to earn a living. These people have subsequently gone into default on their loans and then have been harassed by collection agencies, even though it is clear to all parties that circumstances beyond anyone's control have made repayment impossible for those borrowers. Under the current law, these unfortunate individuals are trapped by circumstances, with no hope of escape. This bill would help those people by allowing them to apply to be relieved of their loans at any time.

 

Honourable senators, in 1998, a rule prohibiting the discharge of student loan debts in bankruptcy for 10 years after the holder left school was enacted by an amendment to the Bankruptcy and Insolvency Act. There was no consultation, review or explanation for this change other than the apparent belief on the part of lenders that student borrowers would go into bankruptcy shortly after graduation in order to avoid repayment of their student loan debt.

 

Despite this perception, which is mistaken, one thing has become clear over the past 10 years, and this is essential for an understanding of the philosophy behind this proposed bill: There is absolutely no evidence at all that students have been abusing the bankruptcy process to rid themselves of student debt.

 

However, looking at bankruptcy legislation in connection with student loans, one would think that abuse has occurred. This is not the case. The research is clear and consistent: Abuse of the bankruptcy process is not a factor in the non-reimbursement of student loans.

 

In fact, more recently, the restriction for the discharge of student debt has been reduced to seven years. Yet, there remains no option for former students, when they are experiencing extreme financial difficulties beyond their control, to appeal to the court to have their student loans included in the bankruptcy proceedings.

 

Bill S-201 would reduce the amount of time before which student loans can be discharged in bankruptcy proceedings from seven years to five years. It would also create a new provision that would allow persons experiencing severe financial hardship to apply for a court order, before the expiry of five years, to relieve them from all or part of their student debt. Before granting such relief, a judge would consider the former student's behaviour and other options, and a set of criteria is specifically spelled out in the bill.

 

By allowing student loans to be included in bankruptcy after five years from the end of a student's studies, Bill S-201 balances the need for graduates to take responsibility for their obligations and the need for Canadians to be freed from unbearable debt within a reasonable period of time. Allowing those facing exceptional circumstances to apply for a court order at any time also ensures that no Canadian will suffer undue and unreasonable hardship because of student debt.

 

Honourable senators, the previous version of this bill attracted observations, predominantly from Senator Di Nino and Senator Tkachuk. The present version of this bill takes into account those observations by providing that student loans remain non-dischargeable for five years, barring exceptional circumstances, and providing for specific criteria that a judge must take into account if he is to reduce or eliminate a student loan, ensuring that there should be no abuse.

 

This bill, honourable senators, is compassionate and timely. Given the rise of the cost of post-secondary education and the growing levels of student debt, especially in this economy, this bill is essential. It is premised on the notion that it is in the interest of all Canadians for students from all backgrounds to pursue post-secondary education without the deterrent of a potentially disastrous and very long-term burden. Accordingly, the small minority of people for whom the investment does not pay off should not be unfairly penalized and prevented from making a "fresh start" at a key time in their lives. George Peabody once described education as a debt due from present to future generations. This bill will help ensure that borrowing money today to pay for post-secondary education will never create a crippling financial albatross from which former students cannot be freed until very far in the future.

 

Honourable senators will recall that I have already had the privilege of presenting a form of this bill for your esteemed consideration. I propose to present it again for review by the Banking, Trade and Commerce Committee during the Fortieth Parliament, with the hope that we will be able to move forward collaboratively and build upon the work that has already been done.

 

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