Every two years we issue a report that provides a detailed analysis of emerging trends in bankruptcy filings in Ontario. We track debt loads by age, income level, marital status and gender. We also compare types of debt, secured versus unsecured, credit cards, personal loans, income taxes and payday loans. From this information we get a pretty fair picture of why people need to file for insolvency in Canada.
This year we have identified an alarming concern: student loan debt is becoming more and more of a women’s issue.
Higher Student Debt A Problem For Everyone
To better understand the female student debtor’s situation, let’s first take a look at the average insolvent student debtor from our study.
Of the 6,000 individuals that filed either personal bankruptcy or a consumer proposal with our firm in 2013 or 2014, more than one in eight had student loan debt. On average they still owed $13,818 in unpaid student loans by the time they filed for insolvency, and that debt was 4% higher than it was in our previous study two years earlier. To put that number in perspective, it’s also important to understand that, in Canada, student loan debt cannot be discharged in a bankruptcy or consumer proposal unless the debtor has been out of school at least seven years. So that $13,818 in debt we are talking about was what they could not pay off after seven or more years of struggling to do their best to find a suitable job and make student loan payments.
Lower earning potential. The average student debtor in our study earns 6% less than that of the average person who files insolvency. In this regard, there is little difference between the male and female insolvent graduate; both have lower than average incomes. The inability to find employment after graduation at an income level that provides enough to pay off rising student loan debt, creates an overwhelming financial burden for many graduates. Yes, there are repayment assistance programs available for government student debt, and it is possible to apply to have your payments lowered and extend your repayment period for up to a maximum of 14.5 years. I would argue however, that this merely perpetuates the cycle for most student debtors. Carrying student debt into your mid-30s (the average student debtor is 36 years old) at a time when you are raising a family (49% are likely to have dependants) is unsustainable. Sadly, the outcome is that many are declaring bankruptcy.
Student Loan Repayment Harder for Women
In our 2015 study of insolvent debtors with student loans, 60% were women. The average amount of student debt that she owed at the time of filing was $14,748, about one-third of her average total debt load. Comparatively, male debtors owed $12,431 in student debt at the time of filing, accounting for just 23% of their overall debt load. So Jane Student is struggling with more debt, it is taking her longer to repay her student loans, and it is student debt that is her primary financial burden. Let’s look at why that might be.
Unstable income jeopardizes repayment. In our study, female graduates were more likely to be out of work, either due to unemployment, maternity leave or illness. While 91% of male student debtors were employed, only 83% of female student debtors were working at the time they filed. With an inconsistent income source, a female student debtor’s first choice is often to skip her student loan payment to pay rent, buy groceries and pay bills when she is not working. This may explain why she has 19% more student debt at the time of filing than male student debtors.
Single parenting adds financial strain. Overall, 18% of people that filed with us were the head of single parent households, with an average of two dependents. For female student debtors this ratio was 37%. In other words, almost four in ten women filing insolvency with student loans were single parents. With a household income below that of the average debtor, the single parent is trying to support two dependents plus herself. Add student debt repayment on top of that burden and again, it is often the first payment to be pushed aside when prioritizing monthly expenditures.
Viewed independently, each of these categories – student debt and single parenthood - displays a financial problem for women. Combined, they paint a rather grim picture of a young female single parent trying to make a better life for herself and her children by acquiring more debt than she can possibly manage on her modest income. This is clearly exhibited in the infographic below which compares the debt portfolio of the average male versus female insolvent debtor.
To be clear, she has less total debt than the average person that filed bankruptcy or a consumer proposal. Unfortunately, her lower, and sometimes unstable income, means it is much more difficult to service the debt. The $360 less that the average single parent, female, student debtor makes each month is critically important. She needs every dollar to survive, and it can be argued with two dependents she doesn’t have enough money to do that.
Student Debt Forgiveness Reform
Our information is an analysis of individuals that filed either personal bankruptcy or a consumer proposal in 2013 and 2014 with our firm. It is not based on an analysis of the general population. However, the comparisons we’ve made clearly demonstrate that women who carry student debt into their 30’s are more vulnerable to other financial strains that could eventually lead to filing insolvency.
What does any of this mean? I think it means we need to reconsider how we fund post-secondary education in this country. If we agree that we require an educated, technically skilled population, then we have to find a way to provide access to higher education without penalizing the most at-risk segments of our society.
It is our view that we need to review the existing system of education grants and loan forgiveness. Last year, Industry Canada called for a review of the Bankruptcy and Insolvency Act. Our recommendation at that time was that the waiting period to discharge student debt in a bankruptcy or consumer proposal (currently set at seven years), is too long. We believe that the waiting period should be variable based on the duration of a program, with a maximum period of five years. If a student, borrowing money to upgrade their skills through a four year college program, cannot earn a reasonable return on that investment and repay the debt within four years of graduation, then the loan should be able to be discharged in a bankruptcy or proposal. The government would still have the ability to object to their discharge in the event that the student did not make all reasonable efforts to repay their debt, so this would not be a cart blanche elimination for everyone. It would however, provide necessary support to the significant number of Canadian women experiencing the unmanageable financial burden of student debt.