The myth of crushing student debt

Posted on in Education Debates – Globe Debate
Apr. 24 2014.  Margaret Wente

Spring is in the air at last. Across the country, waves of newly minted university graduates are about to head out to make their mark in the world. This is great news – unless it’s not. Those hopes and dreams, we’re told, are being crushed under a massive pile of debt.

“How do you provide for family if you’re paying off your student loans for 20 years afterward?” one anxious student told the CBC last week.

According to the Canadian Centre for Policy Alternatives, the financial burden of university is more staggering than ever. “Canadian university students are having to work much longer for the right to sit in these chairs than their parents did,” a CBC reporter intoned.

Fortunately you can relax, because it isn’t so. Student debt is more affordable than ever – half of all students graduate with none at all. That’s because federal and provincial governments have thrown stupendous sums of money at postsecondary students over the past 15 years. All these grants, savings incentives and tax credits now add up to a whopping $10-billion a year, according to Alex Usher, an expert in student aid who runs Higher Education Strategy Associates. More than 70 per cent of that money is non-repayable.

“In net terms, Canadians pay zero tuition,” Mr. Usher says. “We’ve got free university and we don’t even know it.” So much for the affordability crisis.

This money isn’t evenly distributed, of course. Most students do not go to school for free. And some students don’t get enough help. But stories about sky-high tuition, like the ones on the CBC, leave out one essential fact. When it comes to tuition, says Mr. Usher “nobody pays the sticker price.” That’s mainly because of tax credits, which return $2.5-billion a year to students and their parents.

Scholarship money has greatly increased, too. In the 1990s, only one in three new students got scholarship money. Today, it’s two in three. The other big change is the explosion in RESPs (Registered Education Savings Plans) and CESGs (Canada Education Savings Grants), which shelter money invested in education plans from taxes and actually pay people to save. (My friends with children happily describe these plans as “free money.”)

Mr. Usher figures that all these instruments add up to about $4,000 extra per year, per student. And the kids behind them will be even better financially prepared. Nearly half of all Canadians under 18 now have RESPs in their name, and Canadian families have socked away an astonishing $40-billion in postsecondary savings plans.

In fact, some people actually make money going to school. In Newfoundland and Quebec, thousands of students collect more in grants than they shell out in tuition. Nice work if you can get it.

Whether today’s students have it better or worse than their parents depends entirely on the dates you pick. Compared to, say, 1970, they definitely have it worse – until you recall that most of the students in university today wouldn’t have been there then. In those days, scarcely anybody from the lower middle class went to university at all. Today’s higher tuition has helped to fund a huge expansion in access – along with better opportunities and higher incomes for millions.

The real cost crunch came in the 1990s, when Ottawa was trying to balance the books. That’s when tuition rates took off. But since 2000, tuition increases have been relatively modest, while student debt has stayed the same or even fallen. Nor are students working more to afford it all. They’re working about the same number of hours they did 15 years ago, and they’re making 20 or 30 per cent above minimum wage, says Mr. Usher.

So, how about that debt? You can’t blame the kids for fretting. When you’re in your early 20s and owe $25,000, it seems like you’ll never pay it off. But today’s graduates can breathe easier than they have in years. Back in 2002, it cost 12.5 per cent of after-tax income to service the average student debt two years after graduation. Today, the cost is down to 7.9 per cent, which is about what it was in 1992. Lower taxes and lower interest rates are why.

I wouldn’t exactly say that today’s graduates have never had it so good – they’ll still have to eat a lot of ramen noodles before they’re in the clear. But things are way less bleak than people think. So congratulations, kids. Welcome to the real world. Things will be fine.

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