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Today we have a guest post from Drew Cloud, the founder, columnist, and editor at The Student Loan Report. On his blog, he discusses all things related to student loans in the United States. In this post, he will give you an overview of the difference between U.S. and Canadian student loans.
Student debt is growing in Canada, but the United States is in a lot worse shape. For both countries, the cost of post-secondary education is making obtaining a college degree more inaccessible for some students. It’s becoming a hard situation for high school graduates that go to college and those that don’t. Those that don’t tend to enter into blue collar jobs. The issue with these jobs is that the wages haven’t raised much over the past 30 years, but the cost of living and the cost of benefits have raised. The wages offered by some industries are barely livable if they are livable at all. The alternative is going to college and obtaining tens of thousands of dollars in debt, which is contributing to the amount of debt in both countries. The Survey of Financial Security conducted by StatsCan showed in 2014 that student debt had grown over 44 percent between 1999 and 2012.
How Student Debt in Canada Differs from the United States
When a graduate has an exorbitant amount of college debt, it can be difficult to obtain loans for cars and homes until the debt is paid down or paid off. This means it is taking longer for some students to begin their lives after they start their careers. In fact, a TD Bank study found that the cost of education is causing students to delay major life milestones.
Related: Student Loan Myths
Canada’s Rise in Student Debt
StatsCan also stated in the Survey of Financial Security that 1 in 8 families in Canada has student debt. The median debt owed is $12,480, according to the Canada Student Loans Program. That came out to approximately $30 billion in outstanding student loans. However, a student in Ontario graduating with a four-year degree has an average of $22,000 in student debt.
Related: My Student Loan Debt
Students in Canada are seeing their debt grow faster than their income. This could worsen the student debt issue, as the Canadian Centre for Policy Alternatives reported that college tuition and other college expenses have tripled in cost since 1990. Tuition costs seem to rise a little every year. How much they raise depends on the province. Tuition hikes have been so high in Quebec that the students protested in the spring of 2012. Although Quebec’s tuition is lower than most provinces, the increases had tripled in a 20-year period.
The Issue of U.S. College Debt
The issue with student debt in the United States is messier than that of Canada. The interest rates in the United States can be much higher; in fact, fixed rates on can be as high as 12 percent. In Canada, they are the prime rate plus 5 percent. Adding to the situation, Americans are dealing with a similar trend in tuition costs, forcing them to rely on education loans. The disparity is obvious when looking at the stats.
The White House has said that almost 70% of college graduates receiving a four-year degree leave school with student debt. Canada’s outstanding student debt is around $30 billion. Outstanding student debt in the United States totals $1.4 trillion. Big purchases, like homes and cars, contribute to economic growth, but student loan debt increases debt-to-income ratios to levels that banks will not accept when making decisions on loan applications.
Usually, when the debt-to-income ratio is high, students simply don’t have the money to pay for these large purchases anyway. The only choice they have is to pay down their student loans as fast as possible to increase their disposable income.
The Student Loan Crisis
This student loan crisis has become so out of control that it captured the attention of the presidential candidates during the last election cycle. Each stated a goal of finding ways to make post-secondary education more affordable. Until then, there are 40 million Americans looking for ways to manage the leftover costs of the educations they pursued to better their lives.
While younger borrowers are certainly affected, older borrowers are paying also suffering the consequences, as well. In 2013, approximately 36,000 Americans lost a percentage of their Social Security checks because of unpaid federal student loans.
As of now, one solution for student loan borrowers is to begin paying back loans while still in college and taking advantage of any other financial assistance opportunities. Reducing the debt while in school can shorten the time it takes to repay loans after graduation. This allows students to reach their major milestones sooner than they would otherwise. Another option is to consolidate multiple loans. It’s also possible to refinance loans. In other words, until tuition costs are controlled, the burden of minimizing the effects of the debt falls on students.
Drew Cloud is the founder of The Student Loan Report, an authoritative (or on the way to being one) news outlet for the student loan industry. He spends his free time managing the site in the hopes that he can better educate the public on important student loan developments.