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Student debt, dismal job prospects threaten Canada’s economy

ŽIn this Friday, Feb. 8, 2013 photo, Xavier University student Triton Brown studies in a common area on campus before going to one of his part time jobs in New Orleans. Thousands of students unexpectedly either had to stay at home, transfer to a less expensive school or find new money when the U.S. Department of Education quietly changed how it evaluated the credit of parents applying for a federal PLUS loan. Brown, a Milwaukee native who is a freshman at Xavier University of Louisiana, said his family was counting on a PLUS loan, but his mother's application was rejected after he had been accepted the previous semester.

As Canadian post-secondary students get ready to hit the books again this fall, many will have a lot more on their minds beyond getting good grades and finding the best keg parties.

Students are drowning in debt and paying it off is becoming increasingly difficult as tuition rates rise and jobs for young people are increasingly scarce.

While it’s easy to dismiss the problem as a right of passage for post-secondary students, economists warn rising student debt loads have a wider impact on the overall Canadian economy.

“These people are part of the consumer nation of Canada, but if they are saddled with a lot of debt they aren’t going to contribute in a significant way,” says economist Patricia Croft, founder of Croft Consulting.

Students with too much debt, and who have trouble getting work after graduation, will delay buying homes and contributing to retirement savings, both of which are key to helping drive Canada’s economy. Statistics Canada says real estate and rental housing account for the largest segment of the Canadian economy, at just over 12 per cent. Personal consumption of goods and services accounted for 56 per cent of GDP in 2012.

“It’s [student debt] just one more factor that is going to delay the process of building that nest egg to ensure they have a decent standard of living in retirement,” says Croft. “Anything that stalls that process to me is a risk to the broader economy.”

Just how large is Canada’s student debt burden?

The average Canadian student graduates after four years in university with about $27,000 of debt, according to data from the Canadian Federation of Students (CFS). It also says the average student needs about 10 years to pay it off.

Canadian students currently owe more than $15 billion in outstanding federal student loans as of 2010, the CFS says, and that doesn’t include billions in private debt from bank loans or credit cards or that owed to provincial governments.

More than 171,000 Canadians were unable to make any payments on their Canada Student Loan last year, according to the CFS, citing data from the Canada Student Loans program. The federal government has also written off $543 million in unpaid student loans since 2011 and it is projected that another $173 million will be written off in the next fiscal year, according to government data.

A recent TD Canada Trust poll shows 30 per cent of post-graduate students accumulate more debt than expected and 40 per cent find it difficult to make minimum repayments on student loans in the first two years after graduating.

The TD survey, conducted by Environics Research Group, also shows 40 per cent of post grads put off buying their first home until student debts are repaid, while 36 per cent delay starting a family and another 23 per cent postpone marriage.

Job prospects scarce for Canada’s young people

High youth unemployment has also made it increasingly difficult for students to find summer jobs to help cover the costs of tuition fees.

A recent Statistics Canada report shows today’s students are in fact worse off than previous generations. It says the unemployment rate for youths between ages 15 to 24 was 14.3 per cent in 2012, which is more than double the rate of 6 per cent for workers age 25 to 54 and for those 55 years and older.

And it's getting worse for today’s young people. The gap between the youth and adult unemployment rates has been steady since 1990, and increased slightly since 2010, StatsCan says.

“Record-high levels of student debt and a post-secondary education system that is out of reach for an increasing number of Canadians will have far-reaching implications on Canada's economy and socio-economic equality,” says Jessica McCormick, national chairperson for CFS.

The CFS is calling on Ottawa to develop a national strategy to address what it calls “tuition fee disparities across the country” and rising student debt levels.

Today’s striking student debt figures should also be a lesson for parents with young children or those considering having kids. Tuition rates are climbing, and children born in 2013 could see tuition rates rise to more than $140,000 for a four-year degree, according to a recent BMO study.

It notes that average undergraduate tuition fees in Canada were $1,464 in the early 1990s, and have risen three-fold to about $5,581 today, well past the rate of inflation over the period.

Croft urges families to start saving now for their child’s post-secondary education, including taking advantage of the Registered Education Savings Plan (RESP), a tax-deferred investment.

The government also pitches in, offering education grants of up to $500 annually per potential student – to a lifetime limit of $7,200.

“One thing I do urge people, if you have a godchild, grandchild or niece or nephew and birthdays come along or gifts at birth, forgot about a stuffed toy or a piece of clothing, given them money to put in the RESP,” says Croft. “You can’t start too soon.”