A Canadian senate committee has found that a ban on bankruptcy for ten years after graduation is unfair to insolvent graduates faced with repaying their student loans.
The committee, which is assessing Canada's bankruptcy law, called for the prohibition to be halved to five years after hearing recommendations from the Personal Insolvency Task Force, a group of academics, bankruptcy trustees and policy experts.
A former medical student whose nervous breakdown stopped her following a career in medicine but who was still pursued by a collection agency was among the cases described to the committee.
Saul Schwartz, a Carleton University economist and task-force member, said impoverished former students should be given so-called hardship hearings rather than a black-and-white ten-year rule. "We should be able to let a judge decide," he said.
The government changed the law after personal bankruptcies among former students rose steeply between 1992 and 1995 from 6,000 to 10,000. In the early 1990s, the Canadian government lost C$40 million (£17 million) due to student bankruptcy. But that more than doubled to C$100 million by 1997 during a time of sharp rises in tuition fees.
In 1997, a two-year bankruptcy prohibition for former students was implemented. The government then brought in a variety of measures to try to ease debts, such as eligibility for a 30-month payment moratorium or up to C$10,000 of debt forgiveness.
The following year, with the debt-relief measures in place, the government extended the bankruptcy prohibition to ten years. The Canadian Federation of Students (CFS) challenged the extension under the equality section of the Canadian Charter of Rights and Freedoms.
The test case involves former Ottawa student Annick Chenier, who graduated in 1997 with a master's degree in counselling and a C$52,000 student debt.
Her monthly payments are C$631 and, although she has a job, she claims she is forced to live in poverty. The case is expected to be heard early in 2004.
The federal government is already planning changes in law, and officials have indicated that the senate recommendation will be considered along with other information.
In the UK, graduates' options to evade repayment by declaring bankruptcy are expected to be restricted by an impending bill.
CFS director of research Michael Conlon said that the committee's recommendation and the task force's findings put the government under pressure to ease up on the amendment. "It's a huge victory," he said.