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Education should be a right

Student Debt

Patrick Guntensperger

Jakarta, Indonesia

 

As getting JJ back to Canada within the next few months becomes more and more of a likelihood, the usual parental worries start to replace the more immediate ones of ensuring that his adoption is ironclad, and his Canadian citizenship is unassailable. Those worries are being incrementally replaced by worries about his long-term future; his education, his choice of métier as he reaches and passes through the horrors of adolescence, and ultimately his security and happiness as an adult.

 I recently got an email from a very good friend in Canada. To put things in perspective, she is, shall we say, of an age to have two young adult sons from a first marriage, neither of whom had a teenaged mother. She is now married to a terrific and very successful guy, runs her own thriving business and does some consulting on the side. She and her second husband know how to have fun (I met up with them on their honeymoon in Bali a few years ago and can testify to this), enjoy life, and seek out opportunities to live it to the hilt.

 Nevertheless, there is a fly in the ointment. You see, almost two decades ago, my friend D hit a rough patch on the path her life was taking. She was pregnant with a toddler to care for; she had just been licensed and was starting a career in a highly competitive business and going through an acrimonious and very messy divorce. She, like many Canadians, and more every year, was faithfully paying off a student loan. As a result of some dirty pool that was being played in her divorce proceedings, she had her personal assets frozen, her income attached, and she ended up on welfare for a brief period. During that time she defaulted on her student loan.

 The student loan system in Canada, despite being well-intentioned, or at least politically correct, is an appalling boondoggle. Its very conception and fundamental structure are guaranteed to make the system inefficient, an immense burden on those who can least carry it, and an absolutely risk-free vast fortune for those who need it the least.

 Neither Canada (nor the provinces, which run a supplementary, parallel system) actually lends students money. Not for tuition, books, learning materials, research or living expenses, or anything else. What the government does is send the bright-eyed promising young scholar off to its favourite Canadian – not a citizen, but a corporation – and tell the student to ask for money. Meanwhile, the government has told that corporation, one of Canada’s chartered banks, to go ahead and lend the kid a pile of money. Meanwhile the bank is told not to take payments on the loan until six months after the studente has ceased to be enrolled full-time in an approved institution of tertiary education. After that….they’re all yours.

It doesn’t take a rocket scientist to see that, even in the ideal scenario, this system is a profoundly flawed one. The ideal scenario, of course, is that the six months referred to above are the first six months of work in the student’s chosen profession after having successfully completed a course of study that has qualified that young person for full-time employment in his chosen field. Six months of steady paycheques, a chance to settle into life as an adult, and then monthly payments to the bank to compensate for all those years of education at their expense.

 Yeah, right.

 What should be apparent to anyone with the intelligence of a doorstop is that the banks have a vested interest in seeing the student default on their payments. These loans, let’s not forget, are guaranteed by the government; principal and interest. These loans are absolute government gifts in the event that a student doesn’t graduate and therefore can’t get a high paying job, or can’t get a job in their chosen profession within six months of graduation, or runs into any one of an infinite number of financial obstacles. They’re way better than mortgages or any loan secured by assets of any sort.

 If a mortgage or other secured loan goes south, we all know that the bank can and will foreclose or seize assets; they’ll take ownership of the property and sell it for as little as the court will let them get away with and pocket the money plus costs plus interest. But all this, in financial terminology, is a pain in the ass. Banks don’t want an inventory of 3 bedroom bungalows, nor do they want warehouses full of RVs and motorboats, all of which need to be sold before they can make their profit; they’re neither realtors nor used car salesmen….they have neither the ethics nor the consciences of either, much less the skill sets required.

 Student loans, on the other hand, are an effort-free goldmine. If a recent graduate misses a single payment, the bank holding the loan does two things at the same time: it cracks open the champagne and it sends in a demand note to the government for the entire principal plus interest on the loan and payment of the default penalties. This can amount to a hundred thousand or more dollars. At the moment student debt greatly exceeds credit card debt. We’re talking real money here. And in the event of a default, they don’t have to do a damn thing to suck it in.

 But it gets better. Now the debt is transferred to the government; it becomes a Crown Debt. And most people who aren’t going through the system aren’t aware that Crown Debts have certain very nice features – for The Crown. Unlike other consumer debt, there is generally no statute of limitations on a Crown Debt. If you are a bank that is owed a thousand dollars past due on a credit card, you have six years (minus one day, for some reason) to attempt to collect it or sue. If any payments are made or the debt acknowledged in any way during that period, the debt recovery game goes on, and includes the possibility of a lawsuit. If no acknowledgement or payment is made and no suit is filed by the bank, the statute of limitations kicks in; the debt must be written off as uncollectable and it is barred from litigation. But not a Crown Debt. Like a diamond, a Crown debt is forever.

 But it gets still better. The bankruptcy procedure is one that all civilised countries have as part of the system of laws that govern financial matters. In a nutshell, it provides that if a person or corporation gets so deep in debt that, after all reasonable attempts to negotiate and restructure the debts, there is no serious likelihood that the debts can ever be repaid in full, bankruptcy is a remedy that can be utilised. It allows for a court to supervise the disposal of all that corporation’s or, in a personal bankruptcy, that person’s assets, leaving only the necessities to live with a degree of dignity. The court will also attach a portion of the bankrupt’s income until the bankruptcy is discharged…usually six months to a year or two. After that, the spoils are divided proportionally among the creditors and the debts are wiped clean. The bankrupt person starts over with a lousy credit rating but can turn all that round in a few years of careful financial management.

 But guess what? That student loan doesn’t usually get included in the bankruptcy. That’s right, folks; even after the pain, loss, and humiliation of a personal bankruptcy, you probably still have to pay back that debt….the one that was risk free to the bank. You don’t start clean, a financial pariah, but a debt-free pariah; you still owe the money…you suffer all the pain, and you still emerge with the debt that probably drove you to bankruptcy in the first place.

 And here’s the cool part. The government outsources the collection of these student debts. They are given to a collection agency if their first phone call doesn’t end with an acceptable repayment schedule. And believe me, collection agencies are homes for sociopaths. You would rather be stalked by Jason Voorhees.

 Bill collectors, by and large, are the bottom feeders of uneducated, otherwise unemployable social misfits: junkies, drunks, aged whores who have lost any looks they might have had, retards, bullies, and other dregs of the human race. Their training consists of being told that every debtor assigned to them can make payments on the debt, but is simply being stubborn; that their function as collectors is to make life more uncomfortable to owe the money than it would be to pay it. Then they are told that the collector with the lowest numbers on the board at the end of the month is fired. Now go get’em.

Pay up, bitch!

Your friendly neghbourhood debt collector

They’ll try to get the welfare mother, the terminal cancer victim with two infant children, or the sole caregiver to dying parents but no income, to commit to a payment schedule that will either be impossible to meet or make their already crushing existences even more miserable. If they can’t do that, if they can’t collect from someone so impoverished that they worry constantly about feeding themselves and their children, they send it to an even lower form of humanity…they send it to a lawyer to sue.

 There are law firms whose entire income is based on the prosecution of these lawsuits. They work for the government and they work in bulk. These firms are the scum of the earth, the most appallingly distasteful bottom feeding slime that ever stepped into a civil courtroom; and they thrive. They’ll sue and they’ll get their judgements. And now they can ensure that not only is the once bright-eyed and hopeful student’s life unbearable now, but they can guarantee that it will never get better.

 You’ve got a student loan judgement out against you and you need a car to get to interviews? Maybe a family member gives you an old beater to help you out. The scum of the bar association will send thugs to seize it, sell it at auction, and run up costs that are more than they sell the car for, increasing your debt by the amount of the shortfall. You have a special needs child who can’t leave his bedroom for long periods? Your friends and neighbours put together their few cents from bottle returns and piggy banks and buy you a television for him at a thrift shop. If you have another TV in the apartment, those same parasitical slime bags will seize it and sell it. Two TVs is a luxury, you see.

 If you start a new job, the first thing that happens is your new employer gets served with a court order requiring him to pay a percentage of your pay (40% is fairly standard) to the law firm; a wage garnishment is not an auspicious start to a career anywhere. And no employer likes to have the extra accounting to do along with the knowledge that if they err in any way they are responsible for any shortfall. In most cases, so long, new career.

 I have personally seen each of these scenarios play out. In Canada. I have seen people sued for a few thousand dollars after having paid back over their entire career several hundred thousand…many times the amount borrowed. This costs the economy and this costs the taxpayer. This destroys lives. But the filth in suits who barely passed the bar make out like bandits, the banks always come out on top without breaking a sweat, and the government gets kudos for its dedication to educating the next generation. It’s a racket and it has to stop.

 Years ago parents used to point out that they started out with nothing and look what they have accomplished. Yes, look! Their children start out with a debt burden that their parents couldn’t even have imagined. These young people (some of us not so young anymore…the racket has been successful for a long time now) would have loved the opportunity to start out with nothing.

 Canada needs to demonstrate a genuine commitment to education. That means that every student who makes passing grades in high school should have a first year of post-secondary education and expenses paid for by our government. Not their pet corporations, the chartered banks. Then every student who maintains a sufficiently high grade point average should continue to have government subsidised education for as long as they stay in school.

 The funny part about this is that everywhere this has been tried, it has not cost the taxpayer a single penny over the first ten years. The social benefits and the returns paid by having educated, taxpaying students in high-paying jobs has grossly outweighed the initial cost of educating them. But explaining that to parliamentarians who need to get elected is a waste of breath. Nobody in our current government will buck the tide of coattail riding neocon American wannabes. So unless you’re wealthy, you start your career with a debt burden that is unconscionable. Of course if you’re not wealthy, those that are would prefer you to know your place in society, forego higher education entirely; those who are wealthy will be needing people to drive them about, clean their homes, mow their lawns.

 Canada needs to implement a system of tertiary education subsidy. But more urgently it needs to forgive existing student debt.

 My friend D? Her email was to tell me that she thought she had retired this debt fifteen years ago; through a mistake by the scumbag Law Society member who had sued her at the depth of her once desperate life, it turns out that about one thousand dollars hadn’t been collected. Now that she’s successful, the tapeworms have woken up, tracked her down and are now placing demands upon her for payment, backed up by threats of seizure of assets, garnishments of contract payments due, and any other slimy threat they can come up with. This is great for them, because, through the miracle of compound interest, the amount demanded is now more than the initial debt. And they have the law on their side.

 It’s long since time for reason to step in.

…enditem…

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Comments

  1. Wow! I had no idea this is the way student loans worked in Canada. I never got a loan and had to work my way through university the best I could. I did study hard enough to get a scholarship for two years and that helped.

    I see that once again the government has gotten itself involved in things it has no business being involved in. The biggest reason I have right wing beliefs is because I am sure that the government does almost everything for the right reasons (I do sincerely believe that there are good intentions and a desire to help) but unfortunately the government tends to be either inefficient or totally incompetent at most things. Add to it the fact that they are rarely held accountable for the screw ups.

    One more example of why the government should stick to the bare minimum of required functions.

  2. Mr. D

    To want to dispense with government would be to throw the baby out with the bathwater.

    In any case, I submit that the problem here isn’t government interference, but rather the contrary. Where the student loan system goes awry is the private enterprise component of the needlessly complicated system. Let me propose these changes:

    Use the Canadian Treasury as the source of funds for the loans; it’s easily affordable and it’s an investment in more than one way, so it will not be a drain, it will be a net gain. Eliminate the banks as unnecessary middlemen. Lend the money directly.

    Eliminate the law firm and collection agencies, and set up a small department to track the performance of loans after graduation. Collect what can be collected through structured repayment schemes and simply tack the rest onto people’s income tax debt as a crown debt. That way no one is harassed, financially crippled, or unduly burdened. The money saved when not retaining lawfirms and collection agencies will at first offset any costs and after a few years add revenue to the treasury. Then tutition costs can be reduced by that amount. Good for all. Simple, isn’t it, when you keep the private, profit motivated companies out of the picture.

    Eliminating government participation would end student loans, lower Canada’s standard of education overall, and ultimately have a deleterious effect on our society and economy. A standard problem with anti-government conservative simplistic solutions.

    Incidentally, elements have this solution have been introduced very successfully by the Obama administration, so Canada can feel free to copy it and still satisfy our current government’s desire to be more “American”.

    • Well, you make it sound simple, but I have a few thoughts on things that are not so simple.

      First, I think the banks know as would most people: An 18 year old high school graduate is an extreme risk when lending money. That is probably why the bank relies on the government to guarantee these loans and they aren’t really willing to put much time and effort into collecting it.

      Therefore to think that the government should lend these people money seems like a really bad idea. There must be a reason no one else wants to. Your theory of “collect what we can” doesn’t sound very secure.

      Secondly, you say “lets use the Canadian Treasury to finance this.” I thought we were looking for ways to reduce and cut spending because we have ever increasing deficits and not enough money to pay pensions and health benefits for an aging population. To think of investing money that isn’t there in high risk, low return option doesn’t sound like a very good idea.

      Thirdly, Canadian universities are already over priced. With tuition rates close to some of the best universities in the world. For the government to pay for students to attend, would hardly help them think of reducing tuition costs.

      Last, but most important, I question if we are really throwing out any baby at all. From a philosophical point of view it can sound very appealing to have everyone attend university. Around 85% of jobs in North america require no more than a 6th grade education. I am the first one to point out that the purpose of education goes way beyond simple “job preparation”, but to expect our post secondary graduates to go out and fill these jobs and pay off student loans is very unrealistic. Here is where things get really complicated because this is already happening and one of the many results is businesses trying to outsource everything to other countries. This closing argument leads into a large debatable murky area that I am unsure of. Whereas my previous points show that it is not very practical.

  3. Before I respond to your comments in order, let me make one significant point. Everything I say should be read in light of this: I believe that we as a prosperous and civilised country should invest in our future by providing EVERY qualified Canadian with FULLY SUBSIDISED tertiary education. Economically it would pay for itself. That said, allow me to respond to your points.

    1) Of course students are high risk loan candidates and of course that’s why the government has to guarantee the loans. But the default rate is approximately the same as other loan programmes. Why should the government guarantee loans and cost the taxpayer money when they default, but allow the banks to profit when the loans perform well? That is nothing but a guaranteed black hole to throw money into.

    2) I said to use treasury funds but I also showed that it would be a net profit to the treasury.

    3) If all university and trade school and college was paid for like high school, there would be no problem with tuition costs as they would be regulated similarly.

    4) Investing in the education of Canadians is far from being a “low return” investment. Historically EVERY TIME a country has invested in additional education it has paid off economically.

    5) If we have an educated and capable population and we create industries that only educated and entrepreneurial graduates can envision, there is nothing wrong with outsourcing minimum wage gruntwork. There will be better work available here for everyone. That’s what forward thinking 3rd world countries are dying to do, but they don’t have the resources to invest like we do.

    I stand by every aspect of my argument.

    • I understood your beliefs from reading the article and I don’t know for sure whether I agree or not, but this worth a discussion.

      Back to the points in order.

      1) I agree that it should be an all or nothing deal. Typical government move to try and get something done, reap no benefits and shoulder all the risk. Either the banks do it with both rewards and losses or the government does it.
      2) This is going to answer the first point. If there was a profit to be made, private industry (the banks) would have jumped all over it. The government (taxpayers) would lose money even if there was profit to be made. It is extremely rare, anywhere in there world, to see the government run any profitable enterprise. They are usually inefficient, inept or both. There is no reason to imagine this would be any different.
      3) I grew up in a country where tertiary education was “free” (tuition was close to $10 a semester). Here are some of the results: Average number of years to graduation was 10, with some students taking almost 20 years to graduate. Graduates had a hard time getting jobs because the level of education was inferior to other universities. Anyone with enough money or able to obtain a scholarship would attend other universities either outside the country or within. All of this might seem strange, especially to some one with left wing views, since everything seemed so “perfect”. The University staff was unionized. They were autonomous from the government. The directors and officials were elected by the staff. The other universities in the country had to be authorized and reported to the national university. The national university paid better wages than the other universities. etc. This is an anecdote however and cannot be used as data or proof that something doesn’t work.
      4) No arguments here. Very large returns, they are just not easily tied in. I have had to try and explain to CEO’s how training programs can generate profit for a company. Within a small organization there are so many variables and measures surrounding human performance just imagine trying to do it for an entire nation. When I said low returns, I was referring to direct monetary returns on the loans.

      5) I think it would be fantastic if every person in the world could get a post secondary education. No doubts, especially since I have one and I can see how it has impacted my life. Yet I must insist, many people like to go out for dinner occasionally, or have the highways plowed after a snowy night. These are tasks that cannot be outsourced. Someone has to take your order, wash the dishes, mop the floors, and drive the snowplow. I am not taking anything away from this work, I have performed many of these same jobs and I know they are difficult, but most post secondary graduates would not want to take these jobs. I am not sure what the solution here is.

      Here might be the place to return to an unanswered discussion. Canada has the highest tertiary graduation rates in the world. In 2010, 51% of the population had graduated from a post secondary institution (the study refers to a college or college equivalent degree). Some one told me that as people become more educated their political views tend to the left, yet in 2011, Canada elected a right wing party into power. Not only did they vote them into power, it was a majority government and the Liberal party was so underwhelmingly supported, they were almost wiped out. (For the record I don’t think there are any right wing parties in Canada. The conservatives are about centre and all others are left of that.)
      Where as in the US, only 42% of the population has graduated from post secondary (despite extremely high spending) they have severe problems in their secondary system with only a 77% graduation rate and yet for two consecutive terms they have voted the left into power.

      I wonder if these numbers don’t show a more realistic picture?

  4. All right. As your points.
    1) Agreed.
    2) There IS a profit to be made. Banks are making out like bandits. Banks LOVE student loans. Statistically they perform about as well as any other unsecured loans, plus they come with that ironclad guarantee. I disagree with your characterisation of government ineptitude, however. Remember that a government is not a business, so it is not established to extract profit from the public. Nevertheless, Government runs police, fire and other services far more cheaply and efficiently than any private corporation could. Government ineptitude is a rather exhausted talking point and a conservative trope; not an unassailable fact.

    3) I’ll cut to the chase and just point out that you’re right. It is anecdotal and, I think an inappropriate comparison. Canada’s ability to run a fairly straightforward and transparent
    student financing program need not be assumed to be on a par with Guatemala’s.

    4) Agreed. Except that I believe that there WILL also be direct monetary returns on the loans, if that’s the route we choose.

    5) Agreed. There will always be people for whom university is simply not possible. That’s why I was specific when I said QUALIFIED Canadians. But I definitely believe, and economists tend to agree, that if we increase the real education levels (not the free rides your referred to…there are simple measures to avoid that) our economy will grow to such an extent that even more humble service labour will be well compensated and provide decent incomes for those filling the non-outsourceable positions you reference.

    Finally, as to the political part of your comment…I want to point out that the Conservative victory was largely a reaction to the horribly corrupt Liberal fiasco that preceded it. I don’t expect that educated people will long put up with this government, but time will tell.

    Thank you for your insightful response,

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