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Debt Fret: The Economic and Social Implications of Canada’s Growing Student Indebtedness

With students relying less on their parents and familiar networks for post-secondary support, pressure is building in the banking and public sector to support this mounting debt. There is a growing amount of literature regarding the student debt load; less is found about the implications of student indebtedness on Canada’s economic and social stability.

I can’t decide whether it is refreshing or naïve to be discussing strategies and advice on how to save money in your 20s for a comfortable retirement. A recent article in the Huffington Post explored this exact subject. It is refreshing because this is the first article I have read where the central theme involving the Millennial generation (Gen Y) was not of crippling indebtedness or a criticism of this demographic’s work ethic. At the same time, the topic seems a bit irrelevant, considering that thinking about the future in terms of RRSPs is so unrealistic at a time when the most pressing thought on the minds of twenty-somethings consists of securing enough income to support rent and other basic living expenses and maybe, just maybe, paying down some of that dreaded post-secondary debt.

The topic of saving for a comfortable future is undoubtedly important; there is no denying this reality. However, as per the sentiments of my peers, the years following post-secondary education are primarily devoted to the short-term obligations of meeting student loan payments, not the long-term obligations of post-retirement living.

While the situation in Canada is not nearly as alarming as that found in the United States, the growing indebtedness of Gen Y remains an emerging economic security concern with potentially burdening implications for the design of Canadian economic and social policies and programs.

The average Canadian student is expected to graduate with $26,297 in debt; British Columbia students are at the high end of the debt continuum ($34,886), and Quebec students are at the low end ($13,180).

With students relying less on their parents and family networks, pressure is building in the banking and public sector to support this mounting debt. There is a growing amount of literature regarding the student debt load; less is found about the implications of student indebtedness on Canada’s economic and social stability.

Economic Stability
With the increasing level of Canadian student debt becoming more commonly known and reported, the idea of pursuing post-secondary education in the first place is questioned and challenged. As Anya Kamenetz, a Schwartz fellow at New America, points out in a recent podcast with Vice Media, graduating with a crippling amount of student debt can have major economic and social implications for the student upon graduation. She highlights a few of the realities in graduating, for example, with more than $20,000 in student debt: mortgage disqualification, the logical but dreaded choice of moving back in with parents, delaying the prospect of marriage or having children, and the entire notion of starting an adult life. While Kamenetz focuses on the statistics of American post-secondary graduates, the startling reality still very much applies to the situation in Canada.

The once-romanticized opportunities that followed college graduation are no longer a reality for the 21st century student. With a grimmer portrayal of life after graduation, it remains a rational and economic decision for students to delay or not pursue post-secondary education under such prospects. According to the study conducted by Joseph Berger, the participation rate of Canadians attending post-secondary education has been falling in recent years. Berger indicates that the post-secondary participation rate peaked in 1997 at 71%; in 2006, the rate was 57%.

With fewer people opting for higher education, there are obvious repercussions. Canada already lags in innovation and entrepreneurship on a global scale. Canada holds 1.36% of patents filed worldwide, one metric used to assess a country’s capacity to innovate and develop new technologies. Scientific articles, R&D spending, and high-tech exports, are the other measures by which the Conference Board of Canada has indicated this country is performing poorly. Given these economic indicators, the participation rate of Canadians in post-secondary education has an important influence on Canada’s domestic economic strength as well as global competitiveness.

With fewer Canadian students pursuing post-secondary education, our performance on these metrics will likely not improve. Fewer individuals are taking advantage of the creativity and innovation that is fostered by higher education; same with the development of high-skill labour talent, such as engineering, science, medicine, and technology. It is contrary to the long-term economic interests of Canada from a domestic and foreign perspective to be experiencing a participatory decline in post-secondary education.

Social Stability
Another important reality for the indebted Millennial is a bleak job market that offers little opportunity to actually begin paying off mounting financial obligations – past and future. Kamenetz outlines that half of recent college graduates are either unemployed, or employed in a job that does not require a college degree. In Canada, that number is 25%.

As of January 2013, the youth unemployment rate for Canada was 13.6%, compared to the national average of 7%. What are the social service implications of this discouraging unemployment rate on the country’s brightest new minds? Will unemployed youth begin to put unsustainable pressure on the country’s social services like unemployment insurance? Not likely, considering that only 13% of unemployed youth qualify for Employment Insurance benefits. Factor in the reality stemming from the brain drain involving our educated unemployed – Canada is already experiencing a brain drain among engineers as Silicon Valley continues to attract the brightest Canadian students. Add to this scenario the impending brain drain involving students from various other academic designations, and the country is facing a serious threat to national economic and social growth.

In order to provide a more thorough depiction on the possibility and extent of social instability, it is important to consider the youth employment rate within Canada. When we examine the trends since 1976, we see a steady decline in Canadian youth employment rates. At the beginning of 2014 Canadian youth employment rate hovered around 54%. While slightly better than the rate of our US counterparts- by mid-2014 the US youth employment rate is about 51%– the issue still paints a grim picture for Canadian graduates.

The mounting Canadian student debt load, now valued at $15 billion, has far-reaching implications for national economic and social welfare. It is no longer a concern faced entirely by students and their family support networks; this is a challenge for all connected partners: the Canadian government, educational institutions, and private sector organizations. Multi-stakeholder perspectives can lead to a mutually-beneficial and sustainable solution. It’s often said that it takes a village to raise a child: it takes that same village to help bring a college-educated child out of debt despair and into a socially and economically stable future.

Kara Chiki
Kara Chiki is currently a graduate student at the Munk School of Global Affairs at the University of Toronto. She previously graduated from Wilfrid Laurier University's Honours Bachelor of Business Administration Program with a concentration in International Business. She has studied on four different continents, including North America, Europe, Africa and Asia. Her primary interests are macroeconomics and finance, in particular, the instruments used to enhance financial inclusion within developing economies.