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Newfoundland and Labrador’s provincial government included a very interesting provision in their annual budget.

And here I thought Newfies only caught fish and drilled for oil ;)…

It turns out that when motivated by the prospect of an upcoming election, our Eastern countrymen can be downright creative and academic-minded!  For those of you that missed the news last week, Newfoundland and Labrador’s provincial government included a very interesting provision in their annual budget.

The province will become the first in Canada to completely cut out its student loan system and switch over to a purely student grant program over the next few years.  This means that whereas before, a student would have borrowed money from the provincial government and had to pay it back after they graduate, now they will simply be given a cheque free and clear to spend on their schooling expenses – NO payback necessary!  Of course, that grant would only be for the provincial part of the current student loan ratio – the federal government is still responsible for 60% of that amount and that money would stay in loan form.

Student Unions Happy

Jessica McCormick, National Chairperson of the Canadian Federation of Students (CFS) stated,

“This decision builds upon 15 years of growing investments in post-secondary education by successive Newfoundland and Labrador governments […] By listening to students’ concerns about the growing student debt crisis, this government is helping both young people and the economy of Newfoundland and Labrador.”

The program is estimated to cost the provincial government nearly $15 million over the next two years.  It represents a significant shift in position taken by most provincial governments.  While some provinces have instituted interest-free students loans and others have offered significant tuition rebates through tax credits for students that stay in province to work after graduation, this is the first approach that has seen a province eliminate student loans altogether.

What are We Telling Little Johnny?

Now this is certainly good news for many young people, and I see the rationale behind trying to make post-secondary education accessible to all of Newfoundland’s finest, but I foresee a really interesting change in behaviours that will result from this change of economic incentives.  Let me give an example:

In 2012 Little Johnny comes from a one-income family and thinks he will likely qualify for close to the full amount in student loans.  He looks the tough financial landscape that Canada’s young people have to face and decides that even though he qualifies for loans, he doesn’t want to graduate owing a pile of money.  Consequently, John (because of his recently matured outlook, he decides his new moniker needs to sound more adult-like) purchases a great resource titled, “More Money for Beer and Textbooks – A Financial Guide for Today’s Canadian Student and sets out to graduate with as little debt as possible.

In this mindset, he decides to work part-time as he goes through school and as soon as summer break hits he works his tail off at the great summer job he set up for himself.  John earns just enough money to pay his expenses for the school year.  Yay John!

With the new incentives put in place in 2014 by the provincial government, it doesn’t really make sense for John to work all that hard.  In fact, there is a direct financial incentive for John to relax a little, maybe work a much easier job that doesn’t pay as well (how many baristas can Newfoundland need?), or maybe just work many less hours.  Maybe John cuts out the part-time work altogether because every dollar he earns will make him less eligible to grab some of that student grant money the province is doling out.

Related: Should Students Be Trusted With Their Education Funds?


John might be tempted to take on a little bit of federal student debt, for the 4-5K in free money that will get handed to him for avoiding work.  Regardless of the decision that John would theoretically make, there is no question that the incentives that impact his behavior have been radically altered.

Wages?  No, I Didn’t Earn Any Money!

In fact, I think one of the major things that is currently being overlooked in the implementation of this policy is just how attractive black market (aka “under the table”) work will become.  Waitresses that don’t report their tips will now not only make great money, but they will find themselves in an ideal position to collect grant money as well as pocket the majority of their wage in tips (which could then in theory be used to pay off the federal portion of the student loan if they really wanted to play the system).  Students who can nab odd-jobs that pay “cash” will get much more compensation on the back end than students who work for the government or for companies that keep their wages on the books.

Related: Dealing with Long-Overdue Student Debt

One other side effect that many people probably aren’t currently considering is the shift in incentives when it comes to waiting to go to school.  The aim of this legislation is to even out the playing field when it comes to the ability to attend a post-secondary education.  If a student comes from an upper-middle class family and consequently doesn’t qualify for this “free money” after they graduate high school, it would behoove them to wait a few years before attending school and attaining “independent status”.

Using our above example, John’s parents’ income would only be relevant until he has been graduated from high school for four years, after that, his eligibility for student loans is only based on his personal income and potentially that of his spouse (another status students will likely avoid).  It would now be a great idea to get a little work experience in, maybe take a “gap year” and see the a world a little before attending school so that you can maximize the number of years you have access to the “free money” that will come in the form of grants as opposed to loans.

Not Fair and Not Equal

Finally, the other consideration that needs to be addressed here is the one of fairness to students who have graduated over the past few years.  The great thing about implementing something like a tax rebate is that it can be implemented for past students as well as future graduates.  How fair is it for a student that is graduating this year, with a pocket full of interest-bearing loans, and now has to watch their younger sibling go through school while getting 4 or 5K handed to them on an annual basis?  One would hope there will be follow up legislation to even out this score a little bit.

I’m all in favour of trying to help students, but I don’t think this is the best way to do it (especially considering those students will be on the hook for confronting the debt that this budget will add to).  I think an interest-free student loan is a great deal, and when combined with the subsidization levels that our universities currently operate under, there is already a fair degree of access to all Canadians when it comes to post-secondary education.  If we’re going to talk about reforming the financial outlay of the post-secondary system, I’d much rather see the federal portion of student loans go interest-free than anything else.

Above all, I’d LOVE to see federal and provincial governments step in and regulate the salaries and operating costs that are part of the current university landscape (not so much at college or polytechniques).  The real battle here is the out-of-control rise in post-secondary costs (much higher than general inflation), not the student loan program.  Did you know the President at most of Canada’s universities makes more than our Prime Minister does?

At the same time you have to give kudos to the crew over on The Rock for kicking the student population a bone.  Hopefully this will result in higher voter turnout rates and start a positive cycle in that regard.  The biggest winner in all of this?  The campus bar of course!

Article comments

Aaron says:

I’d really appreciate you helping me to understand which is better: Contributing to an RESP to earn the 20% immediate ROI or advising my daughter to get OSAP which from my experience gives about 30% back in terms of loan forgiveness and grants, investing the would-be RESP money in a TFSA until graduation and paying off the remaining OSAP loan at that time. Option two sounds like it is more advantageous, but it assumes that my daughter will qualify for maximum OSAP and loan forgiveness. Play along and just assume that. Do you see any other factors that could throw this scenario off the rails?

Koala says:

Depends. Are rewards being removed for those who get money in other ways? If someone who has no money gets $2000 in grants for their program, can someone in the same program also get $2000 in grants whether or not they have savings, scholarships, etc?

Kyle says:

I would assume that the rewards are being removed Koala. Getting scholarships and savings would mean you are not currently eligible for student loans (or are less eligible I guess if you want to put it that way) and so the way I read the legislation having more resources would make you less eligible for the new student grant as well.

Kevin says:

Your hypothetical student, John, seems to suffer from consistency.
For instance, John is a hard worker as long as he is working in a low-paying work-study job. However, the instant he takes a grant, the implication is that he is a lazy bum.
Now your point seems to be that the incentives are different, and this is true; it may be worth more to John to not take that job and instead take the federal grant. If John recognizes this, then I say good for him!
Now I would like to address John

Kyle says:

Hey Kevin – “Johnny Boy” suffers from a lack of consistency I assume you mean?

Things could very well work out for John, but the question(s) remains – should taxpayers be footing this bill and ultimately what responsibility to we have to pay for our own schooling? I’ve heard some good arguments on all sides of the debate.

Nelson says:

A couple of observations:

1. $7.5 million a year is a pretty cheap way to buy votes from everyone under 35 who still has student loan debt, the very demographic that generally doesn’t bother to vote.

2. If the economy of Newfoundland and Labrador is as based on natural resources as I think it is, maybe the incentives should be put in place to encourage people to go into mining and oil, sectors which generally need tradespeople, not university grads.

Also, if I was a Newfoundland taxpayer, I’d probably be pissed if I indirectly paid for a women’s studies degree, or some other such nonsense.

Still, it’s an interesting program. I think I’d be more in favor of interest free student loans for in demand programs though.

Kyle says:

This mirrors my thoughts pretty well Nelson. Just to provide some balance, I’d probably be pissed if I indirectly paid for a men’s studies degree as well!