Student-loan borrowers losing tax credits: Advocacy group

TESSA VANDERHART, STAFF

Canada Student Loan borrowers are being assessed interest during the initial six-month grace period after graduation, but many don’t know it.

And, according to Julian Benedict of the Coalition for Student Loan Fairness (CSLF), students who don’t pay the balance of this interest in full within 30 days of receiving the invoice will have this interest added to their loan principal — increasing the amount of the loan principal, and causing most students to lose out on tax benefits from claiming the full amount of interest.

According to a document retrieved through an Access to Information request by the CSLF, most students don’t pay the full interest charges. In 2005-06, 144,000 Canadian student loan borrowers only paid $7,993 within 30 days of being invoiced for grace-period interest; only one student, Benedict estimates, was eligible to claim their full tax benefits.

“I found out through my own student loan that I couldn’t claim that amount on my taxes if I didn’t pay within 30 days,” Benedict said.

He added that the loss of tax credits is not apparent to most students, as they still receive some tax benefit for interest paid.

But, in 2006-07, “Students have lost out in over $35 million in tax credits.”

“It’s a windfall for government, and it’s one that’s on the backs of poor students,” Benedict said. “The thing about [it] is that it’s interest on interest. Another $14,000 that will become principal.”

Benedict said he could find no indication that Canada Student Loans notifies students of the interest charged during the grace period, or the 30-day claim period.

“The government’s own reports show that most students believe that the grace period has no interest. They’ve known that’s a problem for a long time — since 2006.”

Three provinces in Canada do not charge interest on student loans during the six-month grace period: Nova Scotia, P.E.I., and Manitoba.

According to Statistics Canada’s “Survey of Graduates” in 2007, 43.7 per cent of university graduates had government student loans, for an average of $16,500.

The Canada Student Loans Program could not be reached for comment. On the website of the department of Human Resources and Skill Development Canada, newly added information told student loans borrowers about claiming tax benefits. According to the website, claiming student loan interest on tax refunds is usually equivalent to a 1-1.5 per cent reduction in interest rates.

The website also explains that students can apply for interest and debt relief if necessary.

Benedict said in an e-mail that the website information is “clearly a response to the considerable media attention the issue of loans has been getting. Some of the numbers are really insincere.”

“For example, suggesting that students pay less interest because of student loan interest tax credits suggests that all borrowers make high enough incomes to benefit from the tax credits — which is in direct conflict with what the Millennium Scholarship Foundation recently said: many aren’t benefiting from the tax credits.”

Tax breaks for students

The federal government offers the following tax credits for post-secondary students:

Tuition credit: students receive a tax credit worth 15.5% of tuition.

Education tax credit: students can claim $400 in tax exemptions for each month of full-time post-secondary study ($120 for part-time).

Textbook credit: $65/month of school for full-time students; $25 for part-time students — not tied to amount actually spent on books.

Student loan interest credit: 1-1.5% of interest paid on student loans is tax-deductible.

Student loan interest relief: though not really a tax break, students can get a break by applying for interest relief — if certain income and employment

conditions are met.

Value of grace period interest

(Obtained from National Student Loan Service Centre by Coalition for Student Loan Fairness).