Vol. 150, No. 14 — July 13, 2016

Registration

SOR/2016-199 June 22, 2016

CANADA STUDENT FINANCIAL ASSISTANCE ACT
APPRENTICE LOANS ACT

Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations

P.C. 2016-626 June 21, 2016

His Excellency the Governor General in Council, on the recommendation of the Minister of Labour, makes the annexed Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations, pursuant to

(a) section 15 (see footnote a) of the Canada Student Financial Assistance Act (see footnote b); and

(b) section 12 of the Apprentice Loans Act (see footnote c).

Regulations Amending the Canada Student Financial Assistance Regulations and the Apprentice Loans Regulations

Canada Student Financial Assistance Act

Canada Student Financial Assistance Regulations

1 The long title of the Canada Student Financial Assistance Regulations (see footnote 1) is replaced by the following:

Canada Student Financial Assistance Regulations

2 Section 1 of the Regulations and the heading before it are repealed.

3 Paragraph 38(3)(b) of the Regulations is replaced by the following:

• (b) $1,800.

4 Subsection 40.02(2) of the Regulations is replaced by the following:

(2) The grant shall be $375 per month of study.

5 Subsection 40.021(2) of the Regulations is replaced by the following:

(2) The grant shall be $150 per month of study.

6 Schedule 1 to the Regulations is replaced by the Schedule 1 set out in Schedule 1 to these Regulations.

Apprentice Loans Act

Apprentice Loans Regulations

7 Schedule 2 to the Apprentice Loans Regulations (see footnote 2) is replaced by the Schedule 2 set out in Schedule 2 to these Regulations.

Coming into Force

August 1, 2016

8 (1) Sections 1 to 5 come into force on August 1, 2016, but if these Regulations are registered after that day, those sections come into force on the day on which these Regulations are registered.

November 1, 2016

(2) Sections 6 and 7 come into force on November 1, 2016, but if these Regulations are registered after that day, those sections come into force on the day on which these Regulations are registered.

SCHEDULE 1

(Section 6)

SCHEDULE 1

(Subsections 19(2) and 20(2))

Monthly Income Thresholds and Increments

Family Size	Monthly Income Threshold	Monthly Increment
1	$2,083	$250
2	$3,254	$350
3	$4,205	$425
4	$4,959	$500
5 and over	$5,652	$575

SCHEDULE 2

(Section 7)

SCHEDULE 2

(Subsections 10(2) and 12(2))

Monthly Income Thresholds and Increments

Family Size	Monthly Income Threshold	Monthly Increment
1	$2,083	$250
2	$3,254	$350
3	$4,205	$425
4	$4,959	$500
5 and over	$5,652	$575

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Executive summary

Background

The CSLP provides financial aid to students in the form of Canada student loans (CSLs) and Canada student grants (CSGs) to supplement their resources and help them meet the costs of PSE. The CSLP provides up to 60% of calculated financial need in grants and loans, while the provinces and territories (PTs) cover the rest. When students leave school, the CSLP provides repayment assistance to those facing financial difficulty to ensure their student debt remains manageable as they transition into the labour force. Participating provinces (all provinces except Quebec) and one territory (Yukon), as well as the private sector service provider D+H, administer CSLs and CSGs.

In 2009, the CSLP introduced CSGs to provide targeted, up-front non-repayable assistance to students underrepresented in PSE, including students from low- and middle-income families, students with dependants, and students with permanent disabilities. The CSG-LI, CSG-MI, and CSG-PT comprise approximately 82% of all CSGs disbursed in a given year. CSG amounts are prescribed in Part VI of the Canada Student Financial Assistance Regulations (CSFAR).

Also in 2009, the CSLP introduced RAP, which supports more than 200 000 borrowers per year by lowering their monthly loan payment to an amount that is considered to be affordable based on their family income and size. RAP eligibility thresholds for CSL borrowers are prescribed in Schedule 2 to the CSFAR.

In Budget 2014, Canada Apprentice Loans (CAL) were introduced to assist Red Seal trade (see footnote 3) apprentices with the costs of their technical training. CALs operate as an extension of the CSLP to allow for operational efficiencies in the delivery of apprentice loans by the CSLP’s private sector service provider. RAP is also available to eligible CAL borrowers who experience difficulty in repayment. RAP eligibility thresholds for CAL borrowers are prescribed in Schedule 1 to the Apprentice Loans Regulations (ALR).

In Budget 2016, the Government of Canada (GoC) committed to creating more opportunities for young Canadians, especially those from low- and middle-income families, by working with PTs to make PSE more affordable. Commitments were made to increase the CSG-LI, CSG-MI, and CSG-PT by 50%, and make changes to the RAP eligibility thresholds to ensure that no graduate with student loans will be required to make any repayment until they are earning at least $25,000 per year.

This work is to be undertaken collaboratively with PTs, while not compelling them to take on new costs.

Issues

Canadian students are taking on a greater share of the costs of higher education. Between 1982 and 2012, the proportion of university operating revenues provided by government sources declined from 83% to 55%, while the proportion funded by student tuition fees has increased from 14% to 38%. Since 2000, average annual undergraduate tuition in Canada has increased at a 5% annual rate to more than $5,700 per year in 2013, totaling approximately $7,700, including average ancillary fees and textbook costs.

CSG amounts have not been updated since being introduced in 2009, despite more than a 20% rise in average undergraduate tuition since that time. As a result, a growing number of CSL borrowers have an assessed financial need that meets, or in most cases, exceeds available funding. For example, the proportion of borrowers at the CSL limit of $210 per week of full-time study has increased from 27% in 2009 to 37% in 2014. To make up for this limit in government student financial assistance (SFA), many students are turning to alternative, less generous sources of funding, such as credit cards and private lines of credit. If the amount of CSGs increases, borrowers will see either a larger percentage of their federal assistance in the form of grants, or more federal assistance overall. The first scenario will apply to borrowers with lower levels of need, where additional grant funding simply offsets (replaces) loan funding; whereas the second scenario will apply to borrowers with high levels of need, where additional grant funding will be provided in addition to maximum loan funding. Research by the Higher Education Quality Council of Ontario has shown that those from vulnerable populations have greater price sensitivity, are more affected by increases in upfront costs of PSE, and are more averse to taking on loan debt.

Costs of PSE are also borne in repayment. The average federal student loan debt at graduation is approximately $12,500; however, borrowers typically carry additional PT and private loans. Average total debt owed to all sources (including federal, PT, and private loans) increased from $18,800 for the Class of 2000 to $25,400 for the Class of 2010. Since the inception of RAP in 2009, the eligibility thresholds, which begin at $20,210 (gross income), have not been adjusted to account for inflation.

For example, the minimum wage in Ontario was $9.50 per hour in 2009, which amounted to a yearly salary of $19,760 at 40 hours per week. However, when the province increased its minimum wage to $11.25 an hour in 2015, the yearly salary rose to $23,400, above the minimum RAP eligibility threshold. Combined with the rising costs of PSE in Canada, failing to increase the CSG amounts could negatively impact students from low- and middle-income families, including members of vulnerable populations, as some may choose to either delay or stop their participation in PSE for fear of incurring high levels of student debt, while other students might address funding gaps through private credit sources.

For CSL borrowers in repayment who are transitioning into the workforce, failure to address the disparity between increases in real wages and the RAP eligibility thresholds could lead to a rise in defaults.

Objectives

Amendments to the CFSAR to increase CSG amounts and RAP eligibility thresholds will ensure that all eligible CSL borrowers continue to receive the assistance they need to pursue post-secondary studies and to manage and repay their loans. Corresponding amendments to the ALR are necessary to ensure that the increases to the RAP eligibility thresholds also apply for CAL borrowers.

Specifically, the amendments are to (1) increase the CSG-LI, CSG-MI, and CSG-PT by 50%; and (2) increase the RAP eligibility thresholds, with the base threshold for a family size of one increasing from $20,210 to $25,000, and all subsequent family size thresholds increasing by a proportionally equivalent amount.

Description

The amendments to the CSFAR and ALR are as follows:

1. The CSG-LI eligibility amount, as identified in subsection 40.02(2) of the CSFAR, will increase from $250 to $375 per month of study.
   • — Note: over a typical eight-month (two-term) school year, the CSG-LI would increase from $2,000 to $3,000.
2. The CSG-MI eligibility amount, as identified in subsection 40.021(2) of the CSFAR, will increase from $100 to $150 per month of study.
   • — Note: over a typical eight-month (two-term) school year, the CSG-MI would increase from $800 to $1,200.
3. The CSG-PT eligibility amount, as identified in subsection 38(3) of the CSFAR, will increase from a maximum of $1,200 to a maximum of $1,800 per loan year.
4. The RAP eligibility thresholds, as identified in Schedule 1 to the CSFAR, will increase from $20,210 to $25,000 for the base threshold for a family size of one, with all subsequent family size thresholds increasing by proportionally equivalent amounts.
5. The RAP eligibility thresholds, as identified in Schedule 2 to the ALR, will increase from a base of $20,210 to a base of $25,000 for a family size of one, with all subsequent family size thresholds increasing by proportionally equivalent amounts.

Regulatory and non-regulatory options considered

Non-regulatory options were not considered as all changes to CSG amounts, eligibility criteria, and/or RAP eligibility thresholds require regulatory amendments.

However, in addition to the increases to the RAP eligibility thresholds, a non-regulatory option was proposed in Budget 2016 to raise awareness of RAP on a go-forward basis.

Benefits and costs

Budget 2016 proposed that the increases to CGSs would have an initial cost of approximately $216 million, with a projected cost of $1.53 billion over the first five years and $329 million per year thereafter. The proposed increase to the RAP eligibility thresholds would have an initial cost of approximately $15 million, with a projected cost of $131.4 million over the first five years and $31 million per year thereafter. The additional cost resulting from the increase to the RAP eligibility thresholds for CAL is projected to be $200,000 per year.

Increasing the CSG amounts and the RAP eligibility thresholds, as proposed in Budget 2016, will ensure that eligible CSL borrowers continue to receive the assistance they need to pursue PSE and to make their student debts more manageable in repayment. The incremental impacts presented below reflect the difference between the outcome of maintaining current CSG amounts and RAP eligibility thresholds under a baseline scenario (i.e. if the proposed regulatory amendments are not implemented) and the outcome of implementing the proposed amendments.

All monetized costs and benefits are estimated on an annual basis over a 10-year period from 2016 to 2026, as the 2016–2017 academic year will be the first year in which borrowers will be able to receive the increased CGSs and benefit from the increases to the RAP eligibility thresholds. A discount rate of 7%, selected in accordance with Treasury Board Secretariat guidance on cost-benefit analysis, has also been applied to all monetized impacts.

Costs

The net costs (i.e. the difference between program expenses and revenues) to the GoC of continuing to provide additional grants and repayment assistance under the proposed amendments are based on estimates using CSLP administrative data. Incremental costs were determined by comparing the difference between the net costs under the baseline and the net costs under the proposed amendments. With respect to the proposed amendments to the CSG amounts, the net costs include the direct program costs, as well as the costs savings associated with not disbursing direct loans to eligible students, including the cost savings of supporting students during and after their studies. With respect to benefits associated with increasing the RAP eligibility thresholds, the net costs included the direct program costs only.

Additionally, student-borrowers entering repayment or already in repayment will pay what they can afford, rather than default on their loans. These costs were monetized by estimating loan repayments that students would potentially make to the Government in terms of reduced write-off amounts that would be paid by the GoC. These costs were adjusted downward by subtracting the amount that could be recalled, rehabilitated and recovered to arrive at the cost to student-borrowers of the proposed RAP eligibility threshold increase.

Benefits

Quantitative

Benefits to this group were monetized by attributing the dollar-for-dollar amount of additional CSGs that students will receive as well as by examining the earning differentials between full-time employees with PSE and high school graduates. The additional CSG amounts disbursed to students is equivalent to the dollar-for-dollar amount of additional grants plus the cost of alternative payments paid to the non-participating jurisdictions on these additional grant dollars. Overall, the amendments will ensure that approximately 247 000 students from low-income families, 100 000 students from middle-income families and 16 000 part-time students receive increased benefits in the form of non-repayable CSGs.

The increased benefits cited above are expected to lead to 2 371 additional students by the final year of the analysis who would complete PSE. Earning differentials by level of study were estimated using data obtained from the 2006 Census data, in particular, median earnings for full year, full-time employees between the ages of 25 to 34. The difference in median earnings relative to persons with high school diplomas is $12,784 (in 2016 dollars). Based on this result, a modest annual income gain of $12,500 in the first year after PSE completion is assumed with a 1.7% annual growth of real income for subsequent years, reflecting an increase in premium due to experience and skills acquisition over time. Tuition costs that would be carried by students who could not pursue PSE without the additional grant amounts are subtracted from increased earnings accrued during the 10-year period under consideration (i.e. 2016 to 2026); however, it should be noted that the income gain resulting from PSE attainment accrues for the duration of a borrower’s lifetime.

Benefits to borrowers who will benefit from RAP as a result of the amendments (approximately 23 000 additional individuals), or who already benefit from RAP, have been described qualitatively below in the next section. The benefits to the GoC were monetized by estimating potential savings to the GoC resulting from a decrease in defaulted and written-off debts. These benefits were adjusted downwards by subtracting the amount that could be recalled, rehabilitated, and recovered to arrive at net benefits of the increases to the RAP eligibility thresholds. Overall, the analysis found that the benefits of these amendments outweighed the costs over the 10-year period set out in Table 1.

Qualitative

In addition to increased earnings, evidence suggests that those who attend PSE experience lower rates of unemployment and shorter unemployment periods. Evidence also suggests that those who attend PSE live longer, healthier lives and pass additional benefits on to their children in the form of better cognitive development, health, and future potential earnings.

While many prospective students would still find a way to cover the costs of attending PSE in the absence of the amendments, there is a risk that a lack of funding would cause many students to delay PSE. As a consequence, any increased earnings associated with attending PSE would also be delayed. Other students might choose to finance their studies through an increased reliance on student employment or private credit. Likewise, students who rely on financial assistance from private lenders or credit cards would not benefit from the suite of repayment assistance measures offered by the CSLP, such as RAP, and potentially increasing the costs of their PSE.

Protected by RAP, these student-borrowers could use these interest-free non-repayment periods to accumulate valuable experience and acquire essential skills that are related to their field of study. Otherwise, these student-borrowers could be pressured by repayment obligations to accept lower-paying jobs.

Attending PSE creates positive externalities, meaning that the benefits of attaining a PSE accrue to others beyond the individual student. For example, businesses obtain a benefit from having a larger pool of skilled and productive workers from which to choose. Studies have also shown that increasing the level of PSE attainment in society can lead to greater innovation and economic growth, increased civic engagement, lower income inequality, and less reliance on public services, such as foster care and juvenile diversion programs.

Results

Table 1 below provides a summary of the costs and benefits associated with the amendments. Overall, the net benefit of implementing the proposed amendments is $556 million, with a benefit-cost ratio of 1.22:1, and does not account for quantitative benefits beyond a 10-year period or additional qualitative benefits to students, businesses, and Canadian society. In summary, the benefits of implementing the amendments are expected to far outweigh the costs to the GoC of disbursing additional loans.

Table 1 — Cost-benefit statement

		First Year: 2016–2017	Final Year: 2025–20261	Total (PV)2	Annualized Value
A. Quantified impacts (in million CAN$, 2016 present value)
Benefits — Increase in transfers to individuals (CSG and RAP)	Individuals	$187	$360	$2,498	$356
Benefits — Future potential earnings over 10-year period, adjusted for tuition costs3 (CSG)	Individuals	$0	$217	$556	$79
Benefits — Reduction of default loan amounts over 10-year period, adjusted for recalls and rehabilitation, and recovery rate (RAP)	Government of Canada	$4	$17	$89	$13
Cash cost — Increase in transfers to individuals (CSG and RAP)	Government of Canada	$187	$360	$2,498	$356
Cash cost — Increase in loan repayment amounts over 10-year period, adjusted for recalls and rehabilitation, and recovery rate (RAP)	Individuals	$4	$17	$89	$13
Net benefits				$556	$79
B. Quantified impacts in non-$ (counts)
Positive impacts — Greater availability of skilled workers (number of students who could not pursue studies without this amendment)	Business	0	2 371	21 002	Not applicable
C. Qualitative impacts Individuals Students who otherwise could not pursue post-secondary education without these amendments Lower rates of unemployment and shorter unemployment spells due to post-secondary credentials. Greater health and longevity. Intergenerational effects (improved health, effects of education on child development and future earnings of children). Students who otherwise would delay post-secondary education without these amendments Can forgo delaying benefits of post-secondary education (higher potential earnings and lower rates of unemployment/shorter periods of unemployment). Will not be required to rely solely on private sources of credit. Will not forgo benefiting from the suite of CSLP measures designed to assist students experiencing difficulty with repayment. Students who otherwise would continue their post-secondary education regardless Better academic achievement as they will be able to forgo seeking student employment. Will not be required to rely solely on private sources of credit. Will not forgo benefiting from suite of CSLP measures designed to assist students experiencing difficulty with repayment. Businesses Gain productivity. Canadian society More innovation and economic growth. Greater civic engagement (volunteerism and charitable contributions). Reduced income inequality.

¹ Analysis done for a 10-year time period using a real discount rate of 7%.

² Present value where totals are financial.

³ Potential future earnings have been discounted for tuition and loan interest costs. Note: This value represents the 10-year earning premium of students that receive CSLs in a given year, not individual annual earnings.

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal, as there is no change in administrative costs to business.

Small business lens

The small business lens does not apply to this proposal, as there are no costs to small business.

Consultation

Employment and Social Development Canada consulted with PT partners and stakeholders groups such as the Intergovernmental Consultative Committee on Student Financial Assistance (ICCSFA) and the National Advisory Group on Student Financial Assistance (NAGSFA) over the course of 2015. ICCSFA is composed of federal and PT student aid officials, and NAGSFA is composed of stakeholders, such as PSE student associations, educational organizations, student financial aid administrators and members of the academic community.

PTs, stakeholders, PSE institutions and students have showed overwhelming support for Budget 2016 proposals to increase CSGs and the RAP eligibility thresholds. Although there was some concern with the GoC’s decision not to move forward with Budget 2015 initiatives, the reaction to Budget 2016 was overall positive.

Eight of 10 PTs that participate in the CSLP have provincial RAP programs to assist borrowers with their provincial loans. Consultations will be required should these jurisdictions choose to mirror the updated federal policy.

Stakeholders (i.e. student representatives) have long advocated for increased supports during repayment, and are largely supportive of the proposed changes to the RAP eligibility thresholds.

Rationale

Increasing CSG amounts will ensure that students receive help that reflects the rising costs of PSE, while making debt loads more manageable. For those entering the workforce and struggling to repay their CSLs, increasing the RAP eligibility thresholds will ensure that no student will have to repay their CSL if making less than $25,000 per year. The new eligibility thresholds will provide increased flexibility in repayment, better reflecting minimum wages and easing students’ transitions into the workforce.

Middle-income families struggling to pay for their children’s educations will benefit from the increased CSG measures, as nearly 100 000 students from middle-income families will receive increased financial assistance. The impact is even greater for low-income families, many of whom simply cannot afford to save for PSE. Approximately 247 000 students from low-income families will benefit from increased CSG-LI. Further, approximately 16 000 part-time students, many of whom are in positions of balancing their post-secondary pursuits with employment and family responsibilities, will receive more financial assistance.

Collectively, the CSG increases will encourage prospective low- and middle-income and part-time students in PSE by lowering debt aversion. For those who borrow despite the costs, CSG increases are expected to coincide with lower reliance on less generous forms of funding, such as student lines of credit, and reduce financial burdens frequently carried by family members. Increased PSE benefits society as a whole, resulting in a greater number of highly skilled workers and a more competitive labour market.

The increased RAP eligibility thresholds will provide additional assistance of $131.4 million over five years and $31 million per year thereafter, and mean that an additional 23 000 individuals are eligible for zero loan payments. Increased RAP eligibility is expected to offer more flexibility to individuals transitioning into the labour market, giving them the flexibility they need to access meaningful work at the beginning of their careers.

Implementation, enforcement and service standards

The increased CSG amounts are expected to be available on August 1, 2016, which marks the commencement of the 2016–2017 academic year; while the increased RAP eligibility thresholds are expected to be available on November 1, 2016, coinciding with the largest number of former students entering repayment each year.

Grant assessment will continue to be carried out as part of the needs assessment process that is administered on behalf of the CSLP by the participating PTs. Specifically, PTs determine eligibility, maintain necessary records regarding eligibility, and include assessed grant amounts on each applicable student’s certificate of eligibility/ student loan agreement. This information is then transmitted to the National Student Loans Service Centre (NSLSC).

The NSLSC has the responsibility of inputting the information received from the PTs into the loan servicing system. They also apply the appropriate business edits before sending the grant amount information to the CSLP. The grants are disbursed upon confirmation of enrolment prior to the course fees coming due. The full-time and part-time federal disbursement file is then transmitted to the CSLP via Government Telecommunications and Informatics Services (GTIS). The NSLSC must also maintain all necessary records in order to address recipients’ questions. GTIS is a secure electronic data transfer system used to transfer files between the CSLP and the NSLSC.

Service standards will not be affected by the changes, reflecting existing PT need assessment timelines and pre-established commitments on the part of the CSLP service provider.

Additionally, the GoC committed in Budget 2016 to increasing efforts to ensure that students eligible for RAP are fully aware of the how they can benefit from these repayment measures.

Performance measurement and evaluation

To ensure effective management and accountability to Canadians, federal SFA programs will continue to be monitored to ensure effective program performance and integrity. The resulting data will continue to be included in the CSLP’s Actuarial Report and Annual Report, both of which are tabled in Parliament as per the Canada Student Financial Assistance Act. These reports can also be accessed online by the general public.

The effect of increased CSG amounts and RAP eligibility thresholds will be incorporated into existing performance measurement and evaluation mechanisms. Employment and Social Development Canada’s Evaluation Directorate has recently completed a five-year summative evaluation of the CSLP covering the period from 2006–2007 to 2010–2011. The effect of these changes will be included in a subsequent summative evaluation.

Contact

Steven Coté
Director
Policy and Research
Canada Student Loans Program
Employment and Social Development Canada
200 Montcalm Street, Tower II, 1st Floor
Gatineau, Quebec
K1A 0J9
Telephone: 819-654-8775
Fax: 819-654-8397
Email: steven.f.cote@hrsdc-rhdcc.gc.ca

• Footnote a
  S.C. 2013, c. 40, s. 234
• Footnote b
  S.C. 1994, c. 28
• Footnote c
  S.C. 2014, c. 20, s. 483
• Footnote 1
  SOR/95-329
• Footnote 2
  SOR/2014-255
• Footnote 3
  The Red Seal Program is an interprovincial standard of excellence for the skilled trades that accounts for approximately 80% of all registered apprentices in Canada.