For two decades, the student assistance system was as straightforward as social programmes get in Canada. There was a national system of student loans, the Canada Student Loan Plan (CSLP), from which individual provinces could opt out if they chose. The province of Quebec availed itself of this option in 1964, but the other provinces stayed within the CSLP system and set up complementary student assistance plans of their own. Most provincial programmes were exclusively grants programmes, but one or two provinces issued loans as well.

The system was congenial to all the major educational stakeholders and was never the subject of acrimonious debate, but this came to an end in the early 1990s. The 1991-93 recession was much harsher in Canada than in the United States. This put a severe constraint on governments' ability to maintain social programmes after a decade of reckless spending which put Canada's net public debt at a level approaching 100 per cent of GDP. Higher education was not spared from the significant retrenching in public finances, and the effects of cutbacks to the student assistance system are only now beginning to be felt.

To begin with, provincial governments cut back the size of their grants to universities but allowed them to raise tuition fees in compensation. As a result, tuition levels have nearly doubled since 1990. Student groups have steadily grown more vociferous in their opposition to further increases in tuition. Yet since universities usually came out net losers in financial terms as a result of the shift from public to private sources of funding, governments managed to alienate them as well.

Student assistance was also affected by the general move to "leaner" government. Between 1987 and 1995, seven provinces abandoned their grants programmes altogether. Two more trimmed them significantly. In addition, the federal government and eight provinces (Quebec and Ontario excepted) left the business of guaranteeing student loans due to the increasing costs of paying for student loan defaults. Instead, the governments signed new "risk-sharing" agreements with the banks. The banks will continue to loan money to students deemed by the government to be in need of financial assistance. However, governments replaced the loan guarantee with a 5 per cent "risk premium" payment to the lending institutions. Thus, in exchange for agreeing not to require the government to underwrite student loans, the banks receive 5 cents from the government for every dollar they lend to students.

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The result of these changes has been dramatic. The abolition of grants programmes, combined with rising tuition costs and increased borrowing limits, has caused student indebtedness to skyrocket. The 55 per cent of undergraduate students who borrow to finance their studies saw their average level of debt on graduation rise from just under Can$10,000 (Pounds 5,000) in 1990 to Can$17,000 in 1996, and onwards to a projected Can$25,000 in 1998. Last October the Association of Universities and Colleges of Canada revealed that these rates of indebtedness topped even those at Harvard and Yale.

The AUCC study was partly responsible for galvanising both the higher education policy community and the federal government to find new ways to aid students in debt management. This was more difficult than it might seem.

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The real argument was not about ICR (income-contingent loan repayment) qua ICR. Rather it was a fight by proxy about tuition fees, as the Council of Ontario Universities had rather unwisely linked the idea of ICR to that of tuition deregulation (a position which it quietly dropped last year). The issue largely died down in 1995 when a spectacularly ill-designed proposal for a national ICR scheme had to be withdrawn in humiliating fashion. Proponents of a New Zealand-style ICR were henceforth limited to the Thatcherite Conservative Ontario provisional government, and a coterie of top officials in the federal department of finance.

It was in this context that the policy debate on student assistance was reinvigorated last autumn. As student debt figures made headlines, baby-boomers were realising they would have difficulty paying for their teenage children's education. In October, seven national higher education organisations sat down to try to arrive at a common position on student assistance. Despite the history of mutual antagonism, this process resulted in the release of a policy document, Renewing Student Assistance in Canada (at renewing.htm), endorsed by all seven associations.

The document was founded on two basic principles. First, a comprehensive programme of student assistance should help students before, during and after their studies. Second, student assistance should not be considered simply in terms of loans and grants: measures to improve student employment should also be used.

The main recommendations included targeted up-front grants for high-need first-year students and single parents, deferred grants to help students experiencing difficulties during the early years of loan repayment, increased support for student employment on campus, improved tax treatment of savings for education and of compulsory fees during study, and making interest paid on student loans tax-deductible.

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This package was released one month before a federal budget designed to set the stage for a spring election called by the ruling Liberal Party. The document's unprecedentedly broad support ensured that student assistance received attention in the budget. Included in the pre-election loosening of the public purse was a series of student assistance measures which will cost over Can$170 million annually, the biggest single cash infusion into student assistance in Canadian history.

By rights the higher education community should have rejoiced, but the budget's inclusion of a sentence promising a new loan repayment option sounding suspiciously like a New Zealand-style ICR has muted some of the celebrations. There is a deep and well-founded suspicion that conservative pro-ICR economists within the department of finance struck a deal with the Ontario government to force this option on a higher education community which is no longer terribly keen on the idea.

Alex Usher is a policy analyst with the Association of Universities and Colleges of Canada and a former national director of the Canadian Alliance of Student Associations.