Marita Zouravlioff
A Tale of Two Loans
On September 15, Osgoode Hall Law created quite the hullabaloo when it announced on its website that it would be launching an Income Contingent Loan Pilot Program in fall of 2015. This initiative hopes to see at least 5 JD students admitted to the school on an income contingent loan basis every year. These students will pay nothing in tuition while in school and will only have to repay their tuition loan once their income “affords them the ability to do so”. If their income never reaches this currently nebulous point, then the loan will be forgiven incrementally. The eligibility requirements are to be hammered out in the next couple of months but the program will start off with $1 million in initial funding.
Last year in UV, our own Brett Hughes and Padraigin Murphy advocated for U of T to adopt a similar program. At this point, though, U of T Law isn’t on the income contingent loan train, and now Osgoode has stolen our thunder. Instead, we have a little something called the Post Graduate Debt Relief Program (PGDRP) or ‘back end debt relief’ which comes from the same family of inventive loan repayment structures. According to our faculty, the PGDRP is meant to encourage students to choose a career path based on interest, not based on their crushing debt. That’s the idea anyway.
U of T law students who qualified for financial aid while in school may apply for a PGDRP loan (has such a nice ring to it, don’t it?) any time during the 10 years after they graduate. Once a post-grad is deemed eligible, the school will loan them money to help pay back their existing loans. For example, in 2013, if an eligible applicant was making under $56,327, they did not have to contribute anything to the repayment of their loans that year – the school would lend them money to cover the principal amount and interest. If an applicant’s income surpassed that amount, they were expected to use 30% of their excess income towards repayment and the school would spot them the rest.
A portion of the PGDRP loan is forgiven each year, starting with 10% in the first year. The forgiven portion increases by 10% every year. If your income stays low enough and you manage to stay in the program for 10 years, then you win and the entire loan is forgiven (yay?). Otherwise, you have to start paying the PGDRP money back to the school as soon as you are not eligible for the program anymore. For example, in year five, if you are no longer eligible for the PGDRP program, you will have to pay back 50% of your PGDRP loan, because 50% has been forgiven. And you will have to continue paying back your pre-existing student loans yourself.
As of 2013, the average number of years in the PGDRP was 2.5. So yeah, you probably aren’t going to win.
ICLPP v PGDRP (2014)
While they might be cousins, our back-end debt relief program is different than Osgoode’s ICLPP in a few significant ways. Firstly, applying for PGDRP happens after law school. When you start at U of T, you have to just cobble together the money somehow and hope you make the PGDRP cut-off. On the other hand, Osgoode’s program claims to look at both front end and back end circumstances by assessing financial status at the beginning of studies and requiring the loan to be repaid only when it’s feasible, making it a more united process.
Secondly, our dear old PGDRP funding is not available for all types of loans. According to the U of T website, “this loan typically covers the principal and interest repayment obligations on eligible law school academic debt”. The average total eligible debt load in 2013 was $36,723 and so the average PGDRP benefit was $3,850. I know what you’re thinking – $36,723 seems kind of low for three years of law school debt. What gives?
‘Eligible law school academic debt’ is essentially only government loans like OSAP, and any “interest-free loans” secured through the Faculty’s financial aid program. Now, by “interest-free loans” what the Faculty means to say is the portions of Scotiabank loans that the Faculty agreed to pay your interest on while you were in school (our Faculty is not, in fact, in the business of loaning money… though it could be a lucrative opportunity for them). Apart from those portions, Scotiabank loans through the Professional Line of Credit don’t count. Meanwhile, Osgoode’s ICLPP appears to apply to tuition in its entirety.
Everyone’s a critic
A lot of the reaction to Osgoode’s announcement was, frankly, exuberant. The possibility of a free law degree is certainly appealing. While it may be that Osgoode will see an increase in applications next year, their little brainchild has reopened a debate that has been raging since the ‘50s when Milton Friedman first introduced the idea of income contingent loans. The primary concern with these programs is two-fold: firstly, they are simply used in tandem with skyrocketing tuition fees, and are therefore not addressing the real issue – the cost of post-secondary education is getting too damn high. Secondly, their introduction will only intensify inequality amongst students and in the workplace.
In the ‘90s, both the federal government and the Council of Ontario Universities proposed the idea of a widespread ICLR scheme for university students. However, this plan was met with a barrage of criticism and never came to fruition. In particular, the Canadian Federation of Students (CFS) “mounted a massive campaign” against the plan. The CFS argues that the introduction of ICLRPs in other countries has resulted in increased tuition and higher debt loads. The Federation points to New Zealand, Australia and the United Kingdom as prime examples. These countries all introduced ICLRPs in the late ‘80s and early ‘90s and saw tuition and debt soar.
However, it should be noted that both the UK and New Zealand were introducing tuition fees for the first time. Ever. And in Australia’s case, it is always possible that tuition fees would have continued to climb regardless of whether the program was put in place. After all, that seems to be what happened to Ontario in the ‘90s. The ICLR schemes were rejected but tuition continued to climb exponentially. Dean Lorne Sossin of Osgoode made a similar point on his blog in defending income contingent loans. The ICL programs are in response to the rising tuition and debt, not their catalyst. He also argues that because these loans would be offered by the university, and not by the government, they would have no bearing on the government regulated tuition framework.
The second prominent concern is that the introduction of these programs exacerbates existing social inequalities. “Graduates with lower levels of income would repay their loans over a longer period of time, while those in high-paying jobs could repay their loans more quickly and accumulate less interest” in the words of CFS. But that is true even if income contingent loans are not offered. A graduate who is making less money will take longer to repay any sort of loan and therefore pay more interest.
The interest structure of Osgoode’s ICLR scheme wasn’t revealed in the press release and Dean Sossin indicated through email that student leadership will be involved in designing the undetermined features. A starting principle will be that the interest provision should be no less favourable than for the Canada Student Loan Program. As for when the interest meter would start ticking, Dean Sossin pointed out that:
“Given that income contingent loans are distinct in that the debt at issue is to the University (not to a third party lender), this suggests interest should accrue only upon graduation, but on the other hand we need to be mindful of equity concerns… so if some non-participating students are charged interest by the University for late payments of tuition, can or should participants in the income contingent loan program be distinguished from this group?”
This sort of careful thought is understandable, considering that the interest structure will make a dramatic difference to students who eventually pass the threshold of being able to “afford their tuition”.
Pay-it-forward: no, not the movie
Some American states have recently sought support for a “pay-it-forward” tuition plan that would have students attend college for ‘free’. Once they graduate, these students would have to pay a percentage of their income back to the school for a fixed amount of years. This money would then fund future students’ tuition. Earlier this year, Michigan formally submitted a proposal to its legislature that would see university students pay 4% of their income, whatever it is, for five years to the tuition fund for every year of education. So for a four year degree, the student would pay for 20 years. Using a fixed percentage means that students do not have to worry about fluctuating interest rates. A drawback is that students who are aiming to make tons of money will probably not want to participate at risk of paying back their tuition a hundred fold. So while this might be an interesting idea, it might be hard to get the Bay Street-bound on board…
Tomato/Tomato?
The reality is that for the majority of Canadian law students, loan repayment is going to continue to be a headache unless tuition fees start to decline. The current price tag is brutal no matter the payment plan. And while we concentrate on ever more creative ways to manage our debt, the numbers inch ever higher.
