Students who attend institutions with high loan default rates might not be able to secure a federal student loan according to a new federal government policy.
If the repayment rate of an insti-tution's graduates does not improve within three years, the students presently attending that institution will no longer receive federal funding.
The policy is building on a 2000 agreement between Canadian provincial education ministers. The agreement outlines the principles for deciding which institutions can be designated, meaning they can receive funding via students' loans.
"[The] main reason, even with framework, is the vast majority of risk is borne by the federal and provincial governments," said Brad Brohman, Director of Accountability and Performance Management for the Canada Student Loan Program. "Designation policy puts in some rigorous practice. We use various mechanisms to help identify and prevent difficulty in paying back student loans."
Alberta Learning Minister Dr. Lyle Oberg believes it would never happen in Alberta.
"There are a lot of fail-safes," said Dr. Oberg. "It comes down to fly-by-night schools. If there are high numbers of defaults, the schools are given one or two years of grace time. I don't see it as a major problem."
According to Brohman, the policy will intervene, audit or ask the school for a plan of action. The policy will mostly affect private schools where statistics show there are higher default rates for loans than public institutions.
University of Calgary Director of Student Awards and Financial Aid Linda Sharma said private schools rely mainly on students receiving student funding and it would affect programs negatively.
However, according to Brohman, schools on the "top rung" would not be affected.
"Most universities that are well-performing, students graduate and make a transition [to careers]," said Brohman.
Sharma adds it's another piece of the puzzle and alone it will not solve the problem of default rates.
"If a lot of students in programs are defaulting, it's important to look at that," said Sharma. "Maybe they are not able to get a career opportunity that falls in line with programs."
James Kusie, National Director of the Canadian Alliance of Student Associations believes the focus should be on why students are not finishing their degrees.
"It's directed towards institutions with high dropout rates," said Kusie. "I have concerns with developing a large policy document for five per cent of institutions who have a high dropout rate. I conjecture most institutions are doing above and beyond what the framework will do."
Brohman said the government has not determined what percentage of defaulted loans will justify ineligibility for student funding.