The federal government will implement a new policy that eliminates the requirement of credit checks for borrowers of Canada Student Loans starting on August 1..“In reality, it only creates a barrier for first-time student financial assistance applicants aged 22 and older who have to pass the credit screening or deal with the administrative burden associated with submitting appeals,” the department of Employment loan managers wrote in a Regulatory Impact Analysis Statement. .According to estimates, approximately 80,000 students annually have been subjected to credit checks under a program that started in 1999..“Less than 1% of those screened are initially rejected for student financial assistance due to poor credit,” wrote staff. .“And 85% of those who appeal are ultimately approved.”.Only students 22 and older were targeted for credit checks “because they were more likely to have been out of the education system for significant lengths of time and to have previously accessed credit than younger applicants,” wrote staff. .According to Blacklock’s Reporter, the department did not estimate the cost to taxpayers of eliminating credit checks..The Canada Student Financial Assistance Regulations change follows a 34% increase in loan write-offs last year. In a Feb. 23 report, the Parliamentary Budget Office Supplementary Estimates (C) counted $227.5 million in defaults of student borrowers compared to $170.4 million the previous year..On Thursday, the Department of Employment said that the default rate remains relatively low, averaging around 7%..However, there is growing concern regarding the increasing costs associated with student loans..“Higher prices for food, housing and other necessities make it challenging for many students to afford postsecondary education and manage financially,” said the Analysis Statement. .“Difficulties affording postsecondary education can be expected to have long-term impacts for all Canadians.”.Repeal of credit checks also follows the April 1 elimination of interest charges on Canada Student Loans Act borrowers..The Liberal Party, in its 2021 election platform Forward For Everyone, said the interest waiver would cost taxpayers $538 million a year. Loan managers put the cost at more than $556 million a year..“Right now, the investment is $2.7 billion over five years, but then there is an ongoing cost as well of $556.3 million per year,” Erin Hetherington, director of the loan program with the Department of Employment, testified last Nov. 22 at the Senate National Finance committee. .Hetherington said the “purpose behind this measure is to provide relief for borrowers who are experiencing long-term affordability pressures.”.By an official estimate, federal student loan debts average $14,000.
