Financial Crisis: An In-Depth Look At The Causes And Effects Of Student Debt In Canada


Financial Crisis: A series about how the high cost of higher education could affect your career as well as your bank account.

If there’s one thing certain in the world of post-secondary education, it’s that the cost of higher learning never comes cheap.

While Canada’s colleges and universities once boasted quality and affordability, massive cuts in government funding and rising operating costs have forced schools to transfer the bulk of expenses to students.

In 1985, universities were funded 83% from government sources and 13% from tuition. By 2005, those numbers had changed to 64% and 24%, respectively.

Upon its release last September, Statistics Canada’s university tuition fees report for 2010-2011 was instantly met with outrage by students demanding debt relief from both provincial and federal governments.

Lack of money, lack of knowledge

According to the report, tuition increased by 4% this year and the average price paid by undergraduate students was $5,138. More than 90% of students currently enrolled in Canadian schools are paying higher tuition fees than in 2009.

With the average post-secondary student owing about $26,680 by graduation day, it’s no surprise that federal student debt has surpassed $15 billion – a first in Canadian history.

Adding to the problem is the fact that students – individuals with little to no consumer loan experience – are being asked to make significant financial decisions that may affect the rest of their debt-paying lives.

A report released by the Canadian Alliance of Student Associations reveals a severe lack of financial aid comprehension among students, with 75% of respondents failing the “loan” literacy test. Analysis indicates that students are poorly informed about Canada’s complex financial aid system, which merges loans from both provincial and federal governments and follows stringent eligibility requirements for obtaining both loans and grants.

The consequences of indebtedness

While government loan recipients are only required to start paying back their dues up to six months after graduation, they still deal with demanding repayment schedules and rapidly accruing interest on their large amounts of debt. Even with the loan, many students still have to work part-time to keep costs down.

For students in Ontario, earning more than $103 per week may even be cause for their pay to be deducted from their total allowable loan amount. In addition, loaners’ families continually struggle with mandatory parental contributions.

David Molenhuis, national chairperson of the Canadian Federation of Students, notes that heavy student debt load is also forcing many to choose potential earnings over actual talent or interest in a career field.

Students who don’t qualify for federal loans have to rely on a combination of third-party contributions and credit lines or part-time work to finance their education. Many are also forced to cut down on textbooks and other required materials due to lack of funds, further diminishing the quality of their educational experience.

In a Gazette interview, David Molenhuis, national chairperson of the Canadian Federation of Students, notes that heavy student debt load is also forcing many to choose potential earnings over actual talent or interest in a career field.

Student groups agree that student debt is a hindrance to the intellectual and professional development of Canada’s next generation of workers – not only does it breed employee dissatisfaction, but potential future leaders in relevant but expensive fields (such as medicine and law) are being crippled by debt.

Not surprisingly, StatsCan’s Youth in Transition Survey reveals that 70% of high school graduates who choose not to pursue post-secondary education cite its high costs to be the primary factor for their decision.

Quebec: Low tuition ≠ high participation

While common sense suggests that post-secondary participation rates would be higher in regions where tuition is low, this rationale doesn’t seem to hold true in every case.

Despite having the lowest tuition in Canada at $2,415, Quebec only garnered an 8% university participation rate, which also happens to be the lowest in the entire country. The province blames tuition hikes for low enrolment: partial tuition-freeze thaws since 2007 have resulted in accumulated increases of $500 over five years for Quebec residents and $1,000 for out-of-province students.

A survey commissioned by the Quebec government estimates that the hikes have already prevented 13,000 students from attending university. Many argue that this has hindered accessibility for low-income students and diminished the competitiveness of Quebec’s schools.

In its proposal for reinstating the program, the Fédération étudiantes universitaire du Québec (FEUQ) credited Newfoundland’s emulation of Quebec’s tuition freeze policy for narrowing the tuition gap to a mere $209 between the two provinces.

Freezes heat up enrolment

Newfoundland’s tuition may only be slightly higher at $2,634, but its participation rate – the highest in the country – is a full 10% higher than Quebec’s. Since it began freezing tuition rates, Newfoundland has seen more interest coming from out-of-province students hoping to take advantage of its lower fees.

A second-year tuition freeze in New Brunswick and a third-year tuition fee decrease (-4.5%) in Nova Scotia was also cited by the FEUQ  as evidence that tuition freezes or decreases may help bring university participation rates up.

In spite of its high tuition (ranked third at $5,495) and the fact that its students graduate with the largest amount of debt in Canada ($31,900 for an undergraduate degree), Nova Scotia’s enrolment increased by 3.7% this fall and the province has the second highest participation rate in the country. Though New Brunswick has the second highest tuition rate overall ($5,516), it also posted a 1.1% increase this year.

On the flipside, the tuition rate in Alberta ($5,318) is just above national average, but the province has the lowest post-secondary participation rate (combined college and university) in Canada with just 17% of Albertans in attendance. Though Alberta only posted a 1.5% tuition increase this year, Ontario – which holds the record for highest tuition ($6,307) and increase (5.4%) – still registered a record number of applications for 2010-2011 and consistently ranks highest in post-secondary attendance.

Why the disparity?

In an article for Maclean’s, writer Jacob Serebrin suggests that provincial economies and job market demands may actually impact participation rates more than the cost of tuition. He points out that Alberta’s low participation rates may be due to the fact that the oil industry is still going strong in that region, while the declines of the fishing and mining sectors in Atlantic and Maritime Canada and the manufacturing sector in Ontario – jobs which he says “existed just a generation ago and didn’t require a university education” – may be the cause for high university participation rates in those provinces.

He also singles out Quebec’s distinctive educational system as a probable cause for its low university participation rates. The mandatory two-year attendance of CEGEP or a private college before university means that Quebec has the highest college participation rate in the country at 60%. With CEGEPs offering three-year technical degrees at only a little over $100 per semester, more students may be opting to take one more year of CEGEP and receive certification in a skilled trade rather than spend more to attend university.

Wondering who to vote for in the upcoming federal election? Click here to check out our breakdown of the parties and their education and employment policies.

Photo Credit: Student Day of Action Toronto, Feb. 7 ’07 by Frandroid Atreides on Flickr
About the author

Jeleen Yu is a long-time TalentEgg contributor and former assistant editor. She graduated from Ateneo de Manila University (Philippines) in 2007 with a degree in business management. She was all set to start a career in the corporate world, but a sabbatical made her realize that her real passion lay in writing and the publishing industry. After serving as a writer and editor for the newsletter of a non-profit organization in the Philippines, she now resides in Vancouver and is currently working towards an editing certificate at Simon Fraser University.