Law penalises penniless grads

December 21, 2000

Canada's government faces legal action over new bankruptcy rules that students claim are unfairly punishing disadvantaged graduates.

In a case due to go before the Ontario court next spring, the Canadian Federation of Students is to argue that a recently amended section of the bankruptcy act is unconstitutional under the Canadian Charter of Rights and Freedoms.

The amendment prevents anyone with an untenable student debt from declaring bankruptcy for at least a decade after graduation.

Changes began in 1997, when the government was receiving reports from the banks (which have since stopped administering student loans) that missed student loan payments were on the rise.

"Something had to be done with such a high rate of default," explained Jean-Michel Catta, spokesman for the federal department of finance. He pointed out that the rate at that time had hit 20 per cent and showed no sign of letting up.

In 1998, the bankruptcy act was amended to make student loans non-dischargeable for ten years following the end of studies, compared with the previous allowable period of two years. The CFS failed to get the amendment revoked.

The federal government has since provided some relief, extending non-interest periods for some graduates, offering new tax cuts on student loans, bringing in new scholarship money and restoring funding levels to provinces. But that has done little to bring down rising tuition fees or the ensuing debt, now thought to average C$25,000 (£11,225).

The CFS will be citing section seven of the charter of rights, which upholds the right to life, liberty and security, and section 15, which states that every individual is equal before and under the law.

The federation will present as part of its evidence a study on bankruptcy by Saul Schwartz, a professor at Carleton University in Ottawa. It seeks to show that the amendment puts women and the economically disadvantaged most at risk. The study found that while 40 per cent of bankrupts are women, bankruptcies due mainly to student debt are 60 per cent female. Professor Schwartz's study also found the median annual income for bankrupts due to student loan is only C$14,000, much lower than the C$24,000 for general bankrupts and the Canadian average of C$34,000.

One fine arts graduate told The THES that if she could not declare bankruptcy, her life would continue on the margins. "I have been living undercover in my own country for the past eight years," she said.

The woman, who preferred to remain anonymous, feared the collection agencies that have aggressively hounded her for her C$18,000 in outstanding loans. She said bankruptcy would stop the difficulty of paying a 12 per cent annual interest rate that has nearly doubled the amount she originally borrowed. "I wouldn't mind paying the principal. I don't need it all to be wiped away."

She said the related stress had led her to seek psychiatric help. The government needed to see the other side of this "unreasonable" decision to amend the bankruptcy law, she added.

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