Dollars and sense
by Robert Jones
Feel like you’re bumping shoulders with more people in the hallways this year? Well, you are. Applications to Alberta’s post-secondary institutions have skyrocketed, and so too has demand for student loans — up more than 17 per cent from last year.
With extra pressure on the system, what needs fixing? Here are three proposed improvements:
1. Increase information on student loan statements.Because most post-secondary programs do not place any focus on building financial acumen, countless students graduate with little to no understanding of how their student loans work. Graduates are left frustrated with seemingly arbitrary repayment formulas. Many are apprehensive about talking to the loan officers who can help them.
A simple solution: provide borrowers with easy-to-comprehend monthly state-ments on their student loans. To empower students, statements should clearly show the relationship between minimum monthly payments and time required to repay loans in full. Repayment calculators should be added so borrowers see the impact increased monthly payments can have and the time needed to fulfill loan repayment responsibilities.
2. Change the “Grace Period.” The student loan grace period is a misleading term and should be renamed or changed altogether. Many students believe the grace period is a six-month window where no interest accrues and they aren’t required to make payments on their loans. However, only the second part of this belief is true.
How can this be fixed? One important change would see the grace period become non-interest accruing. This is important to students, especially in times of economic contraction and restructuring. With interest kicking in right away and the countdown to loan repayment looming in their minds, students sometimes become anxious about their debt and may take work they’re over-qualified for. Eliminating interest during the grace period would better enable students to pursue work aligned with their credentials.
If no structural changes occur in the grace period, then the name of this time frame should be amended instead. How about “interest accruing deferred payment schedule”? Because this is what the grace period really is.
3. Change the structure of interest rates. Last year, of all the Alberta post-secondary students in their final year of their program, only 60 per cent completed their studies and realized their full credentials. Many of these students didn’t complete their education because they re-entered the workforce in the face of soaring personal debt levels.
Having thousands of Albertans walking around with half a degree does double-damage: neither the almost-grad nor the taxpayers who subsidize post-secondary tuition fees ever see the full benefit of their investment.
Implementing a graduated system of interest rate reductions for student loans could solve this problem. This framework would see interest rates decrease for every year of study completed. Such a system would create a direct incentive for students to finish their education because they know their debt burden will not increase at a nightmarish pace.
Moreover, creating means of financial incentives for students to complete their degrees makes tremendous sense.
After all, an educated society is one in which everyone wins.
—Robert Jones is the VP external for SAMRU as well as the chair of the Alberta students’ executive council. ASEC represents 12 students’ associations, including SAMRU, and over 120,000 students from across Alberta.