Vol. 149, No. 12 — June 17, 2015
SOR/2015-116 May 29, 2015
CANADA STUDENT FINANCIAL ASSISTANCE ACT
Regulations Amending the Canada Student Financial Assistance Regulations
P.C. 2015-628 May 28, 2015
His Excellency the Governor General in Council, on the recommendation of the Minister of Employment and Social Development with the concurrence of the Minister of Finance, pursuant to subsection 15(1.1) (see footnote a) of the Canada Student Financial Assistance Act (see footnote b), makes the annexed Regulations Amending the Canada Student Financial Assistance Regulations.
REGULATIONS AMENDING THE CANADA STUDENT FINANCIAL ASSISTANCE REGULATIONS
1. Subsection 18(1) of the Canada Student Financial Assistance Regulations (see footnote 1) is replaced by the following:
18. (1) For the purposes of section 13 of the Act, the outstanding aggregate amount of student loans may not exceed 24 billion dollars.
COMING INTO FORCE
2. These Regulations come into force on the day on which they are registered.
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
Issues: Actuarial forecasts estimate that the aggregate amount of outstanding Canada Student Loans (CSLs) will reach the current regulatory limit of $19 billion in January 2017. Should the limit be reached, the Government of Canada (GC) would lose its legal authority to disburse additional student loans to qualifying students.
Description: The Regulations Amending the Canada Student Financial Assistance Regulations (the Regulations) update subsection 18(1) to prescribe that the aggregate amount of outstanding CSLs may not exceed $24 billion, an increase from the current limit of $19 billion. This will allow the GC to continue disbursing student loans for up to 10 additional years before another regulatory adjustment is required, contingent on the assumptions influencing the anticipated demand for student loans.
Cost-benefit statement: Over the next 10 years, the monetized incremental benefits of implementing the Regulations are estimated at $1,408 million (present value); while the monetized incremental costs are estimated at $1,087 million (present value). The net present benefit of these Regulations would be approximately $321 million over 10 years, for a benefit-to-cost ratio of 1.3:1.
It should be noted, however, that while the majority of program costs are incurred during the first few years following loan disbursement, post-secondary education (PSE) graduates benefit from higher earnings over their remaining lifetime. As a result, the benefit-to-cost ratio of implementing the Regulations would be significantly higher over the long term. Furthermore, by allowing more Canadians to pursue post-secondary education, other benefits that could not be quantified would accrue to stakeholders. For example, students would enjoy improved health and lower unemployment rates, businesses would see increased productivity as a result of the increased availability of skilled labour, and the Canadian society would benefit from increased civic engagement among those who have attended PSE. It is therefore concluded that the benefits associated with implementing the Regulations significantly outweigh the costs.
“One-for-One” Rule and small business lens: The “One-for-One” Rule and small business lens do not apply to this proposal.
The Canada Student Loans Program (CSLP) promotes accessibility to PSE for students who demonstrate financial need through the provision of CSLs and Canada Student Grants (CSGs). The maximum amount of CSLs that can be outstanding at any given time (referred to as the portfolio limit), including loans held by borrowers in-study, in-repayment, and in-default, is currently set at $19 billion. Once the portfolio limit is reached, the GC has no legal authority to disburse CSLs beyond this maximum amount, resulting in the loss of much-needed financial support for hundreds of thousands of students across Canada.
The portfolio limit is not intended to prevent eligible students from receiving their financial aid; rather, it is a fiscal oversight mechanism that requires the Minister of Employment and Social Development (the Minister), with the concurrence of the Minister of Finance, to seek an increase from the Governor in Council when outstanding CSLs approach the limit. In March 2012, the portfolio limit was raised from $15 billion to its current value of $19 billion.
The Office of the Chief Actuary (OCA) estimates that the $19-billion portfolio limit will be reached in January 2017, with a risk of being reached in January 2016. (see footnote 2) If this occurs, the GC will lose its legal authority to disburse further CSLs until loan repayments and write-offs bring the portfolio back under $19 billion. CSLs would then likely be issued on a first-come, first-served basis, up to the point where the aggregate amount of outstanding loans once again reaches the portfolio limit. Estimates provided by the OCA indicate that, on average, 24% of eligible students would be denied financial assistance each year from 2016–2017 to 2025–2026.
The federal government provides 60% of a student’s assessed need and the participating provinces and territory (the jurisdictions) typically provide the remaining balance; in the absence of federal support, participating jurisdictions could face increased pressure to make up for lost federal funding.
When forecasting CSL portfolio growth, the OCA makes assumptions regarding PSE enrolment projections, student loan uptake, expected student financial need, repayment patterns, and anticipated write-offs. Each one of these assumptions is sensitive to economic conditions and borrower behaviour, which can be unpredictable at times.
Causes for the CSL portfolio reaching its limit by 2017
The primary factors that have contributed to the rise in outstanding loans include the fact that more Canadians than ever before are pursuing PSE (between 2008–2009 and 2012–2013, PSE enrolment in Canada increased by almost 16% (see footnote 3)) and a higher proportion of them are accessing student financial assistance (the number of full-time students receiving CSLs increased by 29% between 2008–2009 and 2012–2013 (see footnote 4)). More importantly, the growth of the portfolio is not a result of an increase in student debt at an individual level: in fact, since the introduction of CSGs, the average CSL balance for borrowers upon completion of studies declined by 4% in nominal terms from about $12,850 in 2009–2010 to approximately $12,300 in 2012–2013.
A regulatory amendment establishing a new limit on outstanding student loans in the Canada Student Financial Assistance Regulations (CSFAR) is necessary to ensure that all eligible Canadian students continue to receive the assistance they need to pursue post-secondary studies. The objective of this regulatory amendment is to increase the limit on the amount of allowable outstanding aggregate CSLs (in-study, in-repayment, and in-default), thereby ensuring that the CSLP can continue to meet its mandate to provide financial assistance to all those who qualify under its statute.
The Regulations update subsection 18(1) of the CSFAR to prescribe that the aggregate amount of outstanding CSLs may not exceed $24 billion.
It should be noted that, while the Regulations increase the limit on the aggregate amount of outstanding student loans, they do not affect policy parameters that determine the amount of loans and grants students should receive. For example, the ceiling on CSLs disbursed to individual full-time students, which is calculated in accordance with CSLP need assessment policies and regulations and is currently set at $210 per week for a maximum of 340 weeks, would remain unchanged. (see footnote 5)
Regulatory and non-regulatory options considered
Other options to address the approaching portfolio limit would entail selective disbursements (i.e. prioritizing certain borrowers over others), and disbursing loans on a first-come-first-served basis. These were rejected as they would result in otherwise eligible students not receiving student financial assistance. Given this, a regulatory amendment to the CSFAR to increase the portfolio limit is considered to be the only viable option to ensure that all eligible students continue to receive the assistance they require to pursue PSE studies.
No non-regulatory mechanisms were considered, as subsection 15(1.1) of the Canada Student Financial Assistance Act (CSFAA) provides that the limit on outstanding student loans be fixed in regulation.
Benefits and costs
The incremental impacts presented below reflect the difference between the outcomes of maintaining the existing $19-billion statutory limit (baseline scenario) and the outcomes of increasing the limit to $24 billion (amended Regulations). The parties affected by the Regulations are the GC, student borrowers, businesses, and the Canadian society. The number of affected student borrowers was estimated by taking the annual difference between the estimated number of loans that will be issued pursuant to the promulgation of the Regulations and those that would have been issued under the baseline scenario. All monetized costs and benefits were estimated on an annual basis over a 10-year period from the 2016–2017 academic year to the 2025–2026 academic year. The 2016–2017 year is assumed to be the first year in which student borrowers would begin to be affected, and 10 years is the regular span for cost-benefit analyses. A discount rate of 7% was also applied.
Based in part on CSLP administrative data, the average annual net cost to the GC of continuing to disburse loans under the Regulations is $155 million (present value). Incremental costs were determined by comparing the difference between the net costs (difference between program expenses and revenues) under the baseline scenario and the net costs under the amended Regulations.
In summary, benefits were assessed by projecting over 10 years the income gains of students who will receive CSL funding and graduate from PSE as a result of the portfolio limit increase:
- It is projected that almost 55 000 additional students will receive CSL funding as a result of the Regulations in the first year, and over 100 000 in each of the following nine years (from 128 000 in year two, to 142 000 in year ten).
- Of these students, it is estimated that 35% enter repayment per year (see footnote 6), of which 85% complete their program of study. (see footnote 7)
- Using data from the 2013 Client Satisfaction Survey, it was then estimated that 22% of those who complete their program of study would not have been able to do so had the Regulations not been implemented. (see footnote 8) Benefits to this group were then monetized by examining the earning differentials over 10 years between those who complete PSE studies and those who do not.
- The analysis assumed a modest $12 000 annual income gain in the first year for PSE graduates completion (see footnote 9) and a 1.7% annual growth of real income for subsequent years, reflecting an increase in the PSE premium due to experience and skills acquisition over time. (see footnote 10)
The analysis only considers income gains that are expected to be realized during the 10-year period of 2016–2017 to 2025–2026. While most of the associated costs occur during the first few years after disbursement, the income gain resulting from completing PSE continues to flow over the lifetime of the borrowers. Because of this asymmetry in the flows of costs and benefits, the benefit-to-cost ratio is likely to be much higher when all costs and benefits over the lifetime are accounted for.
Although results from the 2013 Client Satisfaction Survey suggest that the majority of students would find a way to complete their PSE studies without access to CSL funding, the strategies that they would employ to do so would entail some educational, social, and monetary costs. For instance, affected borrowers who would delay pursuing their studies would also delay benefiting from the increased lifetime earnings associated with post-secondary completion. Those who would find other means to pay for their studies could also face negative consequences, such as lower grades due to having to work more hours while in school, or having to rely on potentially more costly sources of private credit (e.g. credit cards, lines of credit, private lending). Consequently, this group of affected borrowers benefit from the amended Regulations by being able to pursue their studies without having to rely on these strategies.
In addition, a review of available literature suggests that those who attend PSE experience lower rates of unemployment and shorter unemployment periods. They also live healthier, longer lives, and pass benefits on to their children in the form of better cognitive development, health, and future potential earnings.
Attending PSE creates positive externalities, as benefits accrue to others beyond the individual who actually pursues PSE studies. For example, businesses benefit from having a more skilled and productive workforce. Studies have also shown that greater PSE participation can lead to greater innovation and economic growth, increased civic engagement in the form of higher volunteerism and charitable contributions, lower income inequality and reduced reliance on public services, such as foster care and juvenile diversion programs.
Should the GC lose its authority to distribute CSLs, the impact would be most acute for low-income borrowers (who rely more heavily on government student financial assistance) and students who have to live away from home to go to school and consequently face higher costs. Impacts would be felt most in Ontario, which comprises more than 60% of CSLP borrowers.
The results of this analysis are presented in the accounting statement below. They indicate that, by allowing more Canadians to pursue PSE, the benefits associated with implementing the amended Regulations outweigh the costs. It should also be noted that the CSLP is a statutory program; incremental costs to government will be provided through statutory funding. A detailed copy of the cost-benefit analysis, completed in the development of these Regulations, can be obtained upon request to the contact identified below.
2025–2026 (see note 1)
(PV) (see note 2)
|A. Quantified impacts (in million Can $, 2015 present value)|
|Benefits — future potential earnings (earnings over 10-year period, adjusted for tuition costs)||Borrowers who could not pursue their studies without this amendment||$0||$331||$1,408||$201|
|Costs||GC — cash cost of loans||$18||$143||$1,087||$155|
|B. Quantified impacts in non-$ (counts)|
|Positive impacts — greater availability of skilled workers (number of borrowers who could not pursue studies without this amendment)||Business||0||8 805||70 536||Not applicable|
|C. Qualitative impacts|
Borrowers who otherwise could not pursue post-secondary education without these Regulations
Borrowers who otherwise would delay post-secondary education without these Regulations
Borrowers who otherwise would continue their post-secondary education regardless
- Note 1
Analysis done for a 10-year time period using a real discount rate of 7%.
- Note 2
Present value where totals are financial.
The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.
Small business lens
The small business lens does not apply to this proposal, as there are no costs to small business.
Stakeholders were supportive when the limit was raised to $19 billion in 2012, as the increase allowed students with financial need to continue to access CSLs. A similarly high level of stakeholder support for this proposed increase is anticipated.
The requirement for a regulatory amendment to raise the limit is a financial oversight mechanism for the GC. The amendment does not have any implication for CSLP policies that are used to determine eligibility for financial assistance or the level of assistance students receive. As a result, it does not have effect on student financial assistance policies or program design; instead, it ensures that the Minister maintains legal authority to implement existing policies and to disburse student loans.
The increase in the limit may lead to concerns that the growing size of the CSL portfolio is a reflection of rising levels of student debt. However, average student debt has remained stable in recent years. In fact, since the introduction of the CSGs in 2009, CSL debt has decreased for individual borrowers by 4% in nominal terms (from about $12,850 in 2009–2010 to approximately $12,300 in 2012–2013). Furthermore, the OCA’s analysis of the growing size of the portfolio indicates that the principal cause is sustained increases in PSE enrolment and an increasing proportion of students accessing financial assistance. (see footnote 11)
CSLP and Department of Finance officials have reviewed the revised forecast provided by the OCA and determined that the portfolio limit should be raised to $24 billion. This amount would allow the GC to continue disbursing CSLs for up to 10 additional years before another regulatory amendment is required, providing predictability for students and program stakeholders. Nevertheless, as the OCA projections are based on a number of assumptions, any changes in these which would significantly affect the demand for student loans could result in the CSL portfolio reaching its new limit faster than expected.
Enabling students to access PSE has long-term benefits for individuals, including increased lifetime earnings, lower rates of unemployment, and shorter unemployment periods. People who attend PSE also live healthier, longer lives, and pass benefits on to their children in the form of better cognitive development, health, and future potential earnings. Canadian businesses, economy, and society also benefit from continued and widespread PSE attainment among Canadians. Businesses have access to a more skilled and productive workforce. Greater post-secondary participation can also lead to greater innovation and economic growth, increased civic engagement in the form of higher volunteerism and charitable contributions, and lower income inequality
Implementation, enforcement and service standards
The Regulations do not affect the administration of the CSLP, the delivery of student loans, or arrangements with participating jurisdictions, service providers or borrowers. It should be noted that the amendment will not impact student loan disbursements, as they will continue to be based on loan disbursement policies approved by the GC. The forecasted disbursement levels will be included in the Department’s main estimates and annual reference levels.
CSLP performance measurement and evaluation will be met through existing evaluation mechanisms. In 2011, Employment and Social Development Canada’s Evaluation Directorate completed a five-year summative evaluation of the CSLP covering the period from 2006–2007 to 2010–2011 (http://www.esdc.gc.ca/ eng/publications/evaluations/learning/2011/june.shtml). A supplemental evaluation to address the program changes announced in Budget 2008 is now underway, and is expected to be completed in 2017–2018.
The aggregate amount of outstanding student loans will continue to be monitored as they have been in the past. The CSFAA requires that the Minister table an actuarial report produced by the OCA at least once every three years. This report provides (1) an estimate of current program costs and revenues; (2) a 25-year forecast of future program costs and revenues; and (3) an explanation of the methodology and actuarial and economic assumptions used to produce all of the figures presented in the report. The CSFAA also requires that the Minister table in Parliament an annual report on the CSLP, which provides detailed statistics on the program (including the value of the portfolio), and outlines key objectives, initiatives, and accomplishments achieved over a given academic year.
Acting Senior Director
Canada Student Loans Program
Employment and Social Development Canada
200 Montcalm Street, Tower II, 1st Floor
- Footnote a
S.C. 2011, c. 24, s. 155(3)
- Footnote b
S.C. 1994, c. 28
- Footnote 1
- Footnote 2
There is a peak in the CSL portfolio every January. This is due to there being a large number of CSL disbursements between September and January (for the fall and winter semesters), and only a small increase in total repayments over this period (i.e. most borrowers enter repayment in November, and only make two or three payments by January — which is not enough to partially offset the new disbursements).
- Footnote 3
Statistics Canada Table 477-0031.
- Footnote 4
Canada Student Loans Program: 2012–2013 Statistical Review
- Footnote 5
Doctoral students and students with permanent disabilities can access student financial assistance for a maximum of 400 and 520 weeks, respectively.
- Footnote 6
Based on CSLP administrative data.
- Footnote 7
According to Shaienks and Gluszynski (2007), approximately 15% of post-secondary students drop out within six years of entering post-secondary studies.
- Footnote 8
A 2013 survey of CSLP clients found that if they had not received a CSL, 22% would have abandoned their studies altogether.
- Footnote 9
Estimates are based on 2006 Census data for median 2005 earnings for full-year, full-time employees between the ages of 25 to 34 by PSE attainment level relative to corresponding earnings of high-school graduates.
- Footnote 10
Gu and Wong (2010) assume a future growth rate of real income equal to labour productivity growth in the Canadian business sector (1.7% per year).
- Footnote 11
For instance, while the OCA previously projected decreases to PSE enrolment from academic year 2011–2012 until 2024–2025; the OCA now forecasts increasing PSE enrolment until 2016–2017.