Post Secondary Loans..... Another Brilliant Solution from the DNPP

The DNPP, in it's customary capable manner, will now proceed to solve all the problems associated with post-secondary loans.

First, we won't get involved with all the fuss about tuition, books, etc. The cost of a good education is still minimal compared to the cost of good semi and a gravel trailer.  And the return over time will be much better.

We will use a f'rinstance......

Let us deal with the care and feeding of a Student becoming a Registered Nurse.  Tuition and books are important, but food and housing for those who must travel to school will be a major cost.  Let us just say a nurse might graduate with a 40,000 debt. 

We admit we loaded the dice.  As a Nurse, employment is guaranteed and debt repayment possible.  Not like  the proverbial engineer who winds up flipping those flipping burgers.

But a proper repayment option is necessary no matter what and since salaries  in the health field are fairly transparent, our candidate can be followed through the repayment process.

Our method of recapturing the advances will be to use the Canada Pension Plan. Just by rewriting the program that makes payroll deductions the whole business can be done with no muss or fuss.

As we said, Nurses salaries are fairly well known.  $25 an hour, give or take a few bucks.  Our Bobbie (notice we cleverly chose an androgynous name) will therefore be able to pull in $50,000 a year.  Makes the arithmetic a little easier.

Repayment will be made by payroll deduction.  By the time our protégé is giving needles the standard CPP deduction will be almost 10%.  5% from the employee and 5% from the employer.  Those deductions are  made from income between roughly $5,000 and $35,000.  So we would have $3,000 of deductions in total.  All going to the CPP.

We, the DNPP, never reluctant to stick our necks out, propose the following.....  Lets add the letters SL to the Social Insurance Number of all student loan recipients. A further 5% would be deducted and forwarded from the pay cheque of all bearers of the SL suffix.

So, the $30,000 of income subject to CPP would have 5% deducted three times, a total of $4,500.  Sounds painful.  But remember these amounts would be tax exempt. And two thirds of the money becomes savings.

All the employer's 5% would go to the pension plan.  The second 5% would also be savings.  The final 5% would be remitted by CPP to the Student loan program. 

That 5% (or 1500 dollars) would be split 60/40.  60 to principal, 40 to service charges.  Those of you who are mathematically adept would quickly see that means only $900 to retire a 40,000 loan and only $600 in carrying charges. (or 1 1/2%)

But wait, there is more.  Robert/Roberta has another $15,000 in earnings not subject to the CPP.  We will not ask the employer for any more. But we will continue to take  the second 5% and add to it a third 5%,  and voila...another $1500 to split 60/40.  A total of 1800 to principal and 1200 (3%) to service charges.

And there is still more...In 5 years our Bobby is picking up another ten big ones a year for a fairly good $60,000.00 per annum.   10,000 more @ 10%  to be split, again 60/40.  Principal payments become $2400 and service fees $1600.

Aha, says those math wizards, the service charges are jumping.  And so they are.  Five years of $1800 payments have reduced the loan to $31,000 and increased the interest equivalent to slightly over 5%. The next 5 years of $2400 payments bring the balance to under $20,000 and make the cost of the loan 8%.

The final 5 year phase of this Odyssey could see wages increase another $10,000 due to seniority, special training, and inflation.  That would mean the loan paid in full after a little more than 16 years.  The real cost to our client around $70,000 minus about $28,000 that would have went to taxes.

Remember our truck driver?  Well, he probably made out just fine.  But he might be on his third $150,000 dollar unit by now.  Education is a bargain.

So our nurse borrowed $40,000 and returned about $42,000.  Not a really good deal financially. But a good deal for the country.  We got a nurse, and in the first 16 years of that nurses career we got our money back plus some taxes. And in the next l6 years we will we will get a lot more taxes.   

What are the advantages to our students?  Well, repayments are lowest during the early, lower paid years of their working life.  During absences from the workforce the debt does not increase.  That will be a spectacular boon to those who choose to parent.  There will be some who complain that service charges escalate late in the lifetime of the loan.  But provision for tax deductability of both loan and fees would make such complaints seem damned ungrateful.

Disadvantages?  You will be expected to keep your part of the bargain.  No part of a loan will be disallowed.  If necessary we will exhume your ungrateful carcass and remove fillings to recover any unpaid portion of a loan.        

Where would all the money come from?  Good question.  Same old answer.  Shut down the tax cuts, and excavate some of the 13 plus billion sequestered in improper foundations. It will require a large amount of money to get the program to the point of self sustainability.  In fact, it might always be a deficit program.  But we have many of those, and few have the potential rewards of this one.   

All the loan money will be spent, generating jobs and taxes.  And few things benefit a society more than education.