Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations: SOR/2022-141

Canada Gazette, Part II, Volume 156, Number 14

Registration
SOR/2022-141 June 21, 2022

CANADA STUDENT FINANCIAL ASSISTANCE ACT
APPRENTICE LOANS ACT

P.C. 2022-705 June 20, 2022

Her Excellency the Governor General in Council, on the recommendation of the Minister of Employment and Social Development, makes the annexed Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations under

• (a) subsection 15(1)^{footnote a} of the Canada Student Financial Assistance Act^{footnote b}; and
• (b) subsection 12(1) of the Apprentice Loans Act^{footnote c}.

Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations

Canada Student Financial Assistance Act

Canada Student Financial Assistance Regulations

1 The first formula in paragraph 19(2)(b) of the Canada Student Financial Assistance Regulations ^{footnote 1} is replaced by the following:

0.1A

2 The first formula in subparagraph 20(2)(a)(ii) of the Regulations is replaced by the following:

0.1A

3 The Regulations are amended by adding the following after section 20.1:

Monthly Income Thresholds

20.11 (1) Beginning in 2023, the monthly income thresholds set out in column 2 of the table to Schedule 1 are adjusted on August 1st of each year by the annual percentage increase to the Consumer Price Index for the previous calendar year, rounded to the nearest dollar.

(2) If the thresholds determined in accordance with subsection (1) are less than those applicable on August 1st of the previous calendar year, no adjustment is to be made and the thresholds applicable on August 1st of the previous calendar year continue to apply.

(3) For the purpose of subsection (1), the Consumer Price Index is the annual all-items Consumer Price Index for Canada published by Statistics Canada.

4 Schedule 1 to the Regulations is replaced by the Schedule 1 set out in Schedule 1 to these Regulations.

Apprentice Loans Act

Apprentice Loans Regulations

5 Subsection 1(2) of the Apprentice Loans Regulations ^{footnote 2} is amended by adding the following in alphabetical order:

interest suspension period

means the period set out in section 8.2 of the Act. (période de suspension des intérêts)

6 Section 4 of the Regulations is replaced by the following:

Payment begins

4 The borrower must begin to repay the principal amount of any apprentice loan made to them, and interest, on the last day of the month in which interest started accruing or would have started accruing but for the interest suspension period.

7 (1) Paragraph 10(1)(b) of the Regulations is replaced by the following:

• (b) no more than 114 months have passed since the later of the day on which interest most recently started accruing, or would have most recently started accruing but for the interest suspension period, and the day on which a restriction was removed under paragraph 7(1)(b); and

(2) The first formula in paragraph 10(2)(b) of the Regulations is replaced by the following:

0.1A

8 The first formula in subparagraph 12(2)(a)(ii) of the Regulations is replaced by the following:

0.1A

9 The Regulations are amended by adding the following after section 13:

Monthly Income Thresholds

Annual increases

13.1 (1) Beginning in 2023, the monthly income thresholds set out in column 2 of the table to Schedule 2 are adjusted on August 1st of each year by the annual percentage increase to the Consumer Price Index for the previous calendar year, rounded to the nearest dollar.

No adjustment made

(2) If the thresholds determined in accordance with subsection (1) are less than those applicable on August 1st of the previous calendar year, no adjustment is to be made and the thresholds applicable on August 1st of the previous calendar year continue to apply.

Consumer Price Index

(3) For the purpose of subsection (1), the Consumer Price Index is the annual all-items Consumer Price Index for Canada published by Statistics Canada.

10 Paragraph 14(b) of the Regulations is replaced by the following:

• (b) the day on which the principal amount and interest begin to be payable by the borrower or would have begun to be payable by the borrower but for the interest suspension period.

11 Schedule 2 to the Regulations is replaced by the Schedule 2 set out in Schedule 2 to these Regulations.

Coming into Force

12 (1) Subject to subsection (2), these Regulations come into force on the day on which they are registered.

(2) Sections 1 to 4, subsection 7(2) and sections 8, 9 and 11 come into force on November 1, 2022, but if these Regulations are registered after that day, they come into force on the day on which the Regulations are registered.

SCHEDULE 1

(Section 4)

SCHEDULE 1

(Subsections 19(2), 20(2) and 20.11(1))

Monthly Income Thresholds and Increments

Column 1 Family Size (number of persons)	Column 2 Monthly Income Threshold	Column 3 Monthly Increment
1	$3,334	$250
2	$3,911	$350
3	$4,790	$425
4	$5,530	$500
5	$6,183	$575
6	$6,773	$650
7 or more	$7,316	$725

SCHEDULE 2

(Section 11)

SCHEDULE 2

(Subsections 10(2), 12(2) and 13.1(1))

Monthly Income Thresholds and Increments

Column 1 Family Size (number of persons)	Column 2 Monthly Income Threshold	Column 3 Monthly Increment
1	$3,334	$250
2	$3,911	$350
3	$4,790	$425
4	$5,530	$500
5	$6,183	$575
6	$6,773	$650
7 or more	$7,316	$725

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issues

RAP Enhancements

Current economic conditions have exacerbated the cost of living and affordability for Canadians, impacting their ability to repay their student and apprentice loans as Canadians must pay more for essentials. Statistics Canada’s Consumer Price Index (CPI) rose 5.7% on a year-over-year basis in February 2022, surpassing 5% for the first time since September 1991.^{footnote 3} Canadians are paying considerably more for food, shelter, transportation, and health and personal care, among other categories. RAP zero payment thresholds are not currently indexed to inflation, meaning that the real value of the thresholds (i.e. the amount of goods/services that could be purchased with the threshold amount of income) is decreasing over time, once inflation is taken into account.

Statistic Canada’s 2018 National Graduate Survey (NGS) found that 54% of graduates with a bachelor’s degree had a student loan, with the average student debt being $28,000 at graduation.^{footnote 4} Compared to graduates without debt, indebted graduates have a lower standard of living, compromised ability to accumulate assets, lower net worth, less home equity and may postpone major life decisions, such as marriage or starting a family, due to their student debt.^{footnote 5} Furthermore, recent studies demonstrate that the employment income of student loan recipients is lower than those who do not need student loans to attend post-secondary education, as borrowers are not as able to be selective in their job search.^{footnote 6} A study of recent graduates found that individuals with high student loan debts have more haphazard labour market trajectories, which is likely due to their inability to be selective during their post-graduation job search.^{footnote 7} The Social Research and Demonstration Corporation examined the percentage of debt to income and applied a standard of living to develop manageable debt thresholds, finding that a substantial proportion (up to 25%) of Canadian students would face difficulties in repaying their student debt.^{footnote 8}

While the unemployment rate (5.5%) in February 2022 was slightly below pre-pandemic levels (5.7%), the past two years have been financially difficult for many Canadians.^{footnote 9} During the peak of the pandemic, unemployment was high (13.7% in May 2020), causing many low- and middle-income individuals to struggle financially.^{footnote 9}

The current RAP zero payment threshold of $25,000 for family size of one is lower than the minimum wage in six provinces and Yukon. For example, a person earning the minimum wage and working full-time (40 hours a week) in Ontario would earn $31,200 per year, $6,200 more than the current RAP zero payment threshold. In other words, a person in Ontario could work full-time earning the minimum wage and still not qualify for a RAP zero payment on their loans.

The Financial Consumer Agency of Canada recommends that Canadians pay a maximum of 20% of their income to service consumer debt, including CSLs and CALs. RAP currently requires that borrowers pay up to 20% of their family income on CSLs or CALs alone.

Without amendments to the CSFAR and ALR, CSL and CAL borrowers will not be able to benefit from the enhanced repayment assistance that was announced in Budget 2021. If this measure is not in place by November 1, 2022, it will not be available to students who complete their studies in spring 2022, who will be entering a very challenging labour market.

Two-Year Interest Waiver

The Budget Implementation Act, 2021, No. 1, which received Royal Assent on June 29, 2021, amended the Canada Student Financial Assistance Act (CSFAA), the Canada Student Loans Act (CSLA) and the Apprentice Loans Act (ALA) to waive the accrual of interest on CSLs and CALs from April 1, 2021 to March 31, 2023. Certain provisions of the Apprentice Loans Regulations (ALR) did not align with the two-year interest waiver legislation, potentially causing confusion regarding how the waiver is being implemented. The ALR often use the concept of “the day on which interest started accruing” or “the day on which interest most recently started accruing” to specify when a time period begins (e.g., loan repayment, a RAP period). However, there is no such day during the two-year interest waiver.

Specifically, prior to these regulatory amendments, it may not have been clear to CAL borrowers how the two-year waiver on interest accrual affects:

• the day on which they are required to begin to repay their CAL;
• the restriction on further CALs for borrowers who fail to make required payments;
• the calculation of monthly payment amounts for RAP;
• eligibility for RAP; or
• the day on which RAP periods begin.

Amendments to the ALR are required to address these issues. There are no similar implications for the regulations governing CSLs (i.e., the Canada Student Financial Assistance Regulations (CSFAR) and the Canada Student Loans Regulations (CSLR)). These regulations use the concepts of ceasing to be a full-time or part-time student, which are defined in the CSFAR and the CSLR without reference to the day on which interest started or most recently started accruing.

Background

The Canada Student Financial Assistance Program (CSFA Program) helps to make post-secondary education more affordable for individuals from low- and middle-income families. Specifically, it provides eligible students with grants and loans to help them pay for post-secondary education at a designated college, university, or other post-secondary institution. CSGs and CSLs are available to students from nine provinces and Yukon (participating jurisdictions). Quebec, Northwest Territories and Nunavut have their own separate programs. In participating jurisdictions, students receive both federal and provincial student aid. The CSFA Program also provides CALs to apprentices to help them pay for designated Red Seal^{footnote 10} training programs.

For borrowers from most participating jurisdictions, their provincial and federal grants and loans are managed as a single account by the third-party Service Provider, known as the National Student Loans Service Centre (NSLSC). The NSLSC also administers RAP for the CSFA Program and most participating provinces.

RAP Enhancements

Six months after they leave their studies, or after they cease to be an apprentice, borrowers are required to begin making monthly payments on their loan. For example, a single student having graduated with approximately $13,500 in federal loans, in 2019, would have to make payments of $137.49 per month to repay their loan in the standard 9.5 years.^{footnote 11}

CSL and CAL borrowers may qualify for RAP if their monthly required payment exceeds their monthly affordable payment. The monthly required payment is determined by amortizing the remaining loan amount so that the loan would be paid off within ten years following the end of studies. The monthly affordable payment is determined using a formula based on the borrowers’ family income, family size, and the borrower’s share of total family student and apprentice debt.

RAP makes it easier for borrowers to manage their CSLs and CALs by limiting payments to what borrowers can reasonably afford. Currently under RAP, no borrower has to repay their CSL or CAL until they are earning at least $25,000 per year (referred to as the “zero payment threshold”); this income threshold is adjusted upward based on family size. For those with an income over the zero payment threshold, monthly payments are limited to no more than 20% of their monthly family income.

Furthermore, the federal government contributes to interest payments for borrowers on RAP and, in some cases, to their principal payments, such that the loan is paid off in no more than ten years for borrowers with a disability, and fifteen years for all other borrowers. To continue to be eligible for RAP, borrowers must re-apply every six months.

In recent years, more than 300,000 borrowers benefit from RAP. In 2019-2020, 86% of borrowers who were eligible and applied for RAP did not have to make any payment, while the remaining 14% qualified for an affordable payment (i.e., a reduced payment).

In recent years, there have been a number of changes to improve supports for borrowers in repayment. For example, in Budget 2016, the RAP zero payment thresholds were increased from $20,210 to $25,000 per year (adjusted upward based on family size), however, as mentioned, the RAP thresholds are not indexed to inflation and have not been revised since 2016. In addition Budget 2019 made it easier for students with permanent disabilities, who had received RAP, to return to school after a long absence by removing the restriction that required them to repay their loans in full to become eligible for any additional loans or grants if they had been out of studies for five or more years. Budget 2019 also reduced the interest rates payable on CSLs and CALs and eliminated the accrual of interest during the six-month non-repayment period following the end of studies/apprenticeship.

In Budget 2021, the Government of Canada announced the following enhancements to RAP and committed to implementing them in 2022-23:

• Increase the threshold for repayment assistance from $25,000 to $40,000 for borrowers living alone and align the other thresholds with those of the CSG-FT for borrowers with larger families;
• Index the thresholds to inflation; and
• Reduce the cap on monthly student loan payments from 20 per cent of family income to 10 per cent.

All participating jurisdictions, except Yukon, offer RAP on their provincial student loans. Yukon participates in the CSFA Program but does not offer student loans. Seven^{footnote 12} of the nine participating provinces have aligned their provincial repayment assistance plans to the current federal zero payment thresholds, and allow borrowers to submit a single RAP application for both their federal and provincial loans, which the NSLSC administers. Manitoba’s RAP is also fully aligned to CSFA Program’s zero payment thresholds but is administered separately by the province (borrowers must submit separate applications). Prince Edward Island administers a different repayment assistance program that is not aligned with the federal RAP.

Two-year interest waiver

The Budget Implementation Act, 2021, No. 1, enacted a two-year waiver on interest accrual through the CSFAA, CSLA and ALA, from April 1, 2021 to March 31, 2023. During this period, no interest accrues on CSLs and CALs. Borrowers in repayment continue to be required to make monthly payments on their student and apprentice loans.

Objective

RAP Enhancements

The objective of the regulatory amendments is to make apprentice and student debt more manageable and affordable for CSL and CAL borrowers through the implementation of the Budget 2021 commitment to enhance repayment assistance. These measures are aligned with the Government’s commitment to provide relief from apprentice and student debt, and to make life more affordable for Canadians.

Two-year Interest Waiver

The objective of the amendments related to the two-year waiver on interest accrual is to clarify for CAL borrowers how provisions that rely on “the day on which interest started accruing” or “the day on which interest most recently began to accrue” work during the two-year interest waiver period.

Description

RAP Enhancements

The CSFAR and the ALR are amended to:

• Increase the RAP zero payment threshold for family size of one from $25,000 to $40,000 per year;
• Increase RAP zero payment thresholds for other family sizes to align with the thresholds used for CSG-FT;
• Index all thresholds (including the $40,000 threshold for family size of one) to the CPI; and
• Reduce the cap on the monthly affordable payment while on RAP from 20% to 10% of a borrower’s family income.

The current and proposed RAP zero payment thresholds are shown in the following table. Under the current RAP zero payment thresholds, the threshold for family size of 5 applies to family sizes of 5 or more, whereas the CSG thresholds specify additional family sizes of 6 and 7 or more. To align with CSG-FT thresholds there will be two new family sizes specified for RAP (family sizes of 6 and 7 or more), which are shown below.

The following table shows the current and proposed new zero payment thresholds for RAP. The threshold amounts are based on gross monthly family income, as RAP is administered using the monthly family income that is reported by the borrower.

Repayment Assistance Plan: Monthly Zero Payment Thresholds

Family Size	Current RAP Zero Payment Thresholds	RAP Zero Payment Thresholds – November 1, 2022
1	$2,083	$3,334
2	$3,254	$3,911
3	$4,205	$4,790
4	$4,959	$5,530
5	$5,652 (applies to family size of 5 or more)	$6,183
6	No threshold for family size of 6	$6,773
7 or more	No threshold for family size of 7 or more	$7,316

Each year, on August 1, thresholds will be updated based on the percentage change in the CPI for the previous calendar year. The first indexation update will take effect on August 1, 2023.

Two-year Interest Waiver

The regulatory amendments align the ALR with the two-year interest waiver legislation by clarifying that:

• the dates when repayment begins, when a RAP period begins, and when a borrower becomes eligible for more generous RAP benefits do not change due to the two-year interest waiver;
• the date when a CAL borrower who has failed to make required payments will no longer be able to receive further loans does not change due to the two-year interest waiver; and
• the monthly required payments for CAL borrowers on RAP continue to be calculated as if the two-year interest waiver were not in effect.

Since the two-year interest waiver legislation is already in force, the amendments to the ALR will come into force on the date of their registration to minimize the period during which the regulations are not aligned with the legislation.

Regulatory development

Consultation

The CSFA Program regularly engages with stakeholders, including student groups, borrowers, and provinces and territories, through the Intergovernmental Consultative Committee on Student Financial Assistance (ICCSFA) and the National Advisory Group on Student Financial Assistance (NAGSFA). ICCSFA is comprised of all participating jurisdictions in the CSFA Program and Quebec, Northwest Territories and Nunavut. NAGSFA is comprised of student associations (e.g., National Educational Association of Disabled Students (NEADS), Canadian Alliance of Student Associations (CASA)), post-secondary institutions and associations, student financial aid administrators, and federal/provincial representatives.

ICCSFA met regarding the Budget 2021 announcement in April 2021. A number of provinces and territories indicated general support for the proposed enhancements to RAP, noting that these were very positive improvements for borrowers. Provinces that are currently aligned with federal RAP indicated that they would need additional time to consider whether alignment with the Budget 2021 enhancements would be feasible in their jurisdictions.

The 2021 federal election campaign led to a pause in ICCSFA discussions regarding the Budget 2021 commitment to enhance RAP. As part of the federal election campaign, the Liberal Party of Canada committed to further increase the RAP zero payment threshold to $50,000. This campaign commitment was included in the Minister of Employment, Workforce Development and Disability Inclusion’s December 16, 2021 mandate letter, which committed to “increase the repayment assistance threshold to $50,000 for Canada Student Loan borrowers who are single and make appropriate adjustments to the thresholds for other family sizes.” Engagement with provinces and territories was reinitiated after the election in the fall of 2021, and discussions focused on the expectation that the Government would proceed with this commitment, while maintaining an implementation date of November 1, 2022. Provinces expressed concerns regarding how the federal RAP enhancements would be operationalized, particularly given that in seven out of nine participating provinces repayment assistance is administered by the NSLSC. In response, the CSFA Program engaged extensively with provinces, and collaborated with a view to finding solutions to address their concerns. This resulted in the development of solutions, such as enabling the NSLSC to accommodate the new federal thresholds, while maintaining the existing thresholds for provincial repayment assistance, as provinces did not expect to align with the mandate letter commitment. Despite these updates, provinces continued to express their preference to delay the November 1, 2022 implementation.

ICCSFA met again in mid-April 2022, following the release of Budget 2022. During this meeting, the CSFA Program informed provinces and territories of the Government’s intent to move forward with the Budget 2021 enhancements to RAP with an implementation date of November 1, 2022. Provinces that are currently aligned with federal RAP indicated a preference for the Budget 2021 enhancements over the mandate letter commitment. They also indicated that they would prefer a delay of one year of the implementation date, to November 1, 2023, to provide them with more time to consider whether to align with the federal measures, and to make any required updates to their respective regulations, systems, and communications to reflect the enhancements to federal RAP.

Despite these concerns, the Government is proceeding with enhancements to RAP for federal student and apprentice loans for November 1, 2022, so that this assistance is available to borrowers as soon as possible, given the rising inflation and cost of living across the country. Further, although provinces would prefer to delay the implementation of this measure, they have not all indicated their intention to align. Delaying federal RAP enhancements would not provide borrowers the debt relief needed in the short-term, with no guarantee that alignment with provincial thresholds would take place.

Provinces also raised concerns that misalignment of federal and provincial repayment assistance may cause confusion amongst borrowers. This will be addressed by the CSFA Program and NSLSC through proactive and integrated communications that provide borrowers with accurate information about what is owed. The CSFA Program will continue to engage with provinces to ensure consistent communications on the RAP changes across the country.

NAGSFA was briefed about the Budget 2021 changes to RAP in May 2021, and members were supportive of improvements to repayment assistance. Since the release of Budget 2022, the Canadian Alliance of Student Associations has expressed disappointment that Budget 2022 did not include the mandate letter commitment to further increase zero payment threshold to $50,000 and make adjustments to the thresholds for other family sizes.

Stakeholders have been supportive of the two-year waiver on interest accrual on CSLs and CALs, with both the Canadian Federation of Students and the Canadian Alliance of Student Associations publicly welcoming the measure. Stakeholders have not been consulted specifically on the regulatory amendments related to the two-year interest waiver, as they do not change how it is implemented.

Modern treaty obligations and Indigenous engagement and consultation

The regulatory amendments are not expected to have differential impacts on Indigenous peoples or negative implications for modern treaties, as per Government of Canada obligations in relation to rights protected by section 35 of the Constitution Act, 1982, modern treaties and international human rights obligations.

The proposals included in Budget 2021 were assessed for modern treaty implications as per the Cabinet Directive on the Federal Approach to Modern Treaty Implementation. The assessment found no differential impacts on modern treaty obligations.

Instrument choice

The RAP zero payment thresholds and the cap on loan payments of 20% of family income are established in the CSFAR and ALR. Changes to these parameters can only be made by regulatory amendment. Furthermore, the issues concerning the two-year interest waiver directly stem from the wording of the ALR, and therefore could not be addressed without modifying the ALR. As a result, non-regulatory options were not considered.

Regulatory analysis

Benefits and costs

A cost-benefit analysis was conducted to assess the incremental impacts to stakeholders of increasing the RAP zero payment threshold^{footnote 13} from $25,000 to $40,000 for a family size of one and aligning with the CSG thresholds for all other family sizes. The analysis also assessed the incremental impacts of indexing all RAP zero payment thresholds to the CPI and reducing the cap on the monthly affordable payment while on RAP from 20% to 10% of a borrower’s family income. The cost-benefit analysis was compared to a baseline scenario in which these regulatory amendments are not made. The complete cost-benefit analysis is available upon request.

The stakeholders that will be most directly affected are student and apprentice borrowers (who will benefit from lower loan payments on their student or apprentice loans) and the Government of Canada (which will assume the cost of these reduced payments). The 10 participating provincial and territorial governments that work in collaboration in the delivery of the CSFA Program will be affected indirectly. Provinces will retain the flexibility to decide whether to align their policies with those of the federal government, but differences in eligibility between federal and provincial repayment assistance measures could cause confusion amongst some borrowers, and could lead to pressure on provincial governments to make improvements to provincial repayment assistance measures. In addition, Canadian society will be affected indirectly given that repayment assistance helps to mitigate overall income inequality.

Key data sources for this cost-benefit analysis include: CSFA Program administrative data (e.g., number of student borrowers, CSL amounts, in past years), external literature on repayment assistance and difficulties, and actuarial forecasts provided by the Office of the Chief Actuary (e.g., number of students who will access CSLs in future years) based on demographic information, economic conditions, and the policy parameters of the CSFA Program, as of March 2022. In addition, a review of research literature helped to identify the impact of repayment assistance on groups of borrowers, such as low- and middle-income borrowers, older borrowers, borrowers with children, and borrowers with disabilities, among other populations.

Cost-benefit statement (mandatory for significant cost-impact proposals)

• Number of years: 10 (2022-2023 to 2031-2032 academic years)
• Base year for costing: 2022
• Present value base year: 2022
• Discount rate: 7% (Canadian Cost-Benefit Analysis Guide: Regulatory Proposals)

Monetized costs

The cost to the Government of Canada for the repayment assistance enhancements under the proposed amendments is based on estimates using CSFA Program administrative data and the Office of the Chief Actuary projections.

The cost of providing additional funding to borrowers (120,000 borrowers on average for 2022-2023 and 2023-2024) under the proposed regulatory amendments consists of a combination of costs associated with the direct transfer to additional borrowers who could now qualify for RAP (new users) and current users. These monetized costs include the loss of revenues related to interest and principal payments as a result of borrowers receiving assistance from RAP. The total monetized costs are estimated at $465 million (present value) over the next 10 years.

Total Monetized Costs (Millions of $)

Impacted stakeholder	Description of cost	Base year 2022-2023	Second year 2023-2024	Final year 2031-2032	Total (present value)	Annualized value
Government of Canada	Cost of transfers to individuals	31	50	71	465	66
All stakeholders	Total costs	31	50	71	465	66

Monetized benefits

Increased repayment assistance and increase in loan repayment amounts

The regulatory amendments are expected to result in a greater number of Canada Student Loan and Canada Apprentice Loan borrowers receiving financial support on their loan repayment. This represents a direct transfer to borrowers, as more students and apprentices will qualify to have the interest covered or both the interest and principal covered on their student loans. Borrowers on RAP zero payment are not making payments on their student loans and those on RAP affordable payment are making reduced payments. These benefits were monetized by attributing the estimated costs incurred by the Government of Canada and the related direct program costs for the proposed amendments. Benefits for student borrowers who are in provinces and territories that do not participate in the CSFA Program are also included as the analysis includes costs for additional alternative payments, which will be directly equal to the benefits.

The following table provides the share of benefits attributable to each of the measures in terms of increased transfers.

Monetized Benefits – Increase in transfers to individuals (Millions of $)

(a) Loan Year	(b) Increased assistance from increasing and indexing RAP zero payment thresholds	(c) Increased assistance from reducing the cap on the monthly loan payments	(d) Increased assistance to borrowers	(e) Present value of benefits as of 2022-23
2022-23	29	2	31	31
2023-24	47	4	50	47
2024-25	58	4	62	54
2025-26	67	4	71	58
2026-27	67	4	71	54
2027-28	67	4	71	50
2028-29	67	4	71	47
2029-30	67	4	71	44
2030-31	67	4	71	41
2031-32	67	4	71	38
Sum of Present Values of Benefits				465

Note: Numbers may not add up due to rounding.

The total increased assistance to borrowers (column d) is obtained by summing up the increased assistance due to increasing and indexing RAP zero payment thresholds (column b) and reducing the cap on the monthly loan payments from 20% to 10% (column c). The thresholds used in these estimations are indexed to the CPI. Indexing the thresholds to the CPI will ensure that the number of borrowers eligible for RAP do not decrease over time as wages grow due to inflation.

Reduced student and apprentice loans in default

The regulatory amendments are expected to result in savings to the Government of Canada related to student loan defaults. While a borrower is on RAP, the Government of Canada makes payments on behalf of the borrower (whether interest only or interest and principal), so the loan does not become delinquent. By expanding RAP eligibility, it is expected that borrowers who might have otherwise defaulted on their loan will enter RAP instead.

The total monetized benefits are estimated at $582 million (present value) over the next 10 years.

Total Monetized Benefits (Millions of $)

Impacted stakeholder	Description of benefit	Base year 2022-23	Second year 2023-24	Final year 2031-32	Total (present value)	Annualized value
Borrowers	Increased transfers	31	50	71	465	66
Government of Canada	Reduced default loan amounts, adjusted for recalls, rehabilitation and recovery	13	14	20	117	17
All stakeholders	Total benefits	44	64	90	582	83

Note: Numbers may not add up due to rounding

Summary of monetized costs and benefits

Total Monetized Costs and Benefits (Millions of $)

Impacts	Base year	Other relevant years	Final year	Total (present value)	Annualized value
Total costs	31	50	71	465	66
Total benefits	44	64	90	582	83
NET IMPACT	13	14	20	117	17

Note: Numbers may not add up due to rounding

Qualitative impacts

The following benefits are a result of a borrower being on RAP, and thus are independent of the monetized transfer to borrowers. These qualitative benefits include: reduced financial difficulties and distress, decreased number of borrowers in default, reduced income inequality for borrowers, enhanced health and longevity for borrowers, and additional benefits for borrowers with disabilities. The beneficiaries, including those who are newly eligible, receive these benefits solely based on being on RAP, regardless of whether or not a monetary transfer occurs.

Positive impacts

For student and apprentice borrowers who qualify for RAP as a result of the regulatory amendments:

• Reduced financial difficulties and distress

The regulatory amendments will better help students who are unable to make their required payments qualify for financial assistance in repayment. With either zero payments or reduced monthly payments, borrowers will have more disposable income that can be used towards servicing other debts or paying for other necessities. A survey of the available literature found that the debt accrued from post-secondary education (PSE) could have short and long-term impacts on the financial well-being of borrowers. Compared to graduates without debt, indebted graduates have a lower standard of living, compromised ability to accumulate assets, lower net worth, less home equity and may postpone major life decisions, such as marriage or starting a family, due to their student debt.^{footnote 14,footnote 15,footnote 16,footnote 17} The presence of student debt is also directly linked to financial difficulties and hardship, even for students who manage to make regular payments.^{footnote 18}

• Reduced loan delinquency and default

By expanding RAP eligibility, it is expected that borrowers who might have otherwise gone into arrears or defaulted on their loans will enter RAP instead. Defaulting on a student or apprentice loan has negative and long-lasting implications for borrowers. Those who default will face significant difficulties when trying to obtain other loans, such as mortgages, commercial or consumer loans, or credit for other consumer goods.^{footnote 19} Low income has been identified as a key factor contributing to student loan defaults.^{footnote 20,footnote 21} By expanding eligibility through changes to the income thresholds and reducing payments, these regulatory amendments will benefit borrowers who are at risk of missing payments and/or defaulting, helping them avoid the negative associated consequences.

• Reduced income inequality

By increasing eligibility for RAP and reducing the cap on monthly affordable payments, more borrowers will pay zero or a reduced payment on their student loans. This will allow student loan repayment to be manageable and reduce income inequality. Research also suggests that these regulatory amendments may influence more students to pursue PSE or continue PSE even in a period of economic downturn. Literature demonstrates that repayment assistance plans affect the decision-making process of potential borrowers and have the potential to increase the likelihood of degree completion, leading to enhanced economic benefits.^{footnote 22,footnote 23} With increased PSE attainment associated with positive economic effects, this measure could reduce income inequality and directly benefit those with lower incomes.

• Enhanced health and longevity

Literature demonstrates that there are potential health effects of having debt. Studies show that student loan repayment is a top-ranked stressor for young people in the United States.^{footnote 24,footnote 25,footnote 26} Those who are more likely to graduate with student and apprentice loan debt are more likely to have potential health benefits from the regulatory amendments.

• For student and apprentice borrowers with permanent disabilities who qualify for RAP as a result of the regulatory amendments:

Individuals with disabilities have lower PSE attainment rates, higher levels of poverty, lower income levels and obstacles gaining employment when compared to individuals without disabilities.^{footnote 27,footnote 28} For borrowers with disabilities who qualify for RAP, the regulatory amendments will help them better manage their debt and decrease financial struggles they may be facing.

Sensitivity analysis

Using different values for the discount rate might have a potential impact on both the costs and benefits. This sensitivity analysis examines how the outcomes are sensitive to discount rates of 3%, 5%, 7% and 10%. The analysis used the 7% discount rate as the central analysis (i.e. the shaded row), in accordance with Canada’s Cost-Benefit Analysis Guide for Regulatory Proposals.

Adopting different discount rates does not impact the overall results of the analysis, as costs and benefits are scaled by the same factor under each scenario.

Sensitivity Analysis – Discount Rate (Millions of $)

Discount rate	Present value of benefits	Present value of costs	Net benefits
3%	692	553	138
5%	633	506	127
7%	582	465	117
10%	516	412	104

Furthermore, the cost-benefit analysis uses an assumption that family income is equal to 1.5 times the borrower’s reported income for borrowers reporting a marital status of married or common-law. This assumption is based on a weighted distribution of wages by family types and the gender wage gap from Statistics Canada. A sensitivity analysis was done to understand the impact of using different estimates of family income. The following table demonstrates how the outcomes are sensitive to different family incomes of 1.0, 2.0, and 2.5 times of reported borrower income. The results from the estimates of 1.5 times of reported borrower income are also presented for convenience (i.e. the shaded row). A discount rate of 7% was used for the present value calculations.

While there are impacts on the benefits and costs, adopting different estimates of family income does not impact the overall analysis, as both costs and benefits for each scenario are scaled by the same proportion of borrowers who would be eligible for RAP under the new thresholds.

Sensitivity Analysis – Estimated Reported Student Income (Millions of $)

Estimated Reported Student Income	Present value of benefits	Present value of costs	Net benefits
1.0 Times Reported Student Income	686	548	138
1.5 Times Reported Student Income	582	465	117
2.0 Times Reported Student Income	489	391	98
2.5 Times Reported Student Income	478	382	96

Small business lens

Analysis under the small business lens concluded that the proposed regulation will not impact Canadian small businesses.

One-for-one rule

The one-for-one rule does not apply as there is no impact on business.

Regulatory cooperation and alignment

These measures are not related to any commitment under a formal regulatory cooperation forum. ICCSFA is a Federal-Provincial/Territorial body for student financial assistance in Canada, but this organization does not focus on regulatory cooperation. There is no international agreement with respect to designated international educational institutions because designation is delegated to provinces and territories. Provinces and territories participating in the CSFA Program provide and manage up to 40% of all loans and can give their own student grants or other forms of student financial assistance. CALs and all costs related to them are entirely assumed by the CSFA Program. Quebec, Nunavut and the Northwest Territories do not currently participate in the CSFA Program. However, as per the Canada Student Financial Assistance Act (CSFAA), these three jurisdictions receive an alternative payment contingent on their programs having “substantially the same effect” as the CSFA Program.

The regulatory amendments will enhance RAP as it applies to the federal portion of CSLs and CALs. However, provinces that participate in the CSFA Program will decide whether to align with these changes for the provincial portion of the loans (alignment is not an issue for the territories, as Yukon does not offer territorial loans, and Nunavut and Northwest Territories do not participate in the CSFA Program).

Strategic environmental assessment

In accordance with the Cabinet Directive on the Environmental Assessment of Policy, Plan and Program Proposals, a preliminary scan concluded that a strategic environmental assessment is not required.

Gender-based analysis plus

The RAP enhancements will support various vulnerable groups of borrowers and are expected to have significant benefits from the perspective of gender and diversity.

Women are more likely than men to benefit from increased RAP zero payment thresholds and decreased required affordable payments because RAP currently sees higher uptake from women compared to men. For instance, in 2019-2020, 66% of those benefitting from RAP were women. Generally, women face greater income instability compared to their male counterparts, which can make CSL or CAL repayment more challenging. This can be attributed to their over-representation in areas of non-standard employment, such as the service sector. Women also take leave from work for the birth or adoption of children, typically between 27 to 52 weeks. This leave could be paid or unpaid, with Employment Insurance providing up to 55% of earnings, to a maximum of $595 per week. This results in an annual income of $30,940, which is well below the new zero payment thresholds being proposed. Only a small portion (20%) of women receive employer top-ups, with many of those top-ups lasting for less than 6 months.

Individuals 18 to 29 years old accounted for 53% of RAP beneficiaries in 2019-2020. The current economic climate will likely disproportionally impact young people aged 18-29 compared to other age groups, potentially making student and apprentice loan repayment more challenging. Past recessions have demonstrated that youth unemployment not only increases significantly at the beginning of economic downturns, but it also remains high even after the recovery has begun.^{footnote 29} Historically, youth unemployment has also typically taken longer to recover following recessions, with gaps in earnings persisting for years and reflected in lower lifetime earnings.

In 2019-2020, 8% of total RAP beneficiaries were students with disabilities. Increasing the zero payment income threshold for RAP will reduce the financial strain on graduates with disabilities. Canadians living with a disability are also much more likely to live in poverty. Statistics Canada’s Canadian Survey on Disability (2017) finds a significant discrepancy in PSE attainment rates; while 72.2% of Canadians aged 25 to 44 years without disabilities had some form of post-secondary credential, attainment rates were much lower for Canadians with disabilities. Only 47% of Canadians with “very severe” disabilities, 49.0% of those with “severe” disabilities, 59.6% of those with “moderate” disabilities, and 68.3% of those with “mild” disabilities possess a PSE credential, compared to 72.2% for individuals without disabilities.^{footnote 27} People with disabilities are more likely to be unemployed and have higher poverty rates. Morris et al.^{footnote 27} also found that while 10% of Canadians without disabilities live in poverty, 14% of people with mild disabilities and 28% of people with severe disabilities live below poverty levels. This indicates that students with disabilities will benefit from these measures, as they are much more likely to be considered low income after graduating.

The most recent program data collected on borrowers who self-identify as Indigenous indicated that approximately 6% of all CSFA Program recipients in the 2020-2021 academic year self-identified as Indigenous. While the proposed RAP enhancements do not directly target Indigenous students and visible minorities, many would still benefit from these measures. This is because these changes to RAP will affect low-income individuals and the literature suggests that Indigenous people and visible minorities face income gaps. In 2010, the median after-tax income for Indigenous people was just over $20,000 compared to $27,600 for their non-Indigenous counterparts. Among people aged 25 to 54, the income gap between Indigenous people and non-Indigenous people decreases with the completion of post-secondary education.^{footnote 30} The Census also demonstrates that visible minorities in Canada are more likely to be low-income compared to the non-racialized population. Census data demonstrates that 60% of racialized Canadians are in the bottom half of the distribution of household incomes, compared to 47% of non-racialized families.^{footnote 31}

Having a child is associated with higher costs of living and therefore less ability to pay back student and apprentice loans.^{footnote 32} Parents also have additional expenses for their children including saving money for future post-secondary education. This puts individuals with dependents at increased risk for financial strain. Reducing the maximum payment to only 10% of monthly income will allow individuals to have more disposable income, which allows them to make choices such as starting a family, purchasing a car, or making a down-payment on a home.

Additionally, student parents are significantly financially vulnerable. The CSFA Program administrative data shows that a majority of student parents are low-income students and are women. Among these students, single parents are the most financially vulnerable.

The gender-based analysis plus (GBA+) did not identify any unintended adverse disproportionate or differential impacts resulting from the RAP enhancements. The amendments consequential to the two-year interest waiver legislation will not have any gender-based impacts or impacts on other GBA+ groups, as they will not change how the CSFA Program is operated.

Implementation, compliance and enforcement, and service standards

Implementation

The regulatory amendments for the RAP enhancements will come into force on November 1, 2022. This will allow sufficient time for the NSLSC and participating jurisdictions to make the significant changes required to implement the measures.

The amendments related to the two-year waiver on interest accrual came into force on the date of registration.

Compliance and enforcement

To support effective management and accountability, the CSFA Program will continue to be monitored to establish continued and effective program performance and integrity. The CSFAA requires that the Minister table an actuarial report produced by the Office of the Chief Actuary at least once every three years. This report provides an estimate of program costs and revenues, a 25-year forecast of future program costs and revenues, and an explanation of the methodology and actuarial and economic assumptions used to produce the figures presented in the report. The CSFAA also requires that the Minister table an annual report in Parliament on the CSFA Program, 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.

Neither the regulatory amendments related to RAP nor to the two-year interest waiver necessitate changes to the CSFA Program’s compliance and enforcement tools or strategies. The CSFAA provides sufficient authority for the CSFA Program to establish that RAP is not granted to borrowers who are not eligible. Subsection 17(1) provides for a fine of up to $1,000 for borrowers who knowingly provide any false or misleading information in an application or other document. Also, section 17.1 of CSFAA allows for any such borrower to be denied additional RAP as well as certain other CSFA Program benefits, including, but not limited to, grants, loans, or interest-free periods.

Contact

Simone Kendall
Canada Student Financial Assistance Program
Employment and Social Development Canada
Email: simone.kendall@hrsdc-rhdcc.gc.ca