Audit reports that Repayment Assistance Plan participants were paying nothing on $2.9 billion in student loans

In 2018, about $3 billion in federal money was targeted toward student loans and providing subsidies to parents to finance their children's education at colleges, universities, and institutes.

But according to a new report from the Office of the Auditor General, Employment and Social Development Canada "did not efficiently manage some aspects".

In particular, the report zeroed in on the Repayment Assistance Plan, which allows borrowers to reduce monthly payments to better manage their student debt. In some cases, the feds cover part of the interest or part of the principal.

By July 1, 2018, more than 200,000 borrowers were participants in the plan, representing $3.6 billion in federal student loans.

At that time, 87 percent of recipients—representing $2.9 billion in loans—were making no repayments, according to the report.

Employment and Social Development Canada agreed with the office's recommendation for the government to ensure "proper, systematic verification of applications" to be eligible for the Repayment Assistance Plan.

Tax info unavailable in administration of loans

In the 2018-19 fiscal year, the federal government wrote off $160 million in student debt, deeming it "unrecoverable".

In addition, $244 million in interest was waived and $100 million was forgiven under the Repayment Assistance Plan. 

The auditor general's office also recommended that Employment and Social Development Canada "develop performance indicators" that take into account the full impact of the Repayment Assistance Plan on nonrepayment of student loans.

The current minister overseeing employment is Carla Qualtrough, whereas Ahmed Hussen oversees social development, who were both appointed in December 2019. 

Karen Hogan was appointed as Canada's auditor general in June.

In the report on student financial assistance, her office pointed out that the government's contracted service provider did not have income-tax information from the Canada Revenue Agency.

As a result, it checked the income of Canada Student Loan recipients from whatever pay slips were submitted. And these weren't verified. 

"It thus could not efficiently determine whether the information declared by applicants was accurate," the auditor general's office reported. "In 2017, the department undertook a special verification that showed that 58% of participants in the Repayment Assistance Plan had an income higher than what they declared when they applied to the plan."

In 14 percent of these cases, the department determined that the difference was large enough that the borrowers should have received a lower benefit under the Repayment Assistance Plan.

In addition, the report revealed that in 2017, the department found that 22 percent of Repayment Assistance Plan recipients did not file tax returns. That meant their incomes could not be verified. 

The provincial program in Ontario, on the other hand, requires student-loan recipients to disclose their tax returns to be eligible for many programs related to financial aid.

"We noted that 40,492 borrowers in the plan declared that they had ended their full-time post-secondary studies, had no job or income, and did not receive any form of government assistance," the auditor general's office stated.

"In our view, this number of people who declared that they had no income should have prompted the department to take appropriate measures to safeguard the integrity of the plan, given the integrity problem the department had identified."

Debt details will go to credit bureaus

Even though borrowers give the federal government permission to disclose their debts to credit bureaus, Employment and Social Development Canada does not forward this information.

"This was inconsistent with the department’s practice for delinquent student loans, which are reported to credit bureaus through the service provider," the auditor general's office stated.

The department agreed with the office's recommendation that student-debt information be passed along to credit bureaus. 

The report also concluded that Employment and Social Development "does not offer enough tools to help students understand their obligations under the Canada Student Loans Program".

A client-satisfaction survey in 2016, for instance, revealed that only 44 percent of borrowers in their last year of studies knew that interest on loans would kick when they stopped going to school.

And only 35 percent realized that interest would start accumulating if they switched from being full-time to part-time students.

The auditor general called on Employment and Social Development Canada to create a web portal, in collaboration with the Financial Consumer Agency of Canada, to make more financial information about the program available.

For the period covered by the report, the minister overseeing social development was Jean-Yves Duclos, who's now president of the treasury board. The minister overseeing employment and workforce development was Patty Hajdu, who's now the health minister.

In general, the report concluded that Employment and Social Development Canada failed to thoroughly evaluate the individual and combined impact of the Canada Student Loans Program and the Canada Education Savings Program on students' ability to gain access to colleges, universities and institutes.

In particular, the auditor general's office found that low-income families did not fully participate in the Canada Education Savings Program, which includes the Canada Learning Bond.

"For example, even though the Canada Learning Bond is paid by the government without any contribution from families, about 62% of eligible children did not receive it as of 2018 because no account had been opened for them," the auditor general's office noted.

"Also, the proportion of low-income families with a Registered Education Savings Plan account who contributed and therefore received the grant decreased from 92% to 74% between 2007 and 2018."