Canadians shouldn't be complacent about our student debt

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So much for an indicator of financial health that put us kilometres ahead of Americans.

In the United States, student debt totals an astronomically high $1.2-trillion (U.S.) and plagues some people all through their working lives and into retirement. Student debt is a serious issue in Canada, but we could at least take comfort from the fact that we weren't nearly as badly off as Americans.

Now, there's reason to question this assumption. An Ohio State University study of student debt involving 50 or so U.S. schools and one in Canada, York University in Toronto, suggests that Canadian students are struggling at least as much as Americans with debts. At very least, the study results tell us that we shouldn't be complacent about student debt levels.

The study was based on surveys completed last winter by 444 York students and more than 18,000 students at U.S. colleges. Consistently, the York students come across as struggling harder with debt. Seventy-two per cent of them said they had some form of debt (student loans, credit cards, car loans), compared with 62 per cent for U.S. students. Almost 40 per cent of York students said financial stress has caused them to consider dropping out, compared with almost 30 per cent for U.S. students.

York University professor Jodi Letkiewicz said the makeup of York's student population helps to explain these numbers. Incomes for the families of students are among the lowest in Ontario, and a relatively high proportion are the first generation of their family to attend university. Still, she was struck by the tone of the responses from York students about debt. "It piques my interest enough to say that if this is happening at York, then what's to say it's not happening at U of T [University of Toronto] and other universities in Canada?"

Student debt numbers in Canada are kept in a haphazard way, but Statistics Canada did say in a 2012 report that $28.3-billion was owed in student loans. The standard way to properly compare Canadian statistics with the U.S. situation is to gross them up by 10 per cent to offset our smaller population. Do that with student debt and you're a vast distance away from the U.S. student-debt sinkhole.

U.S. tuition fees are higher than in Canada, and they've been growing rapidly in the past decade or so as a result of increases from for-profit colleges. But while total U.S. debt levels are huge compared with that in Canada, other comparisons aren't nearly so dramatic. The average debt level is about $27,000 in Canada, while in the United States it's estimated as high as $29,000 (U.S.). Default levels on federal student loans have improved in the United States and, at 11.8 per cent, are below our 13 per cent.

Prof. Letkiewicz said U.S. students who need help paying for college have greater access to funding through federal and state financial assistance as well as grants and scholarships. She said the U.S. system also puts more effort into at least attempting to educate students about how debt works.

Basic financial literacy does appear to be a contributing factor to the debt struggles of York students. One-third of them answered incorrectly or didn't know the answer to a question about compounding interest and debt repayment, compared with 21 per cent of U.S. students. Just more than half of York students said they didn't consult anyone when deciding how much to borrow, which is similar to the U.S. response.

Along with Globe and Mail personal finance editor Roma Luciw, I've conducted 10 or so financial literacy sessions for postsecondary students in the past couple of years. We've had many more questions about housing and investing than student debt.

"I talk to a lot of my students here and they just have no idea how the student loan system works, and what the implications for them down the road are," Prof. Letkiewicz said.

More and better financial literacy training would help our young people with debt, but we also need to examine whether the current student loan system is working as well as it can. One other thing we need to do is stop dismissing student debt as an issue because we're not as bad off as Americans. We now have indications that, in some ways, this may not be true.