Sunday, October 24, 2010

Rural communities being killed by studern loans program

Recently, my friend Jane was telling me about the high rate of interest on student loans. At prime+5, students repaying student loans are being shouldered with a government-set interest rate that is more than double the prime rate at which banks lend money to their best customers. She and I believe that is unconscionable! I also think it probably has very damaging consequences for rural economies like ours. This is not a new problem. It has been around for many years but it is slowly growing worse. (continued)

In university economics class many years ago, we would speak about the factors of production (land, labour and capital) and note that of the three, we students (labour) were the only factor of production which was expected to pay for its own development.

When I worked at the Employment Centre, I once asked a few unemployed university business graduates why they didn’t apply for the manager trainee positions that a number of the big box retail outlets (Sears, Woolco, Zellers) and finance companies were advertising. Starting salaries were minimal but within a few years, a college grad could do quite well as a store manager or assistant manager. The students replied that they would love to apply for those jobs but could not. At the low starting salaries offered to trainees, they would not be able to make their required student loan payments.

The government has a website where students can estimate the repayment on student loans over a usual period of 10 years or if they have it extended to 15 years. A student loan of $50,000 is not uncommon so I just went on the site to estimate the payments for that at prime+5. New graduates with such a loan are required to repay $572.61 a month for 10 years or if they choose to put their lives on hold for 15 years, they can cut the payments to $421.87 a month but they will repay an additional $8,126.88 in interest. Just think about the starting salary they must seek in order to make that bank payment off the top each month.

When I took economics, we recognized land, labour and capital as the three factors of production. In the years since, enterprise and knowledge have been recognized as a fourth and fifth factor.

When we educate our students, we expand their knowledge. However, saddling them with heavy debt obligations forces them off the farms, away from rural roots and into the cities or other parts of the country and world in search of high starting wages. It prevents their remaining in or returning to their rural areas where they could use their new knowledge to grow or expand local enterprise.

Putting a financial burden on students which forces them to put their ordinary lives on hold, to move away from their roots taking their expensive education and potential enterprise with them and drying up the pool of well-educated workers from which our present enterprise can draw is all combining to “shoot ourselves in the foot.”

Yes, students should pay something but a government set rate of prime+5 is five points too high. Government should not be seeking to make money off our new graduates who are trying to establish themselves. Student loan repayment should be at prime.

Banks make money at prime with their best customers. If for some reason there is a five-point shortfall on student loans then governments should be making up that difference through the non-personal income taxes of corporations and businesses – the other stakeholders which benefit from the knowledge of higher educated employees.The End - Return to main page


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