Paying the price for loans

25 per cent of Queen’s students on government aid

Matt Dylag, Law ’08, has OSAP and a student line of credit.
Matt Dylag, Law ’08, has OSAP and a student line of credit.
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Matt Dylag sees a bite taken out of his bank account every month when interest on his line of credit is deducted it.

The third year law student is using both the Ontario Student Assistance Program (OSAP) and a student line of credit to fund his education.

He said he took out a line of credit from RBC Royal Bank when he began his second year in the program.

“When the work savings dried up, OSAP was not enough to cover school, so I needed extra funding,” Dylag said.

As a law student, Dylag said he pays about $10,500 per year in tuition. He said OSAP gives him less than he needs to cover his tuition.

Dylag said he has used OSAP since he began his undergraduate degree and the program hasn’t changed much in that time.

“The only difference is they’re giving me a little bit more because my tuition is about five times more expensive now,” he said.

During his undergraduate degree, Dylag had bursaries from the University of Toronto and he also worked part-time.

“I’ve looked at everything,” he said.

OSAP is a frustrating program to work with, he said, but there are benefits.

“OSAP’s not bad in the terms that they don’t charge interest until six months after you graduate,” he said.

“The credit line, they do charge interest, but it is a very low interest,” he said.

Dylag said because he’s a professional student it was easy to take out a student line of credit.

“I assume it’s because they assume I’m going to get a higher income when I graduate,” he said.

Dylag said he hopes to pay off his loans when he finishes school, but it will depend on his work situation. He said the bank won’t mind if he takes a while to pay.

“The longer you have it out, the more money they make in interest,” he said.

Teresa Alm, associate university registrar for student awards, said funding a university education isn’t always straightforward.

“When students are financing their education, they’re usually financing it from a number of sources,” she said.

Alm said about 25 per cent of Queen’s undergraduate population uses government assistance—for students who call Ontario home, that’s OSAP.

OSAP provides provincially and federally funded assistance to students in Ontario.

“I look at OSAP as providing access to students who would not otherwise have an opportunity to attend university,” Alm said.

The maximum amount of money students accessing OSAP can qualify for each year is $11,900, she said. Under OSAP students receive a single loan called the Canada-Ontario Integrated Student Loan.

The province also provides Ontario Student Opportunity Grants, which can reduce the payments owed on the integrated loan to $7,000 per year.

Borrowers on OSAP aren’t charged interest until they enter the repayment process, which six months after they cease to be full-time students.

“That doesn’t eliminate the fact that OSAP is a complex program,” Alm said. “It does have a lot of paperwork for students to do, so it would be nice if some of that complexity was simplified.”

Over the past few years, she said, both provincial and federal governments have tried to increase the number of students eligible for OSAP. Recently the government further reduced the expected parental contribution for student loans.

For a family whose income is $80,000, parents would have been expected to contribute $7,434 in 2004-05. In 2005-06, that contribution was reduced to $4,547.

“Students who would normally have access to line of credit would now be eligible for OSAP,” Alm said.

High interest rates have come under fire from various students as many of them default on their loan payments.

Because the Canada-Ontario Integrated Student Loan is made up of a federal portion and a provincial portion, there are two different interest rates. The federal loan can have a fixed interest rate of the prime rate of interest plus five per cent or a floating rate of prime plus 2.5 per cent. For the Ontario portion of the loan, the interest rate is prime plus one per cent. Right now, prime is 6.25 per cent.

“I don’t disagree at all with the request of students that the level of interest should be lowered; I support and endorse that,” Alm said.

But she said about 98 per cent of Queen’s students are in good standing in terms of loan repayment. The 2006 federal default rate for Queen’s students on OSAP was 2.1 per cent, compared to a provincial average of 5.7 per cent.

“I think that’s something we need to acknowledge, that the vast majority of the students are keeping their loans in good standing,” Alm said.

The Coalition for Student Loan Fairness is the first Canadian organization dedicated to the needs of student loan borrowers.

Coalition spokesperson Julian Benedict said the group’s website provides a forum for borrowers to discuss their concerns and focus on solutions.

Benedict and his co-founder, Mark O’Meara, both had student loans when they attended Simon Fraser University and the University of British Columbia. Benedict graduated in June 2006. He said he’ll be paying off his loan for up to 14 years.

“It’s now bordering on ridiculous,” he said.

Benedict pays $452 a month to pay off his loan. $260 of that is going to interest.

“We deal with the consequences of high interest rates every day,” he said.

“Right from the beginning, student-loan repayment has been a bit of a nightmare. Lost forms, misinformation, incorrect balances—these are all challenges that borrowers deal with every day.”

The website lists almost 1,200 accounts from students who had difficulties repaying their loans.

“Those stories are incredibly stark. They run in contrast to the student loan system’s rosy analysis of the state of the system,” Benedict said.

The Coalition for Student Loan Fairness has published a plan intended to return the Canada Student Loan Program to a “state of integrity,” according to the website. The plan details issues Benedict said need to be resolved, such as high interest rates and the need for improved access to grants, interest relief and debt reduction.

“We found that the interest rates were causing a lot of people to default and lot of people were unable to pay their loans,” he said, adding that there’s no neutral party to help those having difficulty with the repayment.

The National Student Loan Service Centre, a service provided by the federal government, is the organization involved in administering student loans, manages debt-assistance programs.

Service Manager of Regional Relations Wayne Peddie said the centre also counsels students on loan repayment.

“We try to provide them with all the information they need to keep them informed of their responsibility around the loan, but also the debt management tools that are available to them if they’re having problems, or even if they foresee having difficulty paying,” he said, adding that the government has various repayment options as well as options for interest relief.

“Ideally we want everybody to be able to go to school, graduate, pay their loans and not have any problems,” he said. “But if they do run into any problems, there are lots of services available.”

Peddie said most repayment terms are between nine and a half and 15 years.

“The student could decide that they want to take longer to pay their loan with a lower payment, as long as they recognize that they’ll be paying more in the end,” he said.

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A student line of credit, in contrast to OSAP, is based on the borrower’s ability to repay. Students who take out a line of credit are charged interest on a monthly basis.

Kingston RBC Royal Bank Senior Account Manager Rob Hamilton said the advantage of a student line of credit is that you only pay interest on the money you use. With a line of credit, if the student has only used $4,000 of a $10,000 loan by Christmas, they’re only required to pay interest on that $4,000.

The interest rate on the line of credit is currently prime plus one per cent, Hamilton said.

Queen’s has a line of credit program with RBC, but other banks offer them as well.

“The differences from bank to bank might be in the interest rates as well as the repayment options,” Hamilton said, adding that plans change from year to year.

To be eligible for a student line of credit, students must be attending a post-secondary institution full time and have residency status in Canada.

Student loans by the numbers

2.1 per cent of Queen’s students who defaulted on their loan repayments in 2006-07

5.7 provincial average default percentage

$11,900 maximum a student can receive on OSAP

25 per cent of Queen’s undergraduate population accessing government student financial assistance

15 maximum number of years students can take to repay OSAP and line of credit loans, without getting a revision of repayment terms

$22 million amount Queen’s gave out in student awards in 2006-07

40 per cent of the undergraduate population that received student awards in 2006-07

6.25 prime interest rate in Canada

7.25 per cent interest on provincial portion of OSAP loan and student line of credit

8.75 per cent interest on federal portion of OSAP loan

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