Student loans cripple post-grads' assets: study

Student loan borrowers trail debt-free grads in ownership and investments, according to a new survey from Statistics Canada.

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A Statistics Canada report released Friday shows post-secondary graduates who borrowed student loans are less likely to have investments, savings or own their homes despite being on par with non-borrowers in employment rates and personal income.

Researchers for the study examined the financial situations of student loan borrowers between the ages of 20 and 45 who no longer attend school. They found borrowers from the class of 2005 had an average net worth of $17,500 in 2007 compared to $61,900 for their counterparts who graduated debt-free. Their assets, which included vehicles, homes, savings accounts and retirement plans stood at $60,700 and $106,300 respectively.

Jessica Roach graduated from Dalhousie University with a BSc in microbiology in 2009 and is in repayment mode for her $40,000 debt. She travels between two jobs: as a consultant with DDx Health Services and as a blood technician with Canadian Blood Services, where she has a pension. It's her only asset after the 10-year-old car she drives. She and her boyfriend are tucking away what they can for a down payment on a house.

"With both of us saving, we are about $500 short of $5,000 right now," she said. "This is for a $100,000 home, though we're looking at buying an income property to reduce our mortgage."

Between her bi-weekly payments to the National Student Loan Service Centre and additional expenses, she says building a nest egg isn't easy. It's come down to sacrificing independence for cost-saving with Roach choosing to live for free at home.

"It's hard to go back to living at home after being on my own but I really don't want to waste my money on rent."

Kaley Kennedy, chairperson for the Nova Scotia chapter of the Canadian Federation of Students, isn't surprised grads aren't gathering assets given the amount they now have to borrow.

"Those kinds of investments are less likely to be made by students who are graduating with $30,000 of debt, which is a reality for students in Nova Scotia," said Kennedy. "That's the result of having the highest tuition in the country and inadequate student aid."

Proactivity not the solution

The study also indicates the rate of students graduating with a total debt of more than $50,000 had tripled from two per cent to six per cent between 1995 and 2005. Tuition fees in that time increased by an average of $6,600.

While the Nova Scotia government has instated a three-year tuition freeze and increased needs-based bursaries, it doesn't help the students who are already in debt, says Kennedy.

"We're very concerned with stopping student debt at its root but we also understand there needs to be programs in place that help post-graduate students reduce their debt."

Although Nova Scotia offers a debt reduction plan, the student group is advocating for automatic reduction, meaning the province would provide interest relief and forgiveness programs without the current application procedures.

"[Presently] it's a complicated process most students don't know anything about," said Kennedy. "The government already has all of your information about how much you make, what your income is and what your assets are. Debt reduction should be automatic."

She points to Newfoundland's interest elimination program as an example of what Nova Scotia graduates should be asking of their government. The program pays the interest on the provincial portion of Canada Student Loans, a move she says is helpful for students and smart for the province's economy.

"When you're looking at a student loan payment of sometimes $900 a month you're not going to be thinking about [investments]: starting a small business or going into a lower-paying job in a field that needs more personnel like rural medicine," said Kennedy, "because the only thing you can think about is paying off your student loan. As a result they're going to contribute less."

Education still pays off

The light at the end of the tunnel may be in what the survey finds is the labour market return for post-secondary-educated borrowers. Graduates, regardless of their financial situation when they left school, tend to earn approximately the same amount after loans are repaid. Moreover, it's the borrowers who are more likely to contribute to a registered pension plan at their places of employment with 36 per cent versus 21 per cent for the non-borrowers.

Roach attributes the trend to the skills loan recipients hone during their time in school.

"I think the most valuable things I learned in university were financial and stress management," she said, tongue-in-cheek. "They're coming in handy now."

 

Comments

Presently is used incorrectly in this piece - it means "In the near future" not "right now".

Posted by grammar nerd | Feb 3, 2022 7:21 AM AT

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