Canada Gazette, Part I, Volume 146, Number 39: Regulations Amending the Canada Student Financial Assistance Regulations and the Canada Student Loans Regulations
September 29, 2012
Canada Student Financial Assistance Act and Canada Student Loans Act
Department of Human Resources and Skills Development
REGULATORY IMPACT ANALYSIS STATEMENT
(This statement is not part of the Regulations.)
The Bankruptcy and Insolvency Act (BIA) provides the general legislative framework for bankruptcy. The legislation that governs Canada Student Loans (CSLs), namely the Canada Student Loans Act (CSLA) and the Canada Student Financial Assistance Act (CSFAA), includes restrictions on access to further student financial assistance for loan recipients who have experienced a bankruptcy-related event. Stated differently, the BIA governs the treatment of student loan debt held by a student on the date that bankruptcy is declared while provisions in the CSLA or the CSFAA govern access to further student financial assistance after the date that bankruptcy is declared.
The BIA provides for the liquidation of the assets of insolvent individuals and the distribution of the proceeds among creditors as well as the treatment of student loans during bankruptcy (i.e. loans existing on the day bankruptcy is declared). It also includes provisions that make student loans non-dischargeable before a certain period of time has elapsed. Student loan provisions in the BIA had been made more stringent in the late 1990s; borrowers had to wait at least 10 years following the end of their studies before their student loans could be discharged. In 2008, these provisions were relaxed to a 7-year discharge period after the end of studies (and a 5-year discharge period in case of financial hardship). This was a response to stakeholder concerns (expressed in the 2003 report by the Senate Committee on Banking, Trade and Commerce, Bill C-3 in 2004 and Bill S-28 in 2005) that the waiting period creates an inequity by denying access to bankruptcy relief and to a fresh start to borrowers in financial distress.
The CSLA and the CSFAA authorize the Governor in Council to make regulations regarding the provision of further federal student financial assistance to individuals who experience a bankruptcy-related event such as consumer proposal, bankruptcy or orderly payment of debt.
Borrowers who participate in a bankruptcy-related event are restricted from student financial assistance (e.g. student loans and grants). In 1995, the Canada Student Loans Program (CSLP) introduced a three-year waiting period following bankruptcy discharge to access further student financial assistance. This rule was put in place when student loans were treated as unsecured debt and discharged after 9 to 24 months depending on individual circumstances. This waiting period applies whether or not borrowers declared bankruptcy during or after their studies.
The restrictions differ slightly for students who declare bankruptcy while enrolled in a post-secondary institution. These borrowers had been restricted from additional student financial assistance. In 2004, eligibility to a maximum of three additional years of CSLs and interest-free status was extended to these students as long as they remain in the same program of study. The rationale for the provision is to help students complete their program of study as they are then more likely to repay their loans.
The restrictions on student financial assistance during and after bankruptcy create barriers to getting a post-secondary education. For bankruptcies occurring during studies, the three-year rule and the requirement to stay in the same program of study may prevent some students from completing a degree or diploma in the program of study that best suits their abilities.
The three-year rule after student loans discharge represents an additional waiting period before financial assistance can be accessed, beyond the provisions already outlined in the BIA. This delay can create a further disincentive to return to higher education and acquire more valuable skills for the labour market.
Studies have shown that individuals who pursue post-secondary education experience better labour market outcomes than those who do not. Government intervention is therefore needed to facilitate access to post-secondary education by providing additional student financial assistance to borrowers experiencing a bankruptcy-related event and to indirectly provide borrowers with the opportunity to face better labour market outcomes.
The CSLP mandate is to promote access to post-secondary education by providing students with financial assistance. It recognizes that the cost of higher education is substantial and can be more than what many students and families can afford unaided. Facilitating access to education through funding leads to a highly educated workforce, a condition of Canada’s economic growth.
The objectives of the proposed amendments to the Canada Student Financial Assistance Regulations (CSFAR) and the Canada Student Loans Regulations (CSLR) are to better align CSLP policies with the CSLP mandate. More precisely, the CSLP will
- assist bankrupt borrowers in completing their education by providing more flexible access to funding during in-study bankruptcy; and
- assist bankrupt borrowers who choose to return to school after a bankruptcy-related event by making funding available immediately after discharge.
Two changes are proposed in order to meet the objectives listed above.
- To facilitate access to student financial assistance for bankrupt students while in study, it is proposed that subsection 15(9) of the CSFAR and subsection 9(8) of the CSLR be modified by removing references to the program of study restriction as well as the three-year limit for additional funding. This would allow bankrupt students in study to change their program of study and would allow them to access student loan funding for an unlimited number of years following their bankruptcy.
- To allow students to access student financial assistance sooner after an absolute order of discharge, it is proposed that subsections 16(2) and 16(3) of the CSFAR be modified by removing the paragraphs stating that bankrupt borrowers must wait an additional three years after their discharge to be eligible for student financial assistance.
During the CSLP Review in 2007, stakeholders groups and Canadians were asked to participate in an online consultation process that sought views on a wide range of issues related to student financial assistance, including the treatment of CSLs during bankruptcy. Responses varied from easing restrictions related to bankruptcy to providing repayment supports so that bankruptcy could be avoided. This complemented additional review work conducted internally, which resulted in early design proposals that were discussed with members of the Intergovernmental Consultative Committee on Student Financial Assistance (ICCSFA) and the National Advisory Group on Student Financial Assistance (NAGSFA). ICCSFA comprises federal, provincial and territorial student aid officials and NAGSFA comprises stakeholders such as post-secondary education students’ associations, educational organizations, student financial aid administrators and members of the academic community. No concerns were raised by ICCSFA or NAGSFA with respect to the bankruptcy proposals.
Education attainment is a critical element to Canada’s economic growth. Increasing the availability of student financial assistance to borrowers in bankruptcy could increase post-secondary enrolment and completion rates. It could also allow bankrupt borrowers to opt for a program of study that is a better fit for their abilities, increasing the likelihood of finding a better job at which they are more productive and contributing to Canada’s economy. Furthermore, monitoring and enforcing the program of study restriction is an administratively costly task for the third-party service provider. Removing the three-year waiting period following bankruptcy discharge to access further student financial assistance would remove an outdated restriction.
The costs of the proposed regulatory amendments are anticipated to be less than $1 million annually as approximately 110 borrowers would receive funds after a bankruptcy-related event. The majority of the funds would be in the form of loans.
7. Implementation, enforcement and service standards
These Regulations would require a slight adjustment to the CSLs System. Provinces and territories that participate in the CSLP, as well as the third-party service provider, may experience a small increase in the number of borrowers as a result of the changes.
Operational Policy and Research
Canada Student Loans Program
Human Resources and Skills Development Canada
200 Montcalm Street, Tower II, 1st Floor
PROPOSED REGULATORY TEXT
Notice is hereby given that the Governor in Council, pursuant to section 15 (see footnote a) of the Canada Student Financial Assistance Act (see footnote b) and section 17 (see footnote c) of the Canada Student Loans Act (see footnote d), proposes to make the annexed Regulations Amending the Canada Student Financial Assistance Regulations and the Canada Student Loans Regulations.
Interested persons may make representations concerning the proposed Regulations within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part Ⅰ, and the date of publication of this notice, and be addressed to Atiq Rahman, Director, Human Resources and Skills Development Canada, Canada Student Loans Program, Operational Policy and Research, 200 Montcalm Street, Gatineau, Quebec K1A 0J9 (tel.: 819-994-4518; email: email@example.com).
Ottawa, September 20, 2012
Assistant Clerk of the Privy Council
REGULATIONS AMENDING THE CANADA STUDENT FINANCIAL ASSISTANCE REGULATIONS AND THE CANADA STUDENT LOANS REGULATIONS
CANADA STUDENT FINANCIAL ASSISTANCE ACT
CANADA STUDENT FINANCIAL ASSISTANCE REGULATIONS
1. Subsection 15(9) of the Canada Student Financial Assistance Regulations (see footnote 1) is replaced by the following:
(9) If the borrower receives a new student loan or an interest-free period under subsection (8), the measures referred to in subsection (2) take effect on the last day of the month in which the borrower no longer meets the applicable minimum percentage referred to in the definition “full-time student” in subsection 2(1).
2. (1) Subsection 16(2) of the Regulations is amended by adding “or” at the end of paragraph (b), by striking out “or” at the end of paragraph (c) and by repealing paragraph (d).
(2) Subsection 16(3) of the Regulations is amended by adding “and” at the end of paragraph (b) and by repealing paragraph (c).
CANADA STUDENT LOANS ACT
CANADA STUDENT LOANS REGULATIONS
3. Subsection 9(8) of the Canada Student Loans Regulations (see footnote 2) is replaced by the following:
(8) If the borrower receives a new student loan or an interest-free period under subsection (7), the measures referred to in subsections (1) and (4) and subsection 15(2) of the Canada Student Financial Assistance Regulations take effect on the last day of the month in which the borrower no longer meets the applicable minimum percentage referred to in the definition “full-time student” in subsection 2(1) of the Canada Student Financial Assistance Regulations.
COMING INTO FORCE
4. These Regulations come into force on January 1, 2013.