Better not to borrow

If you borrow money for a car and can’t pay it back, the lender will take the car. If you borrow money for education and can’t pay it back, do we take away your degree? Of course not. But when graduates in many fields cannot find an appropriate job and student debt continues to go up, we need to take this problem seriously.

President Biden’s decision to forgive $10,000 of student debt for borrowers who are making less than $125,000 has prompted discussion amongst Christians about the Biblical basis for debt forgiveness. But I think many Christians in favour of forgiving student debt are forgetting that Iron Age practices don’t translate neatly into modern financial principles. Solomon’s empire in 900 BC had about one million people and the whole money system was based on barter and coins. The Bible also talks about not forgiving loans to foreigners. In Canada, today we have 38 million people with about a million full-time and 266,000 part-time students (stats from 2019). Instituting a year of jubilee or other Biblical debt forgiveness practices just isn’t practical. What’s more, we need to be aware that a miraculous government debt forgiveness policy might have more to do with buying votes than it does with compassion or righteousness.

Personal experience and history

To explain further, I want to share a bit of history and my personal experience with Canada’s Student Loan programs. I was hired in December 1961 by a bank in Amsterdam. I had a Junior High diploma, was bilingual, could type and had good math marks. My employers paid for me to attend night school for the next 15 years three nights a week. I didn’t take out a single student loan.

In 1987, I was transferred via my bank employer from Alberta to Vancouver. One of my responsibilities was the bank’s Student Loan Program for British Columbia. This program had its roots in a government initiative post Second World War, when the Veterans Administration Board set up a fund to help returning veterans get a university education. The Veterans’ Land Act was a major element in the package of programs designed for Canadian veterans after the Second World War. It was primarily intended to promote farm settlement.

Sometime in the mid-50s a student loan program was established and run by financial institutions (mainly chartered banks) located across the country. Government bureaucrats assessed each student’s eligibility based on their income, or that of their parents if they were under 21 and most people were approved.

By about 1990, the average loan of a post-secondary graduate was $6,760. Banks increasingly struggled to collect on these loans as the risk of default loomed larger. Eventually, the situation became untenable for the banks, so federal and provincial governments took over the student loan programs.

To ensure that First Nations students have the same opportunities for success as other Canadian students, Budget 2019 committed $320 million over 5 years, beginning in fiscal year 2019 to 2020, to renew and expand funding for the Post-Secondary Student Support Program.

These days, when an undergraduate student in Alberta, for example, qualifies for government student loans, they receive funding from both the National Student Loans Service Centre and from Alberta Student Loans. That student might expect to rack up tens of thousands of dollars in debt from these two lenders, as the average university degree holder in Canada owes $28,000! For those who complete college programs, their average debt is $15,300 and for those who go on to do PhDs the average is $33,000 (Stats Canada). The loan size for undergraduates has grown from 1990 to 2015 by more than four times.

Planning ahead

With exceptions, I am not in favour of writing off student loans. Instead, I think Canadians need to think carefully about how we steward the money that we are already receiving from our governments. For example, families could put money from their monthly child benefit into RESPs. Families with eligible children under six can receive up to a maximum of $6,833 per child per year from the federal government and those with children age six to 17 can receive up to a maximum of $5,903 per child per year.

If a family was able to put $3,000 of their child benefit into a RESP every year and earn 4 per cent on that investment, the value of that account by age 18 would be $83,618. Obviously not every family can do this, but even a small amount could go a long way toward avoiding student loans in the future. The above calculation does not even include the 20 per cent the government adds to a RESP contribution.

My solution is controversial, but then I learned very early in my banking career that if I lend out my grandparent’s (read: customer’s) money, they would like to have it back. As hard as it is, students who take out loans also need to encounter this lesson. It’ll keep us all out of a lot of trouble.