Student debt rises, banks profit

As Canada’s Big 6 banks all reported stronger-than-expected profits last week, newly examined data from Statistics Canada reveals a massive upswing in privately held debt among post-secondary graduates. In just 10 years, while bachelor’s degree graduates saw a 5.2% increase in public debt, private debt for that group shot up by 53%.

Read: Students, seniors caught in debt cycle: study

“As the upfront costs of post-secondary education continue to rise, more Canadians must rely on debt to pursue their studies,” says Jessica McCormick, national chairperson of the Canadian Federation of Students. “Higher rates of private borrowing—and the associated interest—mean banks are seeing higher profits on the backs of students.”

Private debt levels for PhD. and Bachelor’s degree holders have jumped between 4% and 11.5% each year between 2000 and 2010.

Read: Are student loans the next big risk to markets?

If the same standards used by the BoC for household debt are applied to private student debt—where annual growth above 4% raises concerns—then there is justifiable cause to sound the alarm, notes the Canadian Federation of Students. The Canada Student Loans Program expects that more than 40% of borrowers will need more than the maximum available loans next year.

“Each year, as more students take out the maximum available public loans, they turn to private sources such as bank loans, lines of credit, and credit cards to make ends meet,” adds McCormick. “Similar to high household debt, high student debt slows recovery and keeps Canadian graduates from participating fully in the economy.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.