Reducing the Debt Sentence: An Analysis of Income-Contingent Loans for Student Borrowers in Canada

This study assesses the potential role of income-contingent repayment loans in the Canadian student financial aid system. Applying relevant and available data, this research seeks to present ways that the current student loan system can be amended in order to include repayment provisions that are less onerous on student borrowers in the early years after graduation in order to minimize risk for the borrower and government. A literature review, case studies analysis, and interviews with policy-makers, researchers and government officials are used to help assess three policy alternatives. Policy goals include avoiding unduly heavy repayment obligations in the early years after graduation, recouping the maximum amount of student loans, and minimizing default rates on the loans. This study recommends reforming the student financial aid system in Canada by adopting a carefully designed, universal, moderately subsidized income-contingent loan repayment scheme.