STANDING COMMITTEE ON HUMAN RESOURCES DEVELOPMENT AND THE STATUS OF PERSONS WITH DISABILITIES

COMITÉ PERMANENT DU DÉVELOPPEMENT DES RESSOURCES HUMAINES ET DE LA CONDITION DES PERSONNES HANDICAPÉES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, October 30, 2001

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[English]

The Chair (Mrs. Judi Longfield (Whitby—Ajax, Lib.)): Good morning, ladies and gentlemen.

I would call this 36th meeting of the Standing Committee on Human Resources Development and the Status of Persons with Disabilities to order.

Today we are here to discuss the delivery of the Canada student loans program. We have a number of guests with us.

We'll hear you in the same order that you are on the agenda. Try to confine your remarks to between five and six minutes, and at the end of all the presentations we'll open for general questions.

Our first witnesses are from the Department of Human Resources Development. We have David Cogliati and Dale Barbour.

David.

[Translation]

Mr. David Cogliati (Director General, Canada Student Loans Directorate, Department of Human Resources Development Canada): Bonjour. Good morning. Thank you, Madam Chair.

First, I would like to thank you for this opportunity to provide an update on how the directly financed Canada Student Loans Program is working.

Since the department's last update on the administration of the Program in April, we have successfully completed our first peak disbursement period. I am pleased to be able to say that, in conjunction with our service providers, the Program has met the challenge of processing and disbursing thousands of loans a day over the month of September.

[English]

Overall, the directly financed student loans program is working well, but, as with any major change, it has not been without some challenges and some difficulties that we have had to deal with.

Together with our service providers, provincial and territorial governments, and our stakeholders, we're taking the necessary steps to apply our lessons learned from the month of September and to put whatever corrective action that needs to be taken into place.

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Today I would like to share our experiences with the first major test of the directly financed student loans program. I would also like to highlight a couple of other changes that we are working on as we work our way toward service excellence.

The shift to direct financing of the Canada student loans program occurred on August 1, 2000, a little more than a year ago now. As outlined in our previous appearance in April, the implementation occurred in two phases: a bridging phase between August 2000 and February 2001, and then a longer-term transition phase that included the selection and the establishment of our service providers.

[Translation]

Our two service providers, EDULINX and BDP Business Data Services Ltd., have been operational since March 1, 2001, at which time they assumed the responsibility for the management and administration of the direct loan portfolio. By having the service providers start in March, one of our lowest volume months, it allowed us to gain the necessary experience to face our peak period in September.

[English]

To give you a sense of some of the dimensions of the program, since August 1 of this year over 253,000 student loans have been disbursed, with a total value of slightly over $1 billion. At no point did our systems fail, and the vast majority of student loans were processed without incident or complaint.

We couldn't obtain such a success if it were not for the partnerships with our provincial and territorial counterparts and with other stakeholder interest groups who have been a tremendous help to us.

However, we recognized and certainly acknowledged that there had been some client issues around the payment process. One of the foremost was the length of time it took to get the money into the hands of students.

It has been our service commitment with the Canada student loans program to disburse the funds within one week of the “do not disburse before” date, indicated on the student loan documents. We did experience some interruption in service, unfortunately, as a result of the tragic events around September 11.

We rely on air services to move both the applications, and interestingly enough, even in the era of electronic deposit, to actually move the payments out as well. We rely on tapes, and those tapes need to be transported by air.

So during the period between September 11 and September 17 we did experience some disruptions in service. Despite the unfortunate events that did occur, 90% of the loans were put through the system within our standard service delivery of one week. While the events of September 11 explained some of the problems we encountered, unfortunately, there were some others that had to do, quite simply, with communications. There was considerable confusion with our client groups.

The “do not disburse before” date coincides with a student's study start date, ensuring that the loans are not issued to anyone who has withdrawn prior to the commencement of studies. The one-week timeframe we refer to as our service standard begins from the “do not disburse before” date. However, many students weren't aware of this date and assumed the one-week period actually commenced as soon as they dropped off their forms. So we had to deal with some confusion.

In order to address this issue, we have worked hard to develop clear and accurate messages about the process, while ensuring that those clarifications are reaching students. We met with key stakeholder groups to explain the process. They could, in turn, inform their memberships. And we will continue to work closely with these groups to ensure that a situation like this does not reoccur.

We have also made sure that the scripts used by the service providers are clear and consistent with respect to the one-week timeframe, including when the timeframe begins. We also recognize that to rectify the confusion around the disbursement date does not address the key issue of how long it actually takes to put the funds into play.

I'm quite happy to report that we are changing that, and we are changing our process so that we will better align the disbursement date and the payment date. We're going to start the processing before the “do not disburse before” date.

We have adopted a lot of the processes the banks use, and no blame to the banks, don't read that into it, we are changing our process to better align the payment and the due date.

This change should significantly reduce the disbursement timeframe from a student's perspective, while allowing the Canada student loans program to prevent the disbursement of funds when notified of a withdrawal. This improvement will be in place for our second peak period, which is in January 2002. Again, this is simply the application of a lesson learned from September.

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Another area that came to light in the lesson learned was the issue of training. In some cases we had some training issues with the Canada Post outlets and our on-campus kiosks. Both service providers had contracted with Canada Post to act as a national service agent, assuming the front-line verification and authentication role similar to that performed by the bank branches previously.

In addition, the service provider for public education institutes provided on-site kiosks at universities during the month of September to handle the peak disbursement.

We're aware that at some Canada Post outlets, particularly those with high volumes of traffic, students received a very high level of service from well-informed staff. However, we also know that at some outlets there was some confusion amongst the staff as to their duties. In the cases that were brought to our attention, the service providers ensured very quickly that the problem was rectified through additional training.

We'll continue to work with our service providers to make sure that employees at Canada Post outlets who handle Canada student loans receive the appropriate level of training.

With respect to the on-campus kiosks, some students expressed a level of frustration with the lack of knowledge of the representatives who were at the kiosks. In our case, the kiosks were intended to be on campus to supplement the work of Canada Post. The representatives were hired to authenticate and verify student loan documents, but unfortunately were not trained to answer some detailed program questions. They were asked to supply a 1-800 number where people with better training would be able to answer.

Some of the upcoming changes I'd like to talk about aren't specific to the disbursement period, but I think they're quite enhancing for the program. The first is integration. We've signed integration agreements now with two of our provincial colleagues, Saskatchewan and Ontario. As we work through those integration agreements, students in these provinces will see a simplicity of the loan, better service, and reduced administration.

I think these agreements accurately reflect our commitment to the principle of one student, one loan, and we will continue to pursue these discussions with other interested provinces.

Our first large wave of loan consolidation occurs in the month of November. We've been working quite hard with the service providers to prepare for this next spike in our business. Simplifying the administration of debt relief measures, in particular the Interest Relief Program, has been our first priority.

We've revised our application process so that all students with a direct loan, regardless of whether or not they have previous risk-shared or guaranteed loans, will only have to apply to the service providers for interest relief. Our service providers will liaise with the banks to coordinate information and determine the student's eligibility for interest relief.

In concluding my remarks today, I'd like to thank the members of the standing committee for the opportunity to provide a further update on how the directly financed Student Loans Program is working.

Since March 1, when we moved into this area of direct loans, we've disbursed 323,000 student loans, with a value of approximately $1.2 billion. While we recognize that there's always a need for ongoing improvements to the program, we have received positive feedback from our stakeholders that, in general, things have worked reasonably well. In conjunction with our partners, we'll continue to look at ways to enhance our service delivery and our communications.

Of course, we'd be pleased to answer any questions. Merci, Madame.

The Chair: Ms. Barbour, do you have anything to add at this point?

Ms. Dale Barbour (Director, Program Management, Canada Student Loans Directorate, Department of Human Resources Development): No, I don't, Madam Chair.

The Chair: We will now hear from BDP Business Data Service Ltd., David Frankham and John Thurston.

Mr. David Frankham (Vice-President, Business Development, BDP Business Data Service Ltd.): Good morning. I'm pleased to introduce my associate, John Thurston, director of implementation at BDP.

I would like to thank the chair and the members of the standing committee for this opportunity to provide an update on how the directly financed Canada Student Loans Program is working from a private educational institution's perspective.

At the outset, I would like to state that we have developed a very constructive and cohesive working relationship with the Canada student loans program at HRDC. The schools, the students, and the private educational associations have significantly contributed to a successful September peak disbursement period.

During the September disbursement period, we processed 15,691 loans with a total value of $55.8 million. Less than 10% of all loans received involved an exception or error that may have caused a slight delay in students receiving their funds. However, 98% of the September disbursements that did not contain an error were received by the private educational institution students within the seven-day commitment standard Dave just spoke about.

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Concerning staffing levels, we tripled our servicing staff to handle the additional volume brought about by the September peak, which allowed us to add an extra shift in the evening. We are pleased to say that the actual volume of loans processed was within 7% of our projected volumes, thereby demonstrating our staffing levels were correct for the volumes experienced.

Regarding training, a significant number of additional disbursement servicing staff were redeployed from other student loan operations and consequently were fully trained and experienced going into September. All new hires received two weeks of hands-on training and subsequently had certification by the end of August. As this was Canada Post's first peak disbursement period, we worked very closely and in a timely manner with the Canada student loans program staff at HRDC as well as with the public educational institutions service provider to quickly remedy situations at the odd postal outlet where staff required additional training.

From a performance perspective as the private educational institution service provider, we know our clients are generally not represented by organized student associations. Consequently, we very much rely on feedback on our performance from a variety of stakeholders, including the Canada student loans program, the National Association of Career Colleges, the schools, MPs, students, and of course this standing committee.

Finally, going forward in conjunction with the Canada student loans program team at HRDC, we will be developing the necessary system changes to shorten the existing seven-day turnaround of funds for students in time for the January disbursement peak. As well, we will be working with Canada Post to significantly and continuously improve the level of service and to strengthen the verification procedures to reduce the number of loans that require exception processing, thereby further reducing the time students have to wait for their funds.

In conclusion, I'd like to thank members of the standing committee for this opportunity to provide an update on the September peak disbursement results relating to private educational institutions, and we will of course be pleased to answer any questions you may have.

Thank you.

The Chair: We'll next hear from the EDULINX Canada Corporation. We have Sandra Ferguson and Douglas Gilhooly. Thank you.

Sandra.

Ms. Sandra Ferguson (Vice-President, Client Relations, EDULINX Canada Corporation): Thank you very much, Madam Chair.

I am Sandra Ferguson of EDULINX, and I bring with me Douglas Gilhooly. We're delighted to be here today and to have the opportunity to address the committee on the progress that has been made to date.

EDULINX is the leading student loan service provider in Canada and currently administers over one million student loans across the country. Based in Mississauga, we employ over six hundred student loan specialists, with regional representatives across the country.

Since March 1 we've been under contract to the Government of Canada to operate the National Student Loans Service Centre's Public Institution Division. So what does this mean? This means that out of every 10 students receiving Canada student loans, we provide service to eight of them. We have a bilingual customer contact centre, which is open 8 a.m. to 8 p.m., borrower's local time. In addition to that we have a 24-hour interactive voice response system, commonly known as IVR. We have a document-receiving network that includes, as Dave has suggested, on-site campus kiosks during peak periods. In the September peak period we are on campus at 112 campuses across the country. We participate with over 500 designated Canada Post outlets.

We've also created a best-in-class default prevention centre, whose job it is to provide students with assistance in the event they experience financial difficulties during the process. Their job is to educate student borrowers, provide tools and guidance, and establish and maintain good repayment behaviour.

Those of you who are familiar with the student loan process will recognize that this past September represents the most significant disbursement cycle since the launch of the public division in March.

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Let's review the September activity and the EDULINX support.

To prepare for the period, we hired 500 people beyond our existing staff. We authorized over 170,000 disbursements, for $720 million—which is actually 55% of the annual disbursement volume in a three-week period in September. Nearly half of those certificates were processed through our on-campus representatives and the remainder through other sources, such as Canada Post's direct mail.

During this period we handled over 110,000 calls, answering them within 17 seconds on average. While we believe September was a success, we recognize there are opportunities for improvement. Let's review the areas we're going to focus on for improvement for the coming January peak period.

We will be enhancing both our training and our communication with the front-line staff. We are going to continue to assess the best distribution channels through which to receive the student loan documents. During this past September, approximately 10% of the students completed their documents either incompletely or incorrectly. We call these exceptions. We're working closely with the program representatives to analyze these problems and clarify how we can either avoid them or respond to them more quickly.

This is a complex program for unsophisticated borrowers that demands a comprehensive, coordinated, and consistent approach to communication. We will be working closely with program officials to reinforce this approach. In fact, to ensure the integrity of the program, monitoring and measuring our progress is of vital importance.

To do this, we maintained weekly meetings internally and with program officials to review our performance against standards. We appointed a general manager for service-issue resolution to work with program officials, stakeholder associations, and members of Parliament to resolve service issues impacting students as they're in progress. We will be launching a service advisory council later this fall to obtain regular stakeholder input.

In summary, we're confident we're providing effective student loan services and that we are on course to enhance services through collaboration with all of the stakeholders.

In closing, I'd like to reiterate the enthusiasm and the commitment of EDULINX in supporting one of Canada's key education initiatives.

Thank you, Madam Chair, members of the committee, and other association representatives here today.

The Chair: Thank you.

I would next call on the Canadian Alliance of Student Associations. It's represented by Robert South, the government relations coordinator.

Mr. Robert South (Government Relations Coordinator, Canadian Alliance of Student Associations): Good morning, Madam Chair and members of the committee.

On behalf of the Canadian Alliance of Student Associations—or CASA—and the over 310,000 students we represent, I'd like to thank you for the opportunity to present here today.

The Canada student loans program is obviously very important to a great number of students CASA represents, for without it many of these students would not be able to attend school. Working in conjunction with the policies and procedures of different provincial student loans programs makes the process of getting a Canada student loan complicated at the best of times, and the situation faced by the program this fall was certainly a challenging one.

The transition from risk-shared loans partnered with various banks to loans that are directly financed by the federal government and administered through service providers was surely no simple task. Fortunately, in the eyes of CASA, the Canada student loans program rose well to this challenge. Through good communications, solid service, and quick responsiveness to problems, the program avoided much of the potential confusion a new system creates.

This is not to say that everything was perfect; there were problems. I will give two specific examples of problems of particular concern to CASA members.

In Kelowna, B.C., near the University College of the Okanagan, there was poor training of employees at the Canada Post outlet that led to a failure to accept as valid identification the social insurance cards of married women when these cards bore the woman's maiden name. This situation was very frustrating to these women, who needed Canada Post to validate their ID so their loans could be properly processed.

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Further, at the University of Alberta—and this is a problem Mr. Cogliati mentioned in his speech—the staff provided to help students with the processing of their documentation were undertrained and unable to answer questions students had regarding the program. This resulted in a lot of student frustration during this part of the process. However, these instances were the exception rather than the rule when examining the quality of service provided to students.

One very positive note was the ease with which new students accessed student loans in Saskatchewan and Ontario. Integration agreements reached between the federal government and these two provinces made the loan application and disbursement process much simpler for the students. The challenge was obviously a little less easy for those students used to different systems, but all students are growing accustomed to the new system and are pleased with its simplicity.

Overall, our review of the latest disbursements of Canada student loans is quite positive. There were a few problems, but the program showed a good commitment to try to resolve these problems. The program can do better, and CASA expects it to do so. Much credit is deserved for a very good first run under challenging circumstances.

Thank you very much for your time.

The Chair: Thank you, Robert.

I next would ask, from the Canadian Association of Student Financial Aid Administrators, Jennifer Orum.

Ms. Jennifer Orum (Past President, Canadian Association of Student Financial Aid Administrators): Madam Chair and members of the committee, my name is Jennifer Orum, and I am past president of the Canadian Association of Student Financial Aid Administrators and the coordinator of financial aid and awards at the British Columbia Institute of Technology.

CASFAA represents financial aid administrators at universities, colleges, and technical institutions across Canada. Our members oversee the administration of both needs-based and merit-based financial aid and awards programs at public and private post-secondary institutions. We have direct experience dealing with students, with both provincial and federal government departments delivering student aid programs, with financial institutions that have been involved for many years in the guaranteed and risk-shared government loan programs, and, more recently, with the National Student Loans Service Centres.

The implementation of the new direct loan CSL program has been a very challenging task for all parties. Given the complexity of the federal student loan process, we expected there would be problems, and indeed there have been. With the cooperation we have received from the Canada student loans program staff and from the two National Student Loans Service Centre contractors, EDULINX and BDP, we are optimistic that the challenges that have not as yet been met will be in the near future.

Many of the problems still being faced are very significantly impacting students and post-secondary institutions and must be solved if the federal government student loan program is to be successful. I have made a written submission that has details of our concerns and our recommendations. Today, orally, I will only present on a few limited items.

We hope CASFAA will continue to be consulted on an ongoing basis regarding ways to address problems and ensure the CSL program meets the government objective to make post-secondary education accessible to citizens in all areas of the country and from all socio-economic backgrounds.

I'm choosing to address five issues.

The most significant problem faced by students and post-secondary institutions has been the significant delays in students receiving Canada student loans funds in this initial year. I'm going to indicate several recommendations we have.

Number one, the disbursement date on student loan documents needs to be understood by the Canada student loans program and the service providers to mean the point at which funds are received into the students' accounts.

Second, the Canada Post received date—not the date a loan document is received by the National Student Loans Service Centres—must be used in determining which documents are stale-dated and therefore invalid.

Third, legislative, regulatory, or process changes that will allow the National Student Loans Service Centres to issue funds directly must be put in place, not requiring routing through the Canada student loans program and Public Works and Government Services Canada. We understand there is legislation through the Financial Services Act, and specifically section 33. It is evidently preventing an efficient way of addressing this problem.

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Fourth, secure data communication links must be set up such that funds can be sent electronically to students' accounts in banks and credit unions.

The second area of concern is the process complexity. To address this, I will make two recommendations.

First, one-stop processes need to be developed and implemented by the Canada student loans program and National Student Loans Service Centre providers to allow a student to complete one interest continuation document and one application for interest relief. It will be applied to all the students' federal and provincial student loans, direct, risk-shared, and guaranteed.

Secondly, a feasibility study needs to be initiated, related to the establishment of a government student loan data warehouse, to centrally maintain comprehensive information on individual government student loan borrowers, and to include data during study and repayment.

The third area is communication among the post-secondary financial aid offices, the Canada student loans program, and the National Student Loans Service Centre. There are two recommendations.

First, protocol should be developed so staff from the Canada student loans program, the National Student Loans Service Centre, and the post-secondary financial aid offices can discuss student cases in an effective, confidential manner.

Secondly, a comprehensive listing of all contacts, Canada student loans program, National Student Loans Service Centre, previous risk-shared lenders, as well as provincial government contacts, should be developed for use by post-secondary financial aid office staff.

Third is Canada Post. As a result of not insignificant problems with quality control and training, we recommend a review be made of all training processes and quality control measures, and more comprehensive training and monitoring be developed.

Finally is the issue of Canada student loans documents being accepted on campuses. Our recommendations are as follows.

As of January 2002, the National Student Loans Service Centre should be allowed to make arrangements with post-secondary institutions interested in having the Canada student loans program documents received by the financial aid office for forwarding to the National Student Loans Service Centres.

Secondly, the National Student Loans Service Centre should consult with CASFAA, our organization, to ensure training and training materials for both service centre and kiosk personnel are appropriate.

Thirdly, and finally, on-campus kiosk staff should report to campuses one working day prior to the date when Canada student loans documents are to be accepted to ensure adequate time for kiosk set-up and orientation by the financial aid office personnel.

I want to thank you, Madam Chair, as well as the members of the committee and my colleagues, in the delivery of this very complex program. I'm certainly prepared to answer any questions later. Thank you.

The Chair: Thank you, Ms. Orum.

Our final presentation today is on behalf of the Canadian Federation of Students. We have Jennifer Anthony with us.

Welcome, Jennifer.

Ms. Jennifer Anthony (National Deputy Chairperson, Canadian Federation of Students): Good morning.

On behalf of its 425,000 members, the Canadian Federation of Students would like to thank the standing committee for the opportunity to present here today.

My comments today will be directed at the current process for disbursement of the Canada student loans with the service provider, EDULINX Canada Corporation. However, as the Canadian Federation of Students clearly stated following the welcome retreat of the banks from the program, we believe student financial assistance is a core social program best administered publicly in order to maximize accountability and transparency.

The transition to the direct finance model is a positive step but should not be seen as the final one on the path to the best possible aid program. This fall's disbursement arrangements between HRDC, Canada Post, and EDULINX have produced mixed results.

Notwithstanding the delay in air freight delivery, students with financial need witnessed a general decline in the service standards, measured by the amount of time required for processing loans to the deposit phase. Students were waiting between four and seven business days for the loans to be deposited into the accounts. In some unusual cases, students waited for ten to fourteen days to receive the financial assistance.

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Our frustration was compounded by the poor communication between the CSLP department and members of the National Advisory Group on Student Financial Assistance. It ultimately led to wildly differing expectations about processing time. If we were aware the average processing time was going to be as long as it was, we could have, and would have, communicated this to our members. Extended waiting periods resulted in students at some institutions losing their priority on course waiting lists and ultimately being de-enrolled.

The Canadian Federation of Students has already discussed this on several occasions with representatives of the Canada student loans program. We were encouraged by the responsiveness of new leadership in the Canada student loans department in seeking solutions to the problems we have encountered. The federation is committed to continuing this dialogue about improvements to the direct lending model while at the same time maintaining the security and integrity of the program.

One of the ways to ensure faster turnaround time is to eliminate the requirement for the service provider to hold onto the approved applications until the disbursement date. The disbursement date is the day selected by the CSLP to ensure applicants have enrolled in school. Students cannot get loans released before this confirmation.

Currently, in the first of four steps in the processing of the loan, the service provider holds onto applications until the disbursement date. Under this scenario, when the disbursement day passes, the application must proceed through three more steps before money is deposited into students' accounts. By shifting the hold responsibility to the final step at Public Works, students' money can be deposited immediately when the disbursement date expires, allowing students to meet institutional deadlines. We encourage the standing committee to approve this change.

Looking forward, we hope when students under the direct finance model begin to consolidate up to three loans, in addition to the fact that some of the loans will be provincial and national, the Canada student loans program will deliver on its promise to exercise a degree of flexibility when assessing penalties for default.

Thank you very much for the invitation to speak today. I look forward to your questions.

The Chair: Thank you.

One of the things I always enjoy when I have a variety of people here is you seem to be taking notes when other people are speaking. I think part of the good thing that comes from this is being able to hear each other's concern face to face.

Now we get to the round where the members of Parliament get to pose the questions. I'm going to ask members on the committee to remember that we have five-minute rounds. If you use the five minutes in expressing your own views, then we don't have an opportunity for our witnesses to respond.

Keeping that in mind, we'll start the five-minute round with Mr. Johnston.

Mr. Dale Johnston (Wetaskiwin, Canadian Alliance): Thank you, Madam Chairman, and welcome to the presenters.

I noticed Mr. Cogliati said the interest relief program has been a priority. I'm interested to know, at a time when interest rates are at a 40-year low, are the students with existing loans getting any benefit from low interest rates at the moment?

Mr. David Cogliati: The simple answer is yes. Anyone who has a loan in good standing can apply for and receive interest relief, if their outside income falls within certain thresholds.

Mr. Dale Johnston: Only if their income falls within certain thresholds? Would they be in a position where they could refinance their loan? If they're paying 7%, 8%, or 9% on a loan, could they go to the bank and get a loan to pay it off?

Mr. David Cogliati: It would be up to the bank to renegotiate an existing loan after a consolidation, to be perfectly honest with you. We haven't done any consolidations of direct loans yet.

Mr. Dale Johnston: I think this is something we certainly should be looking at, with a downturn in the economy. When the central bank rate has fallen to literally the lowest rate since 1961, there should be some interest relief passed on to the students who are diligently trying to make payments.

Mr. David Cogliati: Could I make one very brief comment?

We do offer two different models. One is a fixed rate and the other is a floating rate. The vast majority pick the fixed rate because it's prime plus 2.5%. The floating rate is prime plus 5%. So the vast majority are in the fixed-rate situation.

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Mr. Dale Johnston: The other thing I'm wondering about is that although this is early going, my understanding from your presentation is that the contracts with EDULINX and BDP will expire in 2004, but they could be extended for two years, so that's 2006. Is that correct?

Mr. David Cogliati: That's correct. Contracts are for three years, plus two option years, if we desire to exercise those options.

Mr. Dale Johnston: Okay. So then there is a possibility that in 2004 you'd be looking at re-tendering. That's not a given but a possibility.

Mr. David Cogliati: Yes, very much so.

Mr. Dale Johnston: By what standards are you assessing the delivery facility, the delivery of the program? Is it an ongoing assessment by the department, and is there a possibility that there will be a tendering process started? It seems to have taken several months, almost a year, if I'm reading this correctly, to get the tendering process done in the past. What is your timetable for the possibility of re-tendering?

I realize that's kind of a hypothetical question.

Mr. David Cogliati: Fair enough. We're gearing up to start the re-tendering process about 18 months before the three years expire on the existing contract. We are continually monitoring, and there are a number of incentives built into the contracts in terms of monitoring the service providers and how well they're doing.

Of course, this is a personal gut reaction, but I think we probably will re-tender after the three years, because the business we'll be providing will be substantially different from what it was when we went to tender last year. By that I mean largely services provided online. So I think a lot of the environment within which we deliver benefits will change, and we'll quite possibly be looking at a different kind of model where, with a lot more of the services, instead of moving paper all over the country, we'll be dealing online by that point in time.

Mr. Dale Johnston: Could you address the other part of my question, please, about the assessment method? Is there an assessment method on the delivery and the efficiency and effectiveness of the program?

Ms. Dale Barbour: We have a number of service standards within the contract, so those service providers will be monitored in terms of their responsiveness and actually processing the applications and answering the calls that come into their call centre. That's all part of the contract we have with both of them.

The Chair: Thank you.

[Translation]

Mr. Bellemare, you have the floor.

Mr. Eugène Bellemare (Ottawa—Orléans, Lib.): Thank you, Madam Chair.

[English]

My question is addressed to any one of you, and I would appreciate a short answer since I have about six or seven questions.

You're talking about the delivery of information, the processing of applications, the approval of loans, and the dispensing of funds. You all do that.

Is that a yes or a no, or you don't know?

Ms. Dale Barbour: We all play a part in the processing of the loans. We have a life cycle for a loan, and if you look at the needs assessment, our provincial partners are involved in that. The actual review of the loan agreement is done by our service providers, and then that information comes to HRDC and we look at the verification in terms of financial requirements we have. Then Public Works and Government Services Canada would either issue the cheque or issue the direct deposit. So it's a very interdependent relationship we have with the program.

Mr. Eugène Bellemare: Does anyone know if Revenue Canada is part of this family?

Mr. David Cogliati: I could answer that.

Yes, but they're at the back end. They're not in the disbursement business.

If a loan goes into default, there are provisions whereby certain refundable tax credits can be used to offset that debt to the crown. So Revenue Canada does play a role at the very tail end.

Mr. Eugène Bellemare: Regarding the loan applications, who audits—I don't mean verifies, but audits—the information given by the students?

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Ms. Dale Barbour: When we receive a loan application, we also receive at the same time a document from the province. The provincial document actually has the amount of loan that has been authorized for that individual based on the needs that individual has. So that initial check is done when the loan agreement is received, to make sure it compares to what the province has authorized.

We also have audits that are done throughout the program to review all steps of the process in a post-audit fashion.

Mr. Eugène Bellemare: Taxpayers out there may be driving through a campus and noticing the number of automobiles, sports cars and so on, and wondering how many of the sports car elite are borrowing money through student loans. How do you control that?

Ms. Dale Barbour: That's part of the assessment process when—

Ms. Jennifer Orum: Perhaps I could add something, because our financial aid administrators are familiar with what the provinces do.

The assessment for the Canada student loans program—that is, the need assessment of an individual student—is done by the provinces. Each province has a verification and audit section, and I believe they are required under the Canada Student Loans Act to audit a certain percentage of applications. So there is that process at the provincial level, which would check into things such as motor vehicle listings. There's cross-data sharing with the provincial motor vehicle branches. So I believe what you're speaking of, that type of audit, is certainly also done at the provincial level before the amount the student will be receiving is determined.

Mr. Eugène Bellemare: In the—

The Chair: I think Ms. Anthony wants to add something too.

Ms. Jennifer Anthony: If I may add one quick thing, in some provinces, at this point, audits are being done on 100% of the student loan applications. In the province of Newfoundland and Labrador, that has been the case for the last year or two.

With specific reference to cars, if you study at an institution like Memorial University of Newfoundland, which I did, and you live far enough away from the university where there's no public transportation, it's actually considered part of your expense needs.

So the fact that you have a car is considered an asset and considered into your borrowing, but it's also considered to be a necessary mechanism to get you back and forth to school, depending on your particular residence location, and obviously the further away you live, the cheaper it is.

Mr. Eugène Bellemare: In the three large cities in Canada, you see on the campuses students who live the good life, and possibly rightly so, but one always wonders, are they on the student loan program?

My experience with student loans is possibly negative in the sense that I sat for five years on the public accounts committee, and we discovered a great number of eyebrow-raising situations in Canada. People were borrowing money to go to school and then just disappearing and never paying.

The Chair: Mr. Bellemare, can you leave your other questions until the second round? You're well in excess of your first five minutes.

Mr. Eugène Bellemare: Okay. Thank you.

The Chair: I'll put you on the list for further questions.

[Translation]

Mr. Lanctôt.

Mr. Robert Lanctôt (Châteauguay, BQ): I will try to make this a fairly short preamble. First, I would like to thank the witnesses for coming. I especially want to thank the committee for such an in-depth evaluation. We were here in April and I heard some of you then. Today I will hear you again. My questions, however, are for Mr. Cogliati.

The numbers in the 2001-2002 budget for Human Resources Development show an envelope of about $719 million. I believe that represents a total net cost for the entire CSLP. I see that since March 323,000 loans have been granted, for a total of $1.19 billion and that, over a period of only seven months and not for the entire year. With the numbers available, we were talking of transfers to Quebec of about $193.5 million.

• 1150

I want to be very sure that Quebec, Nunavut and the Northwest Territories are not part of this program. I would like to be told that specifically. In addition, if in seven months $1.19 billion have already been disbursed in loans—there are still five months left—, will the amount of the transfer to Quebec be increased? When will it be disbursed? What are the increases? How does the reimbursement or transfer to the provinces system work? Will the amount of $193.5 billion be increased proportionately to what will be granted to the others?

[English]

Mr. David Cogliati: Maybe I could try to clarify some of the numbers and the difference between what we disburse on an annual basis of $1.5 billion, which the government treats as an asset, and the numbers that show up in the public accounts documents in the main estimates, which are not the loan disbursements but include things such as the cost of administration. They include things such as the loan write-offs, which are approximately 14% of the amount loaned, and they also include the interest subsidies that are paid out for in-study—while students are in-study or in interest relief. So it's really a question of apples and oranges between the loans that are disbursed of $1.5 billion and the $700 million that shows up in our estimates. They're not the same thing at all. They're quite separate.

Interestingly enough, I just met with our colleagues from Quebec about two weeks ago. We keep a pretty close look on the disbursements and the sharing of information and the set-offs that go to those areas that do not participate in the Canada student loans program. So the $1.5 billion, or the $1 billion we've just disbursed, is separate and distinct from the $700 million. They're just apples and oranges.

[Translation]

Mr. Robert Lanctôt: To confirm that fact, Quebec, the Northwest Territories and Nunavut still do not participate in the program. Is that really the case?

Mr. David Cogliati: There are still three.

Mr. Robert Lanctôt: There are still three.

Mr. David Cogliati: Yes, that's it.

Mr. Robert Lanctôt: O.K. Given that, will we be close to the amount of $700 million forecast in the 2001-2002 budget? Will we be close to this amount or are we already in a position to evaluate that the amount will be higher? The amount that you will give to Quebec, i.e. $193 million, is it within the norms?

[English]

Mr. David Cogliati: It'll be in the same order of magnitude. I can't give you an exact number, but generally speaking our loan portfolio is going up about 4% per year. So my guess is it'll be a little bit bigger. But it'll be in the same order of magnitude of somewhere between $700 million to $750 million as the total, and it does include the transfers to those opting-out jurisdictions. It includes the transfers, the interest subsidy that's given for in-study loan and interest relief, and the cost of administration. So that's where the $700 million comes from.

[Translation]

Mr. Robert Lanctôt: In that case, I would also like to know how the transfer is made. Is it done at the end of the year or periodically?

[English]

Mr. David Cogliati: I'd have to confess I just simply don't know that.

[Translation]

It is done six months after the end of the year.

Mr. Robert Lanctôt: Six months after the end of the year, is that right?

Mr. David Cogliati: After the end of the year. Yes, that's it.

Mr. Robert Lanctôt: Thank you very much.

Mr. David Cogliati: I imagine that it is done that way to allow the numbers to be checked.

Mr. Robert Lanctôt: Do I still have a little time?

[English]

The Chair: You have about thirty seconds.

Mr. Robert Lanctôt: Okay.

[Translation]

I would like to know what percentage of student loans are granted. What are the public and private percentages?

Mr. David Cogliati: Once again, about 80 per cent public and 20 per cent private. That's more or less it.

Mr. Robert Lanctôt: O.K. Thank you very much.

The Chair: Ms. St-Jacques.

Ms. Diane St-Jacques (Shefford, Lib.): Thank you, Madam Chair.

I would like some information about loan reimbursements. Have the rules changed since it is a new service? If a student cannot reimburse his loan immediately, are there mechanisms in place to help that student reimburse it over a longer period? Have means been set up in this regard?

Mr. David Cogliati: That depends on the definition of new mechanisms. In 1998, we made certain changes called the Canadian Opportunities Strategy. I'm sorry, I don't know the translation for that. We announced that we had added three provisions dealing with the possibility of prolonging the reimbursement period. First, there is a renegotiation between the student and the bank. The reimbursement period can be extended for another five years, which means it can go from 10 to 15 years.

Second, an important change to the Interest Relief Program was made. I apologize once again, I don't know the French term for this program. The assistance period has been extended considerably. Students can now receive assistance for a period of 54 months. If the student exhausts this period, he can obtain a $10,000 reduction on the principal.

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Ms. Diane St-Jacques: O.K.

The Chair: Ms. St-Jacques.

Ms. Diane St-Jacques: No, thank you.

[English]

The Chair: Okay.

She'll share the rest of her time with you.

Ms. Diane St-Jacques: I don't think it will be necessary.

The Chair: Okay.

Mr. South.

Mr. Robert South: I would like to add one thing about the debt reduction and the repayment system, for the information of the committee. That program does exist, but it is a big concern of my organization that it's a very difficult program to access.

According to statistics from within the Canada student loans program, 75% of those students who exhaust interest relief are not eligible for debt reduction and repayment, because it goes on much more stringent criteria than the interest relief program does. There's a big disconnection there between the eligibility for interest relief and debt reduction and repayment.

I know that's not the topic of broader conversation for today, but I feel it is important that the committee be aware of this.

Ms. Jennifer Orum: Could I comment as well?

The Chair: Yes.

Ms. Jennifer Orum: Our organization is, in addition, concerned about the debt reduction repayment, because the promise was there in the 1998 budget and the program has not really got off the ground. Our understanding is that there are ongoing discussions with the Ministry of Finance. I presented before the Standing Committee on Finance last week, asking that the finance ministry be cooperative with HRDC in creating a program that will actually work. It is a good program in theory. It just doesn't seem to be working in implementation. So we are very hopeful that the two ministries will be able to solve this problem.

The Chair: Thank you.

Ms. Anthony has a comment.

Ms. Jennifer Anthony: If I may, I have one other thing about interest relief. It goes back to a question that was asked earlier. The question was asked about how interest relief works and whether or not students could refinance interest relief by regular loans. But the primary reason why students wouldn't do that is because if you graduated, got a good job, started paying your loan, and then refinanced through the bank as a non-student loan, you'd lose any opportunity to go on interest relief at a later period if it became necessary.

Some of the mechanisms that are in place to help students make it through the repayment period actually require that you have to maintain the Canada student loan. You couldn't just refinance through a bank and maintain access to some of those programs. In terms of some of the programs that do exist, I think that's an important point to make.

The Chair: Were there any others?

Mr. Cogliati, did you have anything?

Mr. David Cogliati: I wanted to advise on what Rob has said and that we are working quite closely with our Finance colleagues to enhance the debt reduction repayment feature of the plan. It does have a very low take-up, but that's largely because of the five years—in effect the 54 months—of interest relief, and as people exhaust that....

But there is an issue—and Rob is quite correct—vis-à-vis the tables when one goes off interest relief onto debt reduction, and we are working, as Jennifer has also noted, with our colleagues from Finance to try to sort that out.

The Chair: Good. Thank you.

Ms. Diane St-Jacques: [Inaudible—Editor]

The Chair: Well, he has about 12 seconds. I don't think that's going to be enough. He appreciates the offer, though.

Ms. Davies.

Ms. Libby Davies (Vancouver East, NDP): Thank you to everybody for coming today.

When we first started this discussion about direct delivery, there was a lot of information that this would improve the situation for students in terms of more direct contact, less problems, more problem-solving, more flexibility. As a result of either this direct program or interest relief and so on, is there actually a decrease in the number of students who are now moving over into the collection agency part of it? Who is responsible for keeping tabs on that information, and what does the information tell us?

Mr. David Cogliati: That would probably be me. But I think it may be a little too early for us to have much of a reading. We actually started the direct loans in March of this year and we really haven't started the repayment and consolidation. It's actually starting next month.

Generally speaking, we've built into the service provider contracts incentives to get the default rates down, and we've given them 270 days instead of the regular 90 days to try to work with the students. We've put in incentives that there be regular communications during the study period.

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One of the biggest challenges when we talked to the banks was that when they finished their student loan and went into the repayment, a lot of times the students would lose touch with the bank. Obviously students move after they have finished studies, and there were some real disconnects on a communications level.

So we're desperately hoping that with the service provider contracts, we'll do a better job of keeping in touch with the students throughout their study period, so that they'll know about interest relief and about the availability of certain financial counselling we may be able to give them to help them through this. Defaults are bad for everybody and we desperately want to get them down.

Ms. Libby Davies: If a student unfortunately moves into default, is it then outside the realm of the direct service providers? Does it go over to the collection agency and you lose contact with the student at that point?

Mr. David Cogliati: No, the way it works now is if a student gets into difficulty with their student payment, we have 270 days, which if you work out the math...where we give them a chance to, as we call it, rehabilitate the loan and get it back in good standing, and off you go to all the help. Eventually, if they go into default, if they've missed enough payments, if we can't work without them, then unfortunately it goes to our collection services. They'll try to help with them as well, but again the collection agencies are agents of HRDC. So if they're a little on the rough side.... I've read the letters and in some cases they tend to be a little aggressive. I get all the letters. We're working with them as well to try to soften them up.

Ms. Libby Davies: That actually leads to my next question, Madam Chair.

When we had the initial discussion, HRDC provided information that you would have staff and resources available through the department to also help deal with problems and resolution of problems and so on. Can you provide information to tell us how many staff positions are available and what kind of budget you have to do that?

Mr. David Cogliati: I can tell you what the interim arrangements are. Interestingly enough, we're going to Treasury Board in November to try to solidify the funding for the Canada student loans program. We currently have about 170 people on staff—a lot of them in our client services area. We've about doubled the size of that group to about 45 people, and assuming that we can get some further resources through Treasury Board, we're looking to augment the client services and the other parts of the Canada student loans program itself. So we have ramped up big time.

Ms. Libby Davies: Do I have any more time?

The Chair: You have another minute.

Ms. Libby Davies: I have just a short question to follow up the issue of the interest rates. Who sets the rates?

Mr. David Cogliati: The Department of Finance sets the rates.

Ms. Libby Davies: Is there any possibility that this will now be reviewed as a result of the lowering of interest rates overall?

Mr. David Cogliati: I'm not aware of any discussions to change those interest rates—the prime plus 2.5% and prime plus 5%.

Ms. Libby Davies: Yes, or even to lower the 2% or the 5%—the prime plus 2% or the prime plus 5%. I'm just curious to know again whether that is part of any built-in review, because it's pretty awful if many people are benefiting from lower interests rates, yet students are still having it hammered to them. I'd be curious to know if there is a review.

Mr. David Cogliati: Our discussions with our Finance colleagues tend to revolve around the wonderfulness of the 17% tax credit and what a relief this provides for all those students who pay interest. I would certainly broach the subject. To be honest with you, we broached the subject in the context of integration. As we've signed integration agreements with Saskatchewan and Ontario, program differences tend to be highlighted even more. In Ontario their interest rate is prime plus 1%, whereas ours is prime plus 2.5%. We can disaggregate those behind the scenes when students repay, but those kinds of differences I think eventually start to drive the program designs. We've already seen some movement in Ontario in terms of extending their interest relief to match the federal level. In Saskatchewan we've seen some movement by the Saskatchewan government in the area of disability considerations as well. When we went to our colleagues at Finance, we said if and when we sign more of these integration agreements, there will be pressure to have a greater degree of harmonization of program design.

Ms. Libby Davies: But isn't it province by province?

Mr. David Cogliati: Unfortunately, yes.

Ms. Libby Davies: So each one will be different.

Mr. David Cogliati: Each one will be different. But if we were to make the change, it would be national. We would not have a different interest rate in Ontario, as opposed to Manitoba, as opposed to Saskatchewan. It would be a national rate.

The Chair: Thank you.

Madam Folco.

[Translation]

Ms. Raymonde Folco (Laval West, Lib.): Thank you, Madam Chair.

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I have two questions that are really information questions. The first is a follow-up on Mr. Lanctôt's question about Quebec. Thank you, Mr. Lanctôt, for asking the question for me. I will simply continue along the same lines.

If we compare the students in Quebec with other students in Canada, excluding students in the provinces and the territories that do not participate in the project, what is the percentage of Quebec students who reimburse their loans? Is it higher or lower than elsewhere? Can you give us some hypotheses why this is so?

[English]

Mr. David Cogliati: I'm afraid I don't have the information specifically on whether or not Quebec's repayment or default rates are any different from ours.

The one point I would underline is that in Quebec, generally speaking, the student loan amounts are much lower because of their system of grants, subsidies, scholarships, and tuition caps. Generally speaking, I think the Quebec programs are considerably more generous than in other parts of the country. As a result, student loans tend to be quite a bit lower. I don't have the percentages or the numbers and I don't have any numbers on default rates in Quebec. But generally speaking, the amount owed is significantly less in Quebec than in other parts of the country.

[Translation]

Ms. Raymonde Folco: Could you provide that number later, Mr. Cogliati?

[English]

Mr. David Cogliati: I could certainly ask my colleagues in Quebec. As I said, I just met with them about two or three weeks ago and we had a full-day session. We gave them volumes of information, so I'm sure I could ask for those numbers.

[Translation]

Ms. Raymonde Folco: What I would really like to know, on the one hand, is the average amount, in real numbers, of student loans in Quebec compared to the average amount of those loans in the rest of Canada since you tell me it is substantially lower in Quebec. On the other hand, I would like to know the percentages of Quebec students who reimburse their loans and the percentage of students outside Quebec who do so. You may not get those numbers right away, but when you do I would appreciate getting them.

[English]

Mr. David Cogliati: I'll be happy to share those once we get them, and I'll converse with my counterpart.

[Translation]

Ms. Raymonde Folco: I have a second question, Madam Chair.

[English]

I'll say this in English because the text is in front of me in English. Contrary to my colleagues, who seem to understand all the ins and outs of this very complex question of student loans.... You said, Mr. Cogliati, that you have revised your application process so that all students with direct loans, regardless of whether they have a previous risk-shared or guaranteed loan, will only have to apply to the service provided for interest relief.

[Translation]

Could you explain to me what exactly this Interest Relief is? How does it apply directly to student loans?

[English]

Ms. Dale Barber: After a student actually finishes their studies, they have a six-month period during which there is no requirement to make any interest or principal payments on that loan. We call those six months after they have finished the consolidation period. They have to consolidate their loan, and during that process the student finds out exactly how much they will have to pay on a monthly basis.

Sometimes once a student gets that information, and even after they've received that information, they find it very difficult to actually pay that amount of money. We have some things to assist them during a period when they're having difficulty making those payments, so they don't go into a default status. One of the things we can offer is an interest relief period, usually in six-month components, when they do not have to pay any interest on their loan.

Ms. Raymonde Folco: But they're still paying the principal.

Ms. Dale Barber: They don't have to. They can pay it if they're in a position to pay something. Then that money can just go against the actual principal amount. But in a lot of cases, a student is not in a position to actually pay anything.

[Translation]

Ms. Raymonde Folco: Do I have any time left, Madam Chair? I would like to ask Ms. Jennifer a question. I'm sorry, unfortunately I can't see the rest of her name. No, it's not Ms. Orum.

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[English]

It's Jennifer Anthony, I beg your pardon.

You explained something a little while ago about interest relief and how, once some students were working and trying to pay the interest, it was detrimental to them. I didn't quite understand that explanation. Perhaps you could go into it in more detail.

Ms. Jennifer Anthony: During the period of interest relief, it is the case that most students don't make repayments toward their loans on either the principal or the interest. However, it's not a requirement to get interest relief immediately when your repayment should be starting.

If you go to work immediately after finishing school, you can begin paying your loan at the 2.5% interest rate, and you can pay on the principal over a period of time. But if due to a job loss, for example, you lose your ability to pay, at that point you can still apply for interest relief.

Whether or not you're granted interest relief is purely dependent on your income. So if your income is low enough during a certain period, you can get interest relief. At that point you can get, say, six months' relief from making any payments. However, that's only if you maintain a Canada student loan and a provincial student loan.

When you first get a job, if you decide to go to a bank like CIBC, for example, to get a regular loan at the prime lending rate and pay off your Canada student loan, you're paying back the bank, so you're no longer eligible for programs like interest relief because you're no longer in any way associated with the Canada student loans program.

Ms. Raymonde Folco: Okay. Thank you very much.

The Chair: Mr. Thompson.

Mr. Greg Thompson (New Brunswick Southwest, PC/DR): Thank you, Madam Chairman.

Going back to interest relief, the debt load, and following up more closely on Mr. Johnston's question, what is the secret for students applying to negotiate interest relief?

I think the point he was making, which I want to follow up on, is that today's interest rates are the lowest they've been in 40 years, yet students are paying back at very high rates, and some of those loans go back many years. Is there any possibility of lightening or easing the burden by reapplying for those loans? In other words, if a student owed $35,000 dating back over the last eight to ten years, the interest on that would be staggering and would be choking them. Is there any easy way that can be looked at and addressed?

A voice: Refinance.

Mr. Greg Thompson: We've heard that. We're getting some side comments here, but we understand the risk of going to the bank. Obviously, there's a risk in doing that.

I want to hear from you, Mr. Cogliati, and I guess my colleagues can interject at a future time. We want to discount the idea of going strictly to the banks.

Mr. David Cogliati: Unfortunately, the way the student loan agreements work right now, when somebody negotiates, they negotiate for the life of the loan. Unfortunately, it's a little bit like a mortgage. It goes up and down and you negotiate for a year or two.

I'm unaware of any provision or any discussions with Finance that would allow the rates to be renegotiated over the 10-year period.

Mr. Greg Thompson: Okay.

Ms. Jennifer Anthony: I have a supplement to that. There is one thing a student can do to drop their rate. My understanding is if a student who has been in repayment returns to school full-time and gets another student loan, when they finish the second time they get a combined rate. I wouldn't suggest a student go back to school merely to get a lower rate, but I believe—and I could be corrected—the student can go back to school for a year and end up with a significantly lower rate, and then go back to work.

Mr. Greg Thompson: One of the interesting things I've noticed in the EDULINX brochure is their association with their American counterpart or company. I guess I want to get an understanding of that U.S.A. group and their association with EDULINX.

What is the U.S.A. experience versus the Canadian experience? In the U.S.A., education is constitutionally the domain of the federal government. In Canada, in absolute terms, it's the domain of the provinces. What are the differences between those two jurisdictions? Do you find a difference in the administration of the loans? Are there difficulties from your perspective in administrating those different jurisdictions in Canada called provinces, versus the U.S.A. experience?

• 1215

Ms. Sandra Ferguson: First of all, the U.S.A. group, the Sallie Mae group, which is a 49% shareholder of EDULINX, participates as a base of experience for EDULINX in the student loan service bureau environment. That's their particular role, not policy program management. It really is for their experience as a service bureau and in maintaining appropriate service levels for the client.

The U.S. program itself is significantly different from the Canadian program. It has remained a guaranteed program, but with a lot of different participation by different stakeholders. One of the more significant differences between the two programs is that the educational institutes pay a much larger part in the program in the U.S. In fact, funds all go to the educational institute and are then distributed through that process.

There are different stakeholders. There are financial institutions. There's a stakeholder group called “guarantors”; if loans go into default, it's the guarantor who then takes on the responsibility. In addition, there's another whole group called “the secondary market”, which then takes large groups of portfolios and moves them through the process. It is very, very significantly different from the Canadian market.

There is, though, the involvement of the states along with the federal government. Although the roles are different—the complexities of having states and a federal government and provinces and a federal government in Canada are different—nonetheless, this does add complexities to the processes. But the two programs are really significantly different when you compare them.

Mr. Greg Thompson: Yes. My time is up.

The Chair: Your time is up.

Mr. Greg Thompson: Thank you, Madam Chair.

The Chair: Madam Folco, do you have any other questions?

Ms. Raymonde Folco: No.

The Chair: Then, Ms. Skelton.

Ms. Carol Skelton (Saskatoon—Rosetown—Biggar, Canadian Alliance): Mr. Cogliati, you mentioned earlier there's a 14% default rate. What is the difference in this default rate between the private institutions and the public institutions?

Mr. Cogliati: I'll give you some really rough numbers, because I don't have them right off the top of my head. Here are some really rough numbers that will put it in context.

This default rate is not net, but gross. A certain percentage will default at some point in time. They don't all default the first day. At the university level the ballpark figure is around 12%. At the community college level the default rate is between 22% and 25%. At the private institution level it's slightly in excess of 40%. The overall weighted average is somewhere in the low teens, around 14%.

We're dealing with the actuaries in the Office the Superintendent of Financial Institutions. They'll be putting out a report fairly soon, and the buzzword they use is something called a provisioning rate, but it's around 14%, give or take a half percent either way. It could be as high as 14.5%; it could be as low as 13.5%. As a point of comparison, the default rate in the United States is below 7%.

Ms. Carol Skelton: Mr. Frankham, you deal with the private schools then...your loaning. I understand the majority of your students are very different from those who go to university. Is that correct?

Mr. David Frankham: Right. The terms are generally shorter and so on.

Ms. Carol Skelton: And you deal with a lot of single moms and people who decide one day they're going back to school.

Is the default rate going to be that high? The way you're now administrating it, is the rate going to be that high?

Mr. David Frankham: That was the jump-off point when we took over the portfolio. It's our intention to drive that down significantly.

We view this whole area of debt management as much more of a servicing and an education. We start very, very early in our process, before consolidation even occurs, to start educating students as to what options they have and so on and so forth.

The other very encouraging thing for us has been the level of support we're getting from the private educational institutions themselves. Perhaps under the old model they weren't consulted or involved. As you know, these schools are smaller: they know their students; they know the families; they know where to get hold of students; and they want to be very much a part of this because it obviously impacts on their future as well. We intend to make significant progress in improving this whole area of debt management around private schools.

• 1220

The Chair: Mr. South, you wanted to make a comment.

Mr. Robert South: If I may.

Mr. Cogliati can correct me if I'm wrong, but one of the things it's important to realize with the default rate is that when a student is said to be in default, it means he or she missed a payment for a period of over 90 days. It doesn't necessarily mean the loan is never repaid.

Loans often go into default and then are repaid later, particularly when the program initially...when it wasn't a risk-shared program. When it was a 100% guaranteed program, there were a lot of problems with loans being listed in default, but in fact what had happened was that some students had just moved—as people often do when they are recent graduates from university—and their financial records hadn't caught up with them. This can take a period of over 90 days, so it pushed the default numbers up.

Mr. Cogliati, if I'm wrong, can certainly correct me.

Mr. David Cogliati: Mr. South is 100% correct.

Rob and I have dealt with each other a fair bit; I find it odd that he keeps calling me “Mister”. But he is correct. That's exactly what's playing itself out right now.

Ms. Carol Skelton: With the integrated program in Saskatchewan, if one of our students there has a problem repaying a loan, who is held responsible for it? Is it the federal government or the Government of Saskatchewan?

Mr. David Cogliati: It depends on what you mean by having trouble repaying.

Ms. Carol Skelton: I mean if they go into default; they can't pay their loan.

Mr. David Cogliati: Generally speaking, the loan will have two components, a provincial loan and a Canada student loan, and we're asking them to make one payment as a result of integration. If they're not making payments, then they're not making payments to both of us. But from an administrative perspective, this will all get passed through the National Student Loan Service Centre. So in fact we're both responsible.

Ms. Carol Skelton: How was it before? Was the federal government accepting responsibility totally?

Mr. David Cogliati: We were separate and distinct entities. That's correct.

We're hoping that through simplification the student will have access to better information and a simplified repayment. We can disaggregate behind the scenes if there are different interest rates, if there are different amounts owed to each jurisdiction. It will simply be one payment and we will disaggregate behind the scenes.

Ms. Carol Skelton: Do I have any time left?

The Chair: No, but you'll probably get another round.

Ms. Carol Skelton: Thank you.

The Chair: Because there's no one on this side, I'm going to take the chair's prerogative.

On the integration, we have Saskatchewan and Ontario. How many other provinces are we close to reaching an integration agreement with?

Mr. David Cogliati: I say this with a certain amount of reluctance lest I jeopardize negotiations.

The Chair: You don't have to say which ones, just how many.

Mr. David Cogliati: We're reasonably close to a couple of others. We are having very preliminary discussions with two others.

The Chair: And is there any chance you'll reach it by this January?

Mr. David Cogliati: No. It's highly unlikely.

The Chair: Okay, what about next September?

Mr. David Cogliati: By next September we may.

The Chair: Good. Okay.

[Translation]

Mr. Lanctôt.

Mr. Robert Lanctôt: Thank you, Madam Chair.

I have two small questions, and one will be very brief. Regarding transfers, if they are done six months later, the amounts must be similar from year to year. I wonder a little why there is no reimbursement before in the cases where there is interest paid on these amounts due to Quebec. That is my first question. I will come back to the second one.

Mr. David Cogliati: Unfortunately, I cannot answer. I don't have the necessary information.

Mr. Robert Lanctôt: Is it possible to get them for the next time?

Mr. David Cogliati: Yes.

Mr. Robert Lanctôt: The preamble to my second question will be a little longer. I know we often have the following problems. There are students from here, wether from Quebec or from Canada, who go to study abroad, often in programs subject to quotas. Otherwise they would study here. Therefore they are often forced to go abroad not by choice but because they are forced to, because they are not accepted here as part of a program subject to quotas. That is the case, among others, in medicine, even though we have a serious shortage of doctors. Be that as it may, we have to live with that.

On the other hand, students from abroad come to study here and they can benefit from the program. Of course it is a nice exchange, and it's good if there are international exchanges. I think that the students and the associations must agree on that.

Would it not be interesting, when we have surpluses, as there are in Canada, to at least allow people who registered here—and it is easy to check if thy are—, who have not been accepted and who are forced to go abroad, to at least have the right to student loans themselves? Would it be possible to do that for students from here?

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[English]

Mr. David Cogliati: If I can respond—if I understand the question correctly—Canadian students can study abroad with the support of the Canada student loans program. Landed immigrants who come here can access the student loans. An area where we're doing a little bit of work now is on convention refugees. But a foreign student who is simply here studying is not able to access student loans.

An interesting dimension with respect to Quebec is that it specifically lists which particular disciplines it will support for students studying outside the province. If a student wanted to study nursing, for example...there's a list of faculties or disciplines that are supported and others that are not.

If I understand the question correctly, it may be part of this dynamic where certain faculties and disciplines are not supported because the province of Quebec believes it already has adequate skills in those areas.

Am I anywhere near the...?

[Translation]

Mr. Robert Lanctôt: Yes, that is right, quotas are part of that. So what you are telling me is that in Canada, for your program, quotas were not considered. Is there a difference between Quebec and Canada? Is there a difference?

I know that in Quebec, when there is a quota, as I just explained, there is a problem for students who go abroad. But you are telling me you do not have that problem, you will always allow students who go study abroad to have the same program.

[English]

Mr. David Cogliati: I'm not aware of any restrictions on Canadian students studying abroad, other than simply need. If there is a need demonstrated, we do support students studying abroad. Quebec does have certain restrictions based on disciplines, so there's a difference between the way the two administrations—Canada's and Quebec's—administer financial support to students.

[Translation]

Mr. Robert Lanctôt: Thank you

[English]

The Chair: Mr. Spencer.

Mr. Larry Spencer (Regina—Lumsden—Lake Centre, Canadian Alliance): Thank you, Madam Chair.

When you're this far down in line, you've had your question beaten around a good bit, but maybe there are still a few little loopholes here I can ask about.

I was going to ask about the process you use in determining the interest rates on the loans. You've described that—the fixed is 2.5% above prime and the floating is 5% above prime. Why would that be?

Mr. David Cogliati: I may have misspoken. I believe it's the other way around. I misspoke; it's the opposite.

Mr. Larry Spencer: Okay, it's just 2.5% above prime for the floating.

Mr. David Cogliati: That's right.

Mr. Larry Spencer: Because I was going to ask you.... Obviously they didn't want anybody to take the floating.

Some hon. member: Oh, oh!

Mr. Larry Spencer: I inquired last week at my bank and the rate was only 1.5% for someone converting a car loan.

Well that helps. We've straightened that one out.

We've also discussed the default rate of 14% or thereabouts. When you appeared in one of our briefings a while back it was also mentioned that one of the big contributors to this loss rate was simply losing the people. Where did they go? The banks were unable to track them down.

So I want to hear from our two new providers how they plan to keep track of the people better than the banks do and to cut this 14% loss rate.

Mr. David Frankham: That's a very good question.

One of the cornerstones of the BDP's approach as a service provider, and around this whole area of default management, is our high reliance on technology. We have built a state-of-the-art system purely for student loans. It has not been a bank system that's been modified to try to fit it to the handling of student loans.

Our system has a high degree of capturing information. Every time we're talking to a student, every time we correspond with a student, any time a school inquires about a student, it is recorded and captured. As well, we're capturing next-of-kin information, which is very powerful in trying to track down a student, if you know where the parents or the brother or sister are, and so on.

The two cornerstones of our efforts are to use technology to keep track of every conversation and to work with the very regimented, structured communication program we developed.

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As I say, it starts right from day one in terms of servicing that student, and every conversation is recorded and noted with that student. Right through to the time six months before the loan is consolidated, we're actively phoning that student, explaining the options to that student. We want them to actively participate in signing the agreement—to say, “Yes, we have a debt; we acknowledge that.”

Our real strength has been—and we've demonstrated this with other clients we do student loan business with as well—that if you get the student to make the first payment, you're 90% of the way there. We have historically improved first-time default rates by over 50%. I think we can do a significant job in that whole area—on the private side in particular.

The Chair: Ms. Ferguson.

Ms. Sandra Ferguson: Thank you. I think technology and retaining information comprise part of the support mechanisms you need. But we believe educating the borrowers is one of the most important responsibilities we have as a service provider. That starts almost before students take out their loan applications. Part of staying in contact with the students and making sure they're proactive on their end as well is making sure they understand they're applying for a loan—that there are responsibilities on their end, as well as on the end of the service provider, to maintain communications.

EDULINX does information sessions at post-secondary educations—and high schools as well—preparing students to enter the world of having financial obligations. We have pamphlets and brochures that are distributed across the country. We participate in a CD with a group called Hobsons. It gives information on what it means to apply for financial assistance, what the obligations are, and then how you can manage, what financial assistance you can get or—as we've talked about today—interest relief. It's really about staying in touch with the students all along the way, making sure we have communications even before they apply for a student loan, so they understand what they're getting into, so they can make informed decisions about applying for a loan.

As we stated before, this is a very complex program. These are unsophisticated borrowers simply because of who they are. They're often young. This is often the first time they have any sort of credit available to them, and there's detailed understanding required in the program. There are many avenues by which you can stay in touch with the borrowers, both before and after they take out their financial loan and obligation.

The Chair: Ms. Anthony would also like to respond.

Ms. Jennifer Anthony: If I may, I'll make just a couple of really quick points. One is I don't think it's fair to call it a 14% default rate if you take the private college default rate out of the numbers. It has a significant impact on driving the number up to 14%. I think the distinction between private institutional borrowers and public institutional borrowers should be made every time this is talked about. I wanted to make that point.

The reason private school students are not repaying their loans is not that they're somehow less financially able or less morally capable, for whatever reason. It's that they're getting bad training at private institutions and are therefore not able to find jobs. It's a problem with a private system, and it also is a problem with—to be honest—a private service provider. It's part of the reason why it would be our preference—the preference of the Canadian Federation of Students—to return to a fully publicly administered program.

What we see in the private college system is not that dissimilar—the lack of accountability and the lack of transparency—from what we will see in the private service provider system. When it comes to repayment of loans, the most recent number I know—and there may be a more recent number that you may be able to provide—shows 93% of student loans are eventually repaid, as compared with 45% of Industry Canada loans. I think we need to be really clear that these loans are actually being repaid, in particular those taken out by students who are in the public system.

The Chair: Your partner is going to have another shot, so maybe she can ask some of your questions.

Ms. Libby Davies: Just a couple of quick questions to follow up. Jenn made a point earlier about the possibility of shifting the hold responsibility to the final step so that money can be deposited immediately when the disbursement date expires, so that students can meet the deadline.

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I guess I wanted some advice as to whether or not we can do that by recommendation, or whether there's actually an agreement, because it seems there's been a fair amount of goodwill to actually look at this program and what changes need to be made. Maybe you should respond to that and tell us whether you're going to do it, and if not, we'll have to recommend it.

Mr. David Cogliati: It's being done while we speak. Yes, we are absolutely going to do that. We're going to back the start-up to before the do-not-disburse date. Our target is to put the money in the account the day after the do-not-disburse-before date.

Ms. Libby Davies: Okay.

Mr. David Cogliati: So if the do-not-disburse date is the first day of classes and they get their application in on time, the money will be disbursed into their account electronically the next day. Just backing everything up is what we're trying to do.

Ms. Libby Davies: Okay. I have a follow-up.

The Chair: I think Ms. Orum has a response.

Ms. Jennifer Orum: We're very pleased to see what David has announced.

Our concern, though, given our experience, is that right now there are too many steps. That is, once the National Student Loan Service Centres process a loan, it has to go to the Canada student loans program and then Public Works and Government Services Canada. Then at the moment, as we've heard, it is couriered to the banking system.

We believe there are several improvements that can be made in that sequence of events. One of them we believe should be looked at is to take out of that process, at the level of individual students, the Canada student loans program step and the Public Works and Government Services step.

The reason is that, in my understanding, the service providers in this room are able to deliver provincial loans into the student account much faster, because they are given the right through provincial authority to have either a line of credit or a transfer of funds from the provinces allowing those extra steps not to be in place. This is why we referred to the Financial Administration Act, and particularly section 33. Perhaps it could be looked at to see if possible—and it may not be—whether the steps through the Canada student loans program and Public Works can be skipped. It's been proven to be much faster.

We are a bit disappointed that under the old programs, guaranteed and risk-shared, the turnaround time for students was faster. We're optimistic there are ways that can be changed.

The Chair: Mr. Cogliati is very anxious to reply.

Mr. David Cogliati: I could possibly comment on that. We are indeed looking at it.

Jennifer is quite correct that the hang-up right now is the Financial Administration Act. Unlike the banks, which are doing this and can make a turnaround in 48 to 72 hours, we do have to respect the conditions of the Financial Administration Act. There are two sections that HRDC has to look at, sections 33 and 34. Then it's passed on to Public Works as the government disburser of funds.

During the recent public service strike, one of the contingencies we were seriously looking at was the setting up of a line of credit at the two service providers, in effect jumping over the Financial Administration Act and doing a cleanup afterwards.

If we got into a situation—and of course getting money into the hands of students in the month of September is absolutely critical.... Unfortunately, the Canada student loans section is not declared an essential service. I think all those essential service designations happened before we went to direct loans. But we have seriously looked at that eventuality of moving a large credit into the personal bank account of Sandy—

Some hon. members: Oh, oh!

Mr. David Cogliati: —no, a large credit into EDULINX and/or BDP so that they could directly disburse the funds. So we're working on it.

I can't promise we can get around the Financial Administration Act. I would never suggest we're trying to get around it. The issue is whether we can delegate some of those authorities out.

Ms. Libby Davies: As a follow-up, I wanted to come back to the private institutions, because I personally don't know as much about how they work. I do know just from the casework in my own office some of the really quite awful stories of students who have gone to a private institution for some sort of career training or vocational training and really got ripped off. Then they get into absolutely severe difficulties, because they still have a loan but they actually didn't get what was meant to be delivered to them.

I know there's a provincial accreditation program, but because this is still part of the Canada student loans program, does the federal government have any leverage in terms of monitoring those institutions—particularly where you see there is a higher default rate because the institution is not performing in some way? What can the federal end then do as a lever in terms of examining what's going on and providing some resolution?

Mr. David Cogliati: It's an excellent question.

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The provinces are responsible for the designation of these institutions, and we've worked quite closely with them to try to get a national designation policy in place. Part of the move to direct loans forced, I think, the federal government and certainly all those provincial governments that are in the direct loan business...some of the eastern provinces are still associated with banks; for the most part, Ontario and the west have all gone to direct loans.

To take a really serious look at portfolio management, Ontario started to do some things around the private institutions in Ontario that tie eligibility for student loan access to the performance of previous students in paying back those loans. I'm not saying we're going that far yet, but we're having discussions with all of our provincial counterparts.

I sit on a couple of working groups, and one of them is called the Intergovernmental Consultative Committee on Student Financial Assistance. We're looking specifically at designation policies to try to deal with some of these private sector issues.

Ms. Libby Davies: Am I correct that this would again be on a province-by-province basis, where you have worked out an agreement for some sort of integration?

Mr. David Cogliati: The way it would work, if we can get it all to work, is to have a standardized set of principles that each province could try to accept and tailor to their own individual needs. So if a particular institution is either designated or de-designated in the one province, another province would accept that designation or that de-designation. We would try to get a certain minimum standard that all the provinces would adhere to.

Without belabouring it, it is fairly political. It's really not a designation policy that we're working with. It's a de-designation policy. When you remove designation you're removing jobs, sometimes in small communities, and you're removing access to higher education for some people who may not have the marks to get into the public institutions. So in some ways, like anything else, there are some very good private institutions and there are some that are not so good. They're stuck with that.

The Chair: Your five minutes is up.

Ms. Anthony, I know, wants to respond.

Ms. Jennifer Anthony: On the issue of designation and de-designation, right now the Province of Nova Scotia is considering de-designation legislation. They're considering it for public institutions, which is a real problem.

The students who attend the University College of Cape Breton, for example, as you might imagine, have particularly high default rates. It's an economically disadvantaged area of the country. There's an incredibly high percentage of students at that institution who actually receive student loans.

So I want to clearly state the position of the Canadian Federation of Students, for the record, in this committee. While we support the complete de-designation of private institutions for the purposes of Canada student loans, we do not support the de-designation of public institutions.

The Chair: Ms. Skelton?

Ms. Carol Skelton: I will go back to private institutions because I know we have an organization in Saskatchewan that represents the private colleges. I was very impressed with that group of people that did come in. I know the demographics of their students are totally different from the students who attend the public institutions.

That was my point.

I want to ask Mr. Cogliati a question.

Is the purpose of the interest that you charge these students totally to cover the cost of the program only?

Mr. David Cogliati: I really don't know the derivation of the interest.

We've been charging interest since 1964. So I don't know the philosophy or the rationale behind what specific rate was charged, unfortunately.

Ms. Carol Skelton: I'm just wondering how much money you were making off this. Could the government afford to lower student interest rates?

Mr. David Cogliati: I don't know if we make money on this, to be honest with you.

Ms. Carol Skelton: I am curious. It is a question. I just wondered how much money the government is making off that interest that's being charged to students.

Mr. David Cogliati: When the actuaries produce their report on provisioning there will be a section in there that articulates how much money is loan, how much interest income is generated as a result of that. Of course, that's offset by how much you lose by the defaults and the cost of administration.

The Chair: I think on that particular question Mr. South wanted to add something.

Mr. Robert South: I'm sorry. I hope you don't mind me adding a comment.

The Chair: No, please.

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Mr. Robert South: I can provide a little history. I can't provide the answer for Mr. Cogliati either on whether money is being made or lost in the program.

The current interest rates that came into effect, though, came into effect when we moved to a risk-shared system with the banks in the mid-nineties. The Canada student loans program, at the time, was obviously enduring certain costs because they pay the interest while students are in school and for the first six months afterwards. Those interest rates were designed to take into account the costs that the Canada student loans program was covering. The banks could make money off the program; they had certain targeted amounts they wanted to make.

The banks that were involved in the program never released figures on whether they made money or how much money they made. We tend to sense that they did indeed make some money, but they didn't make the targets they wanted to.

When we look back further into the history of the program—and this is the important point that CASA would like to make—the interest rates on this program shouldn't be based on a figure of whether it's profitable or not. This is a social program trying to help to make sure that all Canadians have the opportunity to participate in post-secondary education.

At one point in time, funnily enough, interest rates were linked to Canada Savings Bond interest rates; they were a set percentage above Canada Savings Bond interest rates. I don't know the rationale for that.

There's never been a set rationale for the program on why interest rates are what they are, except for the most recent ones that were instituted, as I said, when the banks joined the program on a risk-shared basis so that the banks could meet their own targets for revenue.

Ms. Carol Skelton: Are the integrated loans more costly to administer?

Mr. David Cogliati: No. Because of the simplification, they're actually less costly. Instead of having two administrations we've joined it and there's a certain degree of—

Ms. Carol Skelton: So there's another good reason why we can lower interest rates.

Mr. David Cogliati: I guess.

The Chair: Before I thank everyone, is there any witness who wants a short opportunity to respond to anything.

Ms. Carol Skelton: Another question just popped into my mind.

Robert, do you represent students from private colleges, too?

Mr. Robert South: No, we represent public universities and colleges.

Jennifer, how about your organization?

Ms. Jennifer Orum: It does include financial aid administrators from private colleges.

Ms. Carol Skelton: And Jennifer two.

Ms. Jennifer Anthony: There's no way for a student organization to actually represent students at private colleges because, for the most part, they're not allowed to have student unions. The student movement is organized through student unions, but they're generally not allowed at private institutions.

Ms. Carol Skelton: Good. Thank you very much.

Ms. Jennifer Orum: I would like to add to the point we just discussed on the issue of the interest rates. We would very much like there to be a review for a number of the points made.

We are in fact optimistic, based on the requirements of the contract for very proactive and user-friendly services with students to encourage repayment. We do believe there will be a significant reduction in default rates in both the public and private education systems, together with other things happening within our financial environment and the issue of integration, which we are optimistic will also have a positive impact on default rates. We believe it gives a great deal of reason to review the prime plus 2.5% and the prime plus 5%. We would recommend a regular timing of reviews of the interest rates that would be built into the system to take into account these developments.

The Chair: Sandra Ferguson.

Ms. Sandra Ferguson: Madam Chair, honourable members, EDULINX would like to thank you for listening to us today and thank the program officials for allowing us to come and participate as well.

The Chair: On behalf of the committee, I want to thank everyone who made the effort to come today.

On a personal note, I'd be very interested in hearing back from some of you after the January round of loans. Perhaps, if the committee can arrange it, we might have an opportunity when we come back after our break to have some of you back again to see just what progress has been made.

The meeting is adjourned.