UBC graduate Jenn Duong says that, thanks to her remaining $23,000 federal student-loan debt, she is unlikely to qualify for a mortgage.

Jenn Duong has fond memories of her political-science studies at UBC. It was only after graduation that she learned they came with a bigger price than she anticipated.

Duong, 25, borrowed $29,000 from the federal and provincial student-loan programs to finance her education. Now working for a bank, she said she is shocked that she must pay higher interest rates than those with conventional bank loans.

“I think it’s unfair that someone can take out a loan with the government that has a higher interest rate than taking one out from the bank,” Duong said in a phone interview with the Georgia Straight.

She’s not alone. According to Vancouver financial writer Jeannine Mitchell—who operates the Debt 101 Web site—young people across the country are contributing huge sums of money to a bureaucratic system financed, in part, by excessive student-loan interest rates. “The net annual cost of running the Canada Student Loans Program is over half a billion,” Mitchell said in a phone interview. “I think that Canada’s high student-loan interest rates have more to do with our expensive student-loans system than with banking arguments about student-loan risk.”

Duong decided to lock in at a fixed interest rate of almost 10 percent four years ago. This came after a student-loan official warned her that interest rates were bound to go up. After noticing that her payments had barely made a dent in her B.C. student loan (after three years of monthly payments, her loan had only been reduced by $1,300), she took out a line of credit—with a lower interest rate from the bank—and paid off the $6,000 provincial portion of her debt.

Duong is trying to purchase her first home, but says her remaining $23,000 federal student loan makes it unlikely she’ll qualify for a mortgage. “This is a huge amount of debt,” she said, “especially since they [the government] want you to start buying and stimulating the economy; they keep encouraging first-time home buyers. But half of first-time home buyers have these high-interest student loans, and they can’t get a mortgage.”

According to the Canada Student Loans Program annual report from 2005-06 (the most recently published relevant numbers), the amount allocated to federal student-loan programs totalled $931.1 million; of that amount $395.6 million was revenue from loan interest charges.

Ottawa requires students to pay at either a fixed or a floating rate. As stated on the federal government’s Web site, fixed-rate loans require students to pay prime (currently 2.25 percent) plus five percent. A floating rate is dependent on the current interest rate—for example, it’s now at prime plus 2.5 percent. Students can be paying as much as 7.25 percent interest on their student loans.

Mitchell blamed Canada’s needlessly complicated student-loan system for the high interest rates. “It’s a kind of a Rube Goldberg machine,” she said. “We have federal, provincial, and territorial loans bureaucracies running different privatized service centres and all kinds of complicated repayment programs. To jack the costs even higher, these systems and programs keep changing.”

Mitchell said she wants an overhaul of the system and some movement toward a free postsecondary-education system. “If you look at most advanced economies, they tend to give free or cheap tuitions, and they often have quite generous grants,” she said, noting Ireland, France, and Scandinavia as places where tuition is free. Other countries, such as New Zealand, have done away with interest charges on student loans.

The only Conservative cabinet minister from Metro Vancouver, James Moore, was not available for comment by deadline. Burnaby-Douglas NDP MP Bill Siksay—whose riding includes Simon Fraser University—told the Straight in a phone interview that student-loan interest rates are a symptom of a bigger issue: student debt and overall government support of postsecondary education. Like Mitchell, he thinks it’s time to start thinking about eliminating tuition fees.

“We really need to get to the point of dealing with why we’ve decided it’s appropriate for people to run up huge debts to get their education so they can make their way in the world,” Siksay said.

However, Liberal MP Joyce Murray—whose riding includes UBC—argues that not all debt burdens are bad. “I think that it’s actually positive for students to have some part of investment in their education,” Murray told the Straight over the phone. “So, that being said, we need it to be a reasonable burden, not an unreasonable one at the end of the day.”

Duong said she understands Murray’s point—and sees her education as an investment—but contends that the student-loan system doesn’t make it easy for young people. “I have this huge financial burden that is preventing me from doing a lot of the things I want to do,” Duong said. “I think if I didn’t have this to worry about, I would have taken a job that I was 100-percent happy with or been able to travel. But instead, I have to worry about paying off this loan and the interest that keeps incurring on it.”