terça-feira, outubro 05, 2010

Canadian Student Loan Crisis

What’s the story behind the Canadian $2-billion loan crisis?
Most of you will have noticed the news stories from a couple of weeks ago about regulatory changes to the Canada Student Loans Program (CSLP). To recap briefly, the law limits outstanding student loans to $15-billion; apparently, outstanding loans snuck up on this limit without anyone noticing, thus requiring the government to draft some emergency re-definitions of what "outstanding loans" meant in order to get through the fall without breaking the law.

There was clearly much more to that story than anyone in Government is letting on; what data is available publicly suggests that CSLP was somehow off by a full $2-billion in its calculations of outstanding debt (via the CSLP Actuarial Report). Stereotypes about impecunious public servants aside, nobody just loses $2-billion.

One possibility is that there was a misunderstanding between HRDC's legal department and Treasury Board's and that CSLP has been counting the loans to a different standard for years. Another possibility is that there has been a truly shocking shift in the student loan portfolio: big drops in repayment due to graduates not earning enough to repay their loans combined with big increases in the client base because students can't earn enough in the summer and part-time work. The least likely - but not entirely impossible - explanation is that someone made a Grade A mistake and plugged in the wrong numbers into a spreadsheet. In the absence of any hard information (the first data on the CSLP tends to come about 6 months after the end of a given loan year, meaning at the earliest, we'll have data on what happened this fall some time around March, 2012), my guess is that it was some combination of the above.

I doubt very much the Government will be very forthcoming with a public explanation for what happened. But the story can't stay contained forever; clearly, the legislation will shortly need to be amended to allow the Government to but the $15-billion mark. When that happens, inquisitive MPs from both sides of the aisle should ask for a clearer explanation of how the Government of Canada came within a couple of weeks of being legally unable to hand out student loans. It's a story that needs to be told.

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