Lately, student debt has been a hot topic in the United States. President Joe Biden launched the idea of forgiving $ 10,000 in student loans per borrower, and his fellow Democrats are pushing him to reduce $ 50,000. So far, none of these loan relief programs are a reality. But they are increasingly discussed by high-level decision-makers in the US government.
This brings us to Canada. Canadians, like Americans, generally have to pay for their education with their own money. Our tuition fees are not as high as those in elite American schools, but it is not uncommon for Canadians graduating from law school or medical school to owe $ 100,000 or more. Given Justin Trudeau’s aggressive action to financially support Canadians through COVID-19one would expect it to switch to student loans as well. Indeed, he has already suspended the repayment of the student loan. But total forgiveness has not yet been seriously discussed.
What the Democrats are offering in the United States
Various democratic groups in the United States are offering different amounts of student debt cancellation. Some of the proposals put forward include
- $ 10,000 of debt canceled per borrower. Biden himself has signaled his support for this amount;
- $ 50,000 per borrower. This is being pushed by Senate Democrats like Chuck Schumer and Elizabeth Warren; and
- $ 200,000 per borrower. This was mentioned in a the Wall Street newspaper article.
Some of these debt relief programs would be quite aggressive if implemented. So far, however, none of them have been.
Could Trudeau follow suit?
As for Canada, we have not talked as much about student debt relief as in the United States. Since the moratorium on refunds passed, the subject has not been discussed. This may be due in part to the fact that Canadian students have less student debt than their American counterparts. According to StatCan, the average Canadian student owes $ 14,900 upon graduation, while their American counterpart owes $ 32,000. For the record, these stories of “mind-boggling” student debt of $ 250,000 seem much less common in Canada. So maybe Trudeau doesn’t feel the need to act on what isn’t the country’s biggest financial problem right now. Nonetheless, the NDP and others remain committed to reducing student debt.
A Canadian bank heavily involved in student loans
It turns out that the student loan situation in Canada has an investment link, especially for bank investors.
The National Student Loans Service Center (NSLSC) was previously administered by Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) through its then subsidiary, Edulinx. Under the leadership of CIBC, the NSLSC was widely seen as having been mismanaged. The bank eventually sold Edulinx to another company. It has passed through many hands since then.
To date, many Canadian private banks are integrated into the NSLSC. CIBC, along with its competitors, can be used by students to log into their student loan accounts.
Currently, student loans are not a major business concern for CIBC. The company sold its student loan processing business a long time ago and is only indirectly involved now. Nonetheless, there are many ways that banks like CIBC get involved in student finances. Private loans, student lines of credit and special credit cards marketed to students, to name a few. If sweeping student debt relief were passed, then maybe students would demand relief even on these private loans. So this is an area that banking investors might want to pay attention to.
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Foolish contributor André button has no position in any of the stocks mentioned.