The Dark Side of Student Loans: Debt Burden, Default, and Bankruptcy

This article addresses three hypotheses: (1) only a minority of Canadian student loan borrowers experience severe difficulty in repaying their student loans; (2) those who default on their student loans do so largely because they cannot pay, rather than because they do not want to pay; and (3) for Canadians who are filing for bankruptcy and who have student loans among their debts, bankruptcy is a last resort, and their economic situation is more difficult than that of the average person seeking bankruptcy protection. A review of the literature strongly supports the first two hypotheses; a new analysis of a 1997 survey of debtors seeking bankruptcy protection supports the third. The author concludes that most debtors with student loans among their debts are not behaving opportunistically in seeking bankruptcy; bankruptcy is indeed a last resort. The article questions whether recent legislative changes, which impose a ten-year waiting period before allowing the discharge of student loan debt through bankruptcy, are motivated by an assumption of opportunistic behaviour on the part of student loan borrowers. The author believes those changes are unwise and unnecessary.