ARCHIVED — Vol. 146, No. 7 — March 28, 2012

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Registration

SOR/2012-41 March 15, 2012

CANADA STUDENT FINANCIAL ASSISTANCE ACT

Regulations Amending the Canada Student Financial Assistance Regulations

P.C. 2012-290 March 15, 2012

His Excellency the Governor General in Council, on the recommendation of the Minister of Human Resources and Skills Development, pursuant to section 15 (see footnote a) of the Canada Student Financial Assistance Act (see footnote b), hereby makes the annexed Regulations Amending the Canada Student Financial Assistance Regulations.

REGULATIONS AMENDING THE CANADA STUDENT
FINANCIAL ASSISTANCE REGULATIONS

AMENDMENTS

1. Paragraph (c) of the definition “student loan” in subsection 2(1) of the Canada Student Financial Assistance Regulations (see footnote 1) is repealed.

2. The Regulations are amended by adding the following after section 17:

PART IV.1

MAXIMUM AMOUNT OF OUTSTANDING STUDENT LOANS

18. (1) For the purposes of section 13 of the Act, the outstanding aggregate amount of student loans may not exceed 19 billion dollars.

(2) The student loans that will be taken into consideration for the purposes of determining this amount are

  1. (a) direct loans; and

  2. (b) risk-shared loans that have been purchased by the Minister under an agreement made pursuant to the Act.

COMING INTO FORCE

2. These Regulations come into force on the day on which section 154 of the Keeping Canada’s Economy and Jobs Growing Act , chapter 24 of the Statutes of Canada, 2011, comes into force, but if they are registered after that day, they come into force on the day on which they are registered.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Issue: The $15 billion statutory limit on outstanding Canada Student Loans has been replaced by a new limit of $19 billion established by regulations and includes direct Canada Student Loans and a portion of risk-shared Canada Student Loans bought back by the Government of Canada.

Actuarial forecasts estimated that the aggregate amount of outstanding Canada Student Loans will reach the previous limit of $15 billion in January 2013. If the statutory limit were to be reached, the Government of Canada would not have had the legal authority to disburse additional student loans to qualifying students, and the ability of many Canadian students to pursue post-secondary education would have been jeopardized.

Description: The Regulations Amending the Canada Student Financial Assistance Regulations (the Regulations) prescribe that the aggregate amount of outstanding Canada Student Loans may not exceed $19 billion and defines the loans that are to be considered for these purposes. It will allow the Government of Canada to continue disbursing student loans for approximately 10 additional years before another regulatory adjustment is required, provided that there are no major changes to the Government’s student financial assistance policies or significant changes in demand for student loans.

Cost-benefit statement: Over the next 10 years, the monetized incremental benefits of implementing the Regulations are estimated at $4,059 million (present value); while the monetized incremental costs are estimated at $664 million (present value). The net present benefit of these Regulations would be approximately $3,395 million over 10 years, for a benefit-to-cost ratio of 6.1:1. In addition, 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 Canadian society would benefit from increased civic engagement among those who have attended post-secondary education. It is concluded that the benefits associated with implementing the Regulations significantly outweigh the costs.

Business and consumer impacts: While the Regulations increase the availability of skilled workers for Canadian businesses, it has no impact in regard to any administrative burden, to competition and to consumers.

Domestic and international coordination and cooperation: There are no domestic and international coordination and cooperation impacts related to the Regulations.

Performance measurement and evaluation plan: This requirement will be met through existing evaluation mechanisms. Increasing the limit on the aggregate amount of outstanding student loans will enable the Canada Student Loans Program (CSLP) to continue to disburse loans, but will not affect the operation of the program.

Issue

Prior to the coming into force of the Regulations, section 13 of the Canada Student Financial Assistance Act (CSFAA) placed a $15-billion statutory limit on the aggregate amount of outstanding Canada Student Loans. Once reached, the limit would have the effect of ending the Government of Canada’s legal authority to disburse further student loans. On December 15, 2011, the Keeping Canada’s Economy and Jobs Growing Act received Royal Assent. In this Act, Parliament assented to transferring the authority to set the limit on the aggregate amount of outstanding student loans to the Canada Student Financial Assistance Regulations (CSFAR) by amending section 13 and subsection 15(1.1) of the CSFAA.

Growth in the aggregate amount of outstanding student loans can be caused by a number of factors. For example, a change in the number of borrowers, a change in the length of study, a shift in repayment rate, a change in average loan size, amongst other things. The Actuarial Report on the Canada Student Loans Program as at 31 July 2010, approved by the Chief Actuary of the Government of Canada and tabled in Parliament by the Minister of Human Resources and Skills Development (HRSD) in October 2011, estimates that the portfolio of direct Canada Student Loans will reach $15 billion in January 2013 (www.osfi-bsif.gc.ca/app/DocRepository/
1/eng/reports/oca/CSLP_2010_e.pdf).

Without the Regulations, the Minister of HRSD would lose her authority to disburse further student loans if the statutory limit had been reached. Disbursements would only resume if and when repayments and write-offs on existing loans brought the portfolio value back below $15 billion. Loans would then be issued on a first-come, first-served basis, up to the point where the aggregate amount of outstanding student loans would have, once again, reached the statutory limit. Estimates provided by the Office of the Chief Actuary (OCA) indicate this would result in an average of almost 20% of eligible students being denied financial assistance each year from 2013–14 to 2023–24, reaching close to 40% of eligible students by 2029–30.

Government intervention in the form of regulations establishing a higher limit on the aggregate amount of outstanding Canada Student Loans was therefore necessary to ensure that the availability of student loans continues to reflect the needs of Canadian students.

Objectives

The objectives of the Regulations are to ensure that the CSLP can continue to meet its mandate to provide assistance to all those who qualify under its statute, while maintaining regulatory oversight of the CSLP.

Description

The Regulations prescribe that

  1. The aggregate amount of outstanding student loans may not exceed $19 billion; and
  2. The student loans that are to be considered for the purposes of determining the aggregate amount of student loans that are outstanding at a given time are

    1. (i) the total principal value of outstanding direct loans that are in study (loans held by borrowers who are enrolled in post-secondary education), in repayment (loans held by borrowers who have entered repayment) and in default (loans held by borrowers who have defaulted on their student loans); and
    2. (ii) the total principal value of outstanding risk-shared loans purchased by the Minister pursuant to her authority to enter into agreements with financial institutions under the CSFAA.

Since 2000, the Government of Canada has issued loans directly to student borrowers. Prior to the coming into force of the Regulations, these were the only outstanding student loans that were subject to the statutory limit under section 13 of CSFAA. Between 1995 and 2000, “risk-shared” loans were issued by participating financial institutions. A small portion of the risk-shared loan portfolio has been bought back by the Government of Canada from participating financial institutions. Consequently, to better capture the Government’s responsibility with respect to student loans, these loans are now included for the purposes of the limit on outstanding student loans.

It should be noted that, while the Regulations increase the limit on the aggregate amount of outstanding student loans, they do not affect the ceiling on student loans disbursed to individual students, currently set at $210 per week for a maximum of 340 weeks. Doctoral students and students with permanent disabilities can access student financial assistance for a maximum of 400 and 520 weeks, respectively.

Regulatory and non-regulatory options considered

Two alternatives to increasing the limit on the student loan portfolio were considered. Each kept the limit on the aggregate amount of outstanding student loans fixed at $15 billion and tried to minimize the negative effects of doing so by prioritizing certain borrowers over others in the loan disbursement process. These alternatives were considered undesirable as both would have been difficult to implement, would have required complex changes to the CSFAR and, most importantly, each would have resulted in otherwise eligible students not receiving student financial assistance. Increasing the limit on outstanding student loans in the CSFAR was the only viable option to ensure that all eligible students continue to receive student loans. No non-regulatory mechanisms were available as section 13 of the 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 $15-billion statutory limit (baseline scenario) and the outcomes of implementing the Regulations. The parties affected by the Regulations are the Government of Canada, student borrowers, businesses and 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. This number was then adjusted according to the assumption that borrowers could only be affected once. All monetized costs and benefits were estimated on an annual basis over a 10-year period from the 2012–2013 school year to the 2021–2022 school year. 2012–2013 is assumed to be the first year in which student borrowers would begin being affected and 10 years is the regular span for cost-benefit analyses. A discount rate of 8% was also applied as suggested by the Treasury Board Secretariat.

Costs

The average annual net costs to the Government of Canada of continuing to disburse loans under the Regulations are $66 million (present value) [$664 million (present value) over 10 years] and are based on estimates provided by the OCA, which were derived, in part, using CSLP administrative data. 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 Regulations.

Benefits

Using data from the 2011 CSLP Client Satisfaction Survey, it is estimated that 15% of affected borrowers would have been unable to pursue/continue their studies if the Regulations had not been implemented. Benefits to this group were monetized by examining the lifetime earning differentials between individuals with different levels of education. A constant distribution of affected borrowers across level of study, equal to the composition of CSLP borrowers in 2009–2010, was also assumed.

Results from the survey suggest that the remainder of affected borrowers would nonetheless find a way to attend post-secondary education. However, the strategies that they would employ for doing so could entail some educational, social and monetary costs. For instance, affected borrowers who would delay pursuing their studies would also delay benefiting from the increased earning associated with post-secondary education. 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 Regulations by being able to pursue their studies without having to rely on these strategies.

In addition to increased lifetime earnings, a review of available literature suggests that those who attend post-secondary education 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 post-secondary education creates positive externalities, as benefits accrue to others beyond the individual who actually pursues post-secondary studies. For example, businesses benefit from having a more skilled and productive workforce. Studies have also shown that greater post-secondary 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.

The results of this analysis are presented in the cost-benefit statement below. They indicate that, by allowing more Canadians to pursue post-secondary education, the benefits associated with implementing the Regulations significantly 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 cost-benefit analysis can be found at www.hrsdc.gc.ca/eng/learning/canada_student_loan/Publications/regulations/index.shtml).

Cost-Benefit Statement

2012–
2013
(PV)

2016–
2017
(PV)

Final Year (PV)

Total (PV)

Average Annual

A. Quantified impacts (financial)

Benefit — Future potential earnings (lifetime earnings; discounted for tuition and loan interest costs)

Borrowers who could not pursue their studies without the Regulations

$42 million

$328 million

$258 million

$4,059 million

$406 million

Costs — Loan disbursements

Government of Canada

$3 million

$75 million

$58 million

$664 million

$66 million

Net benefits

$3,395 million

$340 million

B. Quantified impacts (non-financial — e.g. risk assessment)

Benefit — Greater availability
of skilled workers (number of borrowers who could
not pursue studies without the Regulations)

Business

350

3 814

4 615

46 896

4 690

C. Qualitative impacts

Student borrowers

Borrowers who otherwise could not pursue post-secondary education without the Regulations

  • Lower unemployment rates and shorter unemployment spells;
  • Greater health and longevity;
  • Intergenerational effects (improved health, education and future earnings of children).

Borrowers who otherwise would delay post-secondary education without the Regulations

  • Can forgo delaying benefits of post-secondary education (higher potential earnings and lower rates of unemployment, shorter unemployment spells);
  • Will not be required to rely solely on private sources of credit;
  • Will not forgo benefiting from suite of CSLP measures designed to assist borrowers experiencing difficulty with repayment.

Borrowers who otherwise would continue their post-secondary education regardless

  • Better academic achievement as will be able to forgo seeking student employment;
  • Will not be required to rely solely on private sources of credit;
  • Will not forgo benefiting from suite of CSLP measures designed to assist borrowers experiencing difficulty with repayment.

Businesses

  • Gain productivity.

Canadian society

  • More innovation and economic growth;
  • Greater civic engagement (volunteerism and charitable contributions);
  • Reduced income inequality.


Rationale

When developing the Regulations, CSLP officials, in consultation with the Department of Finance Canada, sought to maximize two goals: ensuring that the limit on the aggregate amount of student loans continues to reflect the needs of students, while maintaining meaningful oversight of the CSLP. It was determined that a regulatory limit of $19 billion will allow the aggregate amount of outstanding student loans to grow to meet the projected needs of students for approximately 10 years. The limit on outstanding student loans was last increased in 2000 by $10 billion (from $5 billion to $15 billion). Providing a window of 10 years before the next projected adjustment to the limit on outstanding student loans is consistent with previous experience.

In determining the most appropriate value for the limit on outstanding student loans, projections on the portfolio’s growth were obtained from the OCA. According to the latest actuarial report, the portfolio of direct loans would reach $19 billion in 10 years. However, the OCA cannot factor into its estimates all growth drivers, such as program changes or sudden changes in post-secondary education costs. Moreover, the aggregate amount of outstanding student loans is sensitive to economic cycles. When economic shocks occur, there can be significant and lasting effects. As job prospects decline, more individuals opt to pursue post-secondary education, and they do so with fewer resources. To illustrate, during the recent recession, the number of CSLP borrowers increased by an unprecedented 10% in one loan year. Taking into consideration all these factors, it is estimated that the aggregate amount of outstanding student loans would likely reach a value of $19 billion in 10 years, consistent with previous experience.

Consultation

Human Resources and Skills Development Canada (HRSDC) officials consulted with representatives of the National Advisory Group on Student Financial Assistance (NAGSFA), a group of stakeholders made up of the post-secondary education students’ associations, educational organizations, student financial aid administrators, and members of the academic community, on a proposal to set a limit of $19 billion on the aggregate amount of outstanding student loans.

Stakeholders are generally supportive of a new regulatory limit of $19 billion on the aggregate amount of outstanding student loans. Two stakeholder organizations expressed concern over rising student debt as well as a need for a national discussion on it, and commented on a perceived decline in parliamentary oversight of the aggregate amount of outstanding student debt. This particular proposal will not have a direct effect on student financial assistance policy. The increase to the limit will allow a growing number of students to access loans. Transferring the authority to establish a new loan limit to the Regulations from the legislation does not eliminate the requirement for the Government to monitor and report on the student loan portfolio. The Minister of HRSD remains legally obligated to table an annual report on the CSLP in Parliament as well as a report by the Chief Actuary every three years.

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 Government of Canada. The forecasted disbursement levels will be included in the department’s main estimates and annual reference levels.

Performance measurement and evaluation

This requirement will be met through existing evaluation mechanisms. HRSDC’s Evaluation Directorate has recently completed a five-year summative evaluation of the CSLP covering the period from 2006–2007 to 2010–2011 (www.hrsdc.gc.ca/ eng/publications_resources/
evaluation/2011/sp_1014_09_11-eng/ page06.shtml). A supplemental evaluation to address the program changes announced in Budget 2008 is now underway, and is expected to be completed by March 2016.

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 of HRSD table an actuarial report produced by the OCA at least once every three years. The actuarial report must include an estimate of program costs and the student loan portfolio over 25 years. The Minister of HRSD is also obligated to table in Parliament an annual report on the CSLP which provides details on program objectives, accomplishments and administration.

Contact

Atiq Rahman
Director
Operational Policy and Research
Canada Student Loans Program
Human Resources and Skills Development Canada
200 Montcalm Street, Tower II, 1st Floor
Gatineau, Quebec
K1A 0J9
Telephone: 819-994-4518
Fax: 819-953-6661
Email: atiqur.rahman@hrsdc-rhdcc.gc.ca

Footnote a
S.C. 2011, c. 24, s. 155

Footnote b
S.C. 1994, c. 28

Footnote 1
SOR/95-329