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Clampdown on Student Debts Leads to Bump in Collections for Government

OTTAWA – A concerted effort by federal officials to round up more money from student loan borrowers who defaulted has yielded a small increase in collections.

The Canada Revenue Agency says it was able to collect $208.8 million this year, about $10 million more than it did two years ago when the government decided that loan write-offs had spun out of control and collection efforts needed to ramp up.

The year-over-year increases, though, have been relatively small: a 2-per-cent increase between 2014 and 2015, and a 3-per-cent increase between last year and this one.

Those increases are smaller than the 4.5-per-cent increase in collections between 2013 and 2014 when the agency and the department in charge of the student loan regime began sharing more information to aid in collection efforts.

Each year, the government writes off some of the almost $19 billion owing in student loans for a number of reasons: a debtor may file for bankruptcy, the debt itself passes a six-year legal limit on the collection, or the debtor can’t be found.

Earlier this year, supplementary spending estimates tabled in the House of Commons showed the government was writing off 33,967 student loans at the cost of $176 million to the public purse, the vast majority of borrowers who defaulted on repayments before 2009. The money was on top of the hundreds of millions in write-offs from previous years: $295 million in 2015, $231.2 million in 2013 and $312 million in 2012.

In most of those cases, the borrowers couldn’t be found. The files the CRA received for collection had out-of-date contact information, and the agency wasn’t allowed to ask other departments for help because of privacy laws.

The Liberals’ first budget offered a new tool for the CRA in its collection efforts: legal changes allowing it to use tax information for the purpose of collecting debts from the student loan program overseen by Employment and Social Development Canada. (The CRA had expected to receive the powers last year, but the federal election delayed political approval.)

The changes officially became law in June, and a spokesperson for the CRA said the agency is looking at ways to use the new powers in its work.

The CRA is responsible for collecting loans in default and can do so by withholding income tax refunds to cover the outstanding amount, or by referring cases to the attorney general for legal action — which could lead to garnisheeing wages or seizing assets.

ESDC’s annual report to Parliament said it was crafting ways to help borrowers repay their debts and reduce default rates. Default rates have plunged over the last decade, to about 10 percent in 2014 from 28 percent in 2004, the report added.