Notice of meeting

43rd Parliament, 2nd Session

Meeting 10

Tuesday, December 1, 2020, 11:00 a.m. to 1:00 p.m.
Room 025-B, West Block
Televised

Report 2, Student Financial Assistance, of the 2020 Spring Reports of the Auditor General of Canada

Witnesses

Office of the Auditor General

• Karen Hogan, Auditor General of Canada
• Mathieu Lequain, Director
• Philippe Le Goff, Principal

Canada Revenue Agency

• Bob Hamilton, Commissioner of Revenue and Chief Executive Officer
• Marc Lemieux, Assistant Commissioner, Collections and Verification Branch

Employment and Social Development Canada

• Graham Flack, Deputy Minister, Employment and Social Development
• Atiq Rahman, Acting Assistant Deputy Minister, Learning Branch
• Mark Perlman, Chief Financial Officer and Senior Assistant Deputy Minister

Financial Consumer Agency of Canada

• Judith Robertson, Commissioner

Opening Remarks

Speaking notes for Mr. Bob Hamilton, commissioner of the Canada Revenue Agency

Standing Committee on Public Accounts
Report 2—Student Financial Assistance of the 2020 Spring Reports of Auditor General of Canada

Ottawa, Ontario
December 1, 2020

Check against delivery.

Good morning.

Thank you Madame Chair, for the opportunity to appear before you to discuss the Report 2—Student Financial Assistance of the 2020 Spring Reports of the Auditor General of Canada.

I am accompanied by Marc Lemieux, Assistant Commissioner of the Collections and Verification Branch at the Canada Revenue Agency.

In Report 2, the audit on student financial assistance focused on Employment and Social Development Canada (ESDC), the Canada Revenue Agency (CRA), and the Financial Consumer Agency of Canada (FCAC).

For the CRA portion of the audit, the Office of the Auditor General examined whether ESDC and CRA analyzed student loan recovery activities and adjusted procedures accordingly to maximize the funds recovered for the federal government.

The Auditor General of Canada acknowledged that the CRA did not have the “necessary tools to maximize recovery of student loans in default”. The methods available for the Agency to recover student loans are more limited than those available to the Agency under the Income Tax Act.

In his report, the Auditor General of Canada made five recommendations: none are addressed to CRA. One audit recommendation does mention the CRA.

To address that specific audit recommendation, ESDC is working with CRA to establish an Information Sharing Agreement, expected by spring 2021.

This will enable the CRA to strengthen verification of borrower marital status, income, spousal income, and number of dependants against tax data during the Repayment Assistance Plan (RAP) application process.

Thank you, Madame Chair, I will be happy to answer the questions you may have.

Supporting Documentation

OAG Spring 2020 Report – Report 2

2020 Spring Reports of the Auditor General of Canada to the Parliament of Canada
Report 2—Student Financial Assistance

Overview: Impact on CRA (from AERB)

2020 Spring Reports of the Auditor General of Canada
Report 2 – Student Financial Assistance

Impact on the Canada Revenue Agency – expected to be low to moderate

Audit objective

The objective of this audit was to determine whether, in accordance with their respective responsibilities, Employment and Social Development Canada (ESDC) and the Canada Revenue Agency (CRA) managed financial assistance for post-secondary education and the risks to the public purse in an efficient manner, while facilitating access for students to colleges and universities. The audit also focused on whether the Financial Consumer Agency of Canada (FCAC) collaborated with stakeholders to strengthen the financial literacy of students.

Audit scope

The audit on student financial assistance focused on ESDC, the CRA, and the FCAC.

For the CRA portion of the audit, the OAG examined whether ESDC and CRA analyzed student loan recovery activities and adjusted procedures accordingly to maximize the funds recovered for the federal government.

The OAG did not examine the Canada Student Loans Program’s non-repayable component (Canada Student Grants), tax credits related to post-secondary education, tuition fees, the quality of services provided to students by the private sector supplier, or the management of Registered Education Savings Plans.

The audit covered the period between March 31, 2017, and March 31, 2019. The OAG also examined certain matters that preceded the start date of this period.

Highlights

• The Government of Canada regards investment in education and training as essential, so that Canadians can acquire the skills required for them to succeed and for the country’s economy to grow. For this reason, the federal government manages or contributes to a number of programs providing financial assistance to post-secondary students.
• The federal government offers three forms of financial assistance to students:
  • direct loans under the Canada Student Loans Program
  • financial incentives for families to save for post-secondary education under the Canada Education Savings Program
  • grants under the Canada Student Loans Program, which the OAG did not examine.
• The Canada Student Loans Program is intended to help students from low- and middle-income families afford post-secondary education. The program provides the eligible students with non-repayable grants and repayable loans.
• For the 2016-2017 loan year (August 1 to July 31), the government provided direct loans to nearly half a million students, with a total value of $2.6 billion. During that year, 39% of post-secondary students received loans under the Canada Student Loans Program.
• The Canada Student Loans Program provides loans to post-secondary students based on a number of criteria, including income and family composition. Borrowers must begin repaying the principal and interest 6 months after the end of their full-time studies.
• Student loan recipients who have declared that they are in financial difficulty can apply to the Repayment Assistance Plan established by the Government of Canada in 2009 in the Canada Student Financial Assistance Regulations of the Canada Student Financial Assistance Act. The plan reduces the amount of the recipients’ monthly payments, so that they can better manage their student debt.
• The value of student loans that are not repaid to the federal government is significant, and according to the Chief Actuary of Canada, the value is expected to increase. Non-repayment of loans is a cost and could be a burden for taxpayers. In the 2018-2019 fiscal year, the amount associated with non-repayment of student loans reached half a billion dollars
• The OAG found the following:
  • CRA did not have the necessary tools to maximize recovery of student loans in default. As of March 31, 2019, the value of outstanding student loans in default amounted to $2.4 billion.
  • ESDC needed to improve its management of some aspects of student financial assistance and ESDC needed to perform a more comprehensive evaluation of student financial assistance, to capture its full impact and the interactions among its programs.
  • ESDC did not take enough steps to ensure that borrowers understood their financial obligations, and did not properly verify borrowers’ eligibility for the Repayment Assistance Plan.

Obeservations relating to the Canada Revenue Agency

• Because ESDC’s private sector service provider did not have income tax information from CRA, it checked income by relying on pay slips submitted by the applicants for the Repayment Assistance Plan and it did not verify family composition. Therefore, the service provider could not efficiently determine whether the information declared by applicants was accurate.
• ESDC still had no agreement with the CRA to enable it to check the information in Repayment Assistance Plan applications against CRA’s income tax information. However, ESDC advised the OAG that it planned to start sharing this information in spring 2021.
• The CRA took responsibility for recovering loans in default on behalf of ESDC, following an order-in-council in 2005.
• When CRA exhausts all reasonable avenues to collect a debt, ESDC sets in motion a formal process to write off the debt. All write-offs of debt related to direct student loans require the approval of the Treasury Board. Moreover, Parliament approves the amount of write-offs yearly.
• The CRA has recovered on average $200 million per year between the 2013-14 and 2018-19 fiscal years.
• The methods available for recovering student loans are more limited than those available to the CRA under the Income Tax Act.

OAG recommendations

The audit report contains five recommendations of which four are addressed to ESDC and one is addressed to both ESDC and FCAC.

No recommendations are addressed to CRA.

ESDC and FCAC are in agreement with the OAG’s five recommendations. CRA is specifically mentioned in ESDC’s response to the recommendations at paragraphs #2.26 and #2.35:

• Recommendation at Paragraph #2.26 – ESDC’s response states that it is working on an information sharing agreement with CRA to verify information on applications (for the Repayment Assistance Plan) against students’ income tax data.
• Recommendation at Paragraph #2.35 – ESDC’s response states that once the loan is transferred to CRA for collections, no further reporting to credit bureaus is currently done. ESDC also states that it is in the early stages of developing a process for credit bureau reporting on loans that are in collections.

The full text of the OAG recommendations and ESDC responses where CRA is mentioned are provided below:

Recommendation at paragraph #2.26 (for ESDC). To maximize repayment of student loans, Employment and Social Development Canada should ensure proper, systematic verification of applications to participate in the Repayment Assistance Plan. (Page 7, paragraph 2.26)

ESDC’s Response (with reference to CRA): Agreed. The Repayment Assistance Plan’s objective is to provide relief to persons with employment difficulty or who face sudden income or family composition changes (such as a lost job or a newborn). This is why eligibility is based on previous month’s income and family composition. The Office of the Auditor General of Canada refers to provinces’ use of the Canada Revenue Agency’s annual tax data for student financial assistance. However, annual income information would not identify sudden financial hardship affecting plan applicants.

Employment and Social Development Canada has a systematic, sample-based income-verification process. The department acknowledges that plan verification has challenges, specifically for applicants who report zero income in the preceding monthly period (approximately 20% of applicants) and for family composition. Work is underway to enhance verification using Canada Revenue Agency’s data. The department has engaged partners on more robust plan-verification methods. An information-sharing agreement, expected to be in place by spring 2021, will allow verification of income and family composition data against the agency’s tax data during the application process while maintaining current systematic sampling practices.

Recommendation at paragraph #2.35 (for ESDC). To prompt borrowers to be more diligent about repaying their student debt, Employment and Social Development Canada should inform credit bureaus about student debts in default. (Page 10, paragraph 2.35)

ESDC’s Response (with reference to CRA): Agreed. In accordance with the provisions of the contract with the Government of Canada, the service provider currently reports regularly to credit bureaus on loans they administer. This reporting is done before a borrower is in default and remains on the borrower’s credit record for approximately 6 years. However, once the loan is in default and is transferred to the CRA for collections, no further reporting is done. ESDC is developing a process for credit bureau reporting on loans in collections, by fall 2022, as part of ongoing program enhancements.

With respect to the department’s contract with the service provider, the contract has been properly managed. The contract began in 2006, and the Repayment Assistance Plan was introduced in 2009, 3 years later. Although the contract had set performance targets for default before the plan was introduced, the department ensured that the service provider used targeted measures to reduce the default rates. A new contract is currently operational and includes processes to re-baseline default targets to ensure incentive targets are aligned with current realities. Targets will be revisited on an ongoing basis to demonstrate improvement in default rates and will be appropriately challenging and account for program or policy changes.

The OAG’s other three recommendations for ESDC and/or FCAC are provided below:

Recommendation at paragraph #2.32 (for ESDC). Employment and Social Development Canada should develop performance indicators that take into account the full impact of the Repayment Assistance Plan on the non-repayment of student loans.

Recommendation at paragraph #2.40 (for ESDC and FCAC). As soon as possible, Employment and Social Development Canada, in collaboration with the Financial Consumer Agency of Canada, should:

• make available on the web portal of the National Student Loans Service Centre all the financial information needed by loan recipients in the Canada Student Loans Program
• consult with stakeholders about the costs and benefits of mandatory training for student loan applicants before loans are provided and for student loan recipients who abandon or complete their studies.

Recommendation at paragraph #2.48 (for ESDC). Employment and Social Development Canada should consider undertaking a thorough evaluation of both of the federal student financial assistance programs to, among other things,

• further assess the reasons for student loan non-repayment in order to develop appropriate solutions
• evaluate the impact of the Canada Education Savings Program on participation in and completion of post-secondary education and on the Canada Student Loans Program
• understand why there is low participation in the Canada Education Savings Program

Explanation of why no CRA Action Plan required

• Please note that CRA was not required and did not produce a Action Plan for PACP related to Spring 2020 Report – Report 2: Student Financial Assistance, as none of the audit recommendations were assigned to CRA.
• PACP’s routine motions (i.e. the rules of PACP), only require a Action Plan be produced in specific instances (see the Minutes of PACP’s October 15, 2020 organizational meeting where the routine motions were adopted):
  
  https://www.ourcommons.ca/DocumentViewer/en/43-2/PACP/meeting-1/minutes
  That all organizations that have been subject to a performance audit or a special examination by the Office of the Auditor General of Canada provide a detailed action plan to address the audit recommendations which have been agreed to - including specific actions, timelines for their completion and responsible individuals - to the committee and the Office of the Auditor General of Canada within six months of the audit being tabled in the House of Commons.

Action Plan from Department of Employment and Social Development

Employment and Social Development Canada detailed action plan

Issue Notes

Does CRA agree with the OAG report?

Key messages:

• For the CRA portion of the audit, the OAG examined whether ESDC and CRA analyzed student loan recovery activities and adjusted procedures accordingly to maximize the funds recovered for the federal government.
• The audit specific recommendations fall under the leadership of ESDC.
• However, to address the audit's recommendation to better ensure proper, systematic verification of applications to participate in the Repayment Assistance Plan, ESDC is working with CRA to establish an Information Sharing Agreement, expected by spring 2021.
• This will enable the CRA to strengthen verification of borrower marital status, income, spousal income, and number of dependants against tax data during the RAP application process.

What information is being shared? From who? To who? What are the barriers to info sharing that need to be overcome?

• Introduced in 2009, the Repayment Assistance Plan (RAP) supports Canada Student Loan (CSL) borrowers who face financial difficulty in repaying their loans. Under RAP, no borrower has to repay their CSL until they are earning at least $25,000 per year (this income threshold is adjusted based on family size), and for income over the threshold, their payment is limited to what they can reasonably afford.
• ESDC has a systematic, sample-based income verification process that is in line with industry standards. A percentage of RAP applicants is selected to provide Proof of Income. To validate the income reported on their application, borrowers can provide pay stubs and/or employment records.
• However, as part of ongoing work with the provinces to improve the performance of the program, ESDC identified certain validation challenges, specifically for those who report zero income (approximately 20 percent of applicants). Currently, for these applicants, ESDC requires that they indicate how they are meeting their living expenses on the RAP application, but does not have an authoritative source to verify that they actually have no income.
• Therefore, collaborative work is underway with the CRA to enhance the verification of the RAP. ESDC has engaged partners, including CRA, Provinces and Territories, and its service provider on more robust RAP verification methods. An Information Sharing Agreement with CRA is expected to be in place by Spring 2021, which will allow the Department to verify CRA tax data to confirm a borrower’s income, marital status and family size.

Next steps

Key milestones, as indicated in the Management Action Plan submitted to the OAG, are:

1. Finalization of an information sharing agreement with CRA – March 2021
2. Completion of Service Provider, CRA and provincial/territorial participating jurisdiction system notifications and testing – December 2021
3. Systematic verification of income on RAP applications – March 2022

What is CRA’s collection strategy?

Key messages:

• The CRA makes every effort to collect all student loan debts from those who do not pay voluntarily and has an effective collections program that treats taxpayers fairly.
• The CRA's collection policy is to use a progressive approach and to work with individuals to reach a mutually satisfactory payment arrangement.
• The CRA continues to develop and implement collection strategies to improve its capacity to manage student loan debt and avoid new debt from accumulating.
• If unable to pay their student loan debt in full, the CRA encourages individuals to contact us and to work with us to develop suitable payment arrangements based on their ability to pay.
• The collections approach for Canada Student Loans is similar to tax collections; however, the ITA provides legislative tools, such as requirements for information and administrative garnishments that facilitate the collections process. The legislation for student loans does not contain these provisions therefore, a provincial judgment is required in order to pursue any enforcement measures. Although there is program legislation for student loans they are ultimately governed by contract law which is an area of provincial jurisdiction.

How does suspension and end of collection work?

Key messages:

• While attempting to collect, special circumstances may occur; these could suspend or even end the collection process on the account. The debtor may:
  • Claim hardship
  • Apply for rehabilitation
  • File for bankruptcy
• The collection process ends when:
  • a debtor passes away
  • an account reaches limitation
• In the event that a debt becomes uncollectible, the CRA will prepare and submit to ESDC a recommendation for write-off for their consideration and approval.

How has COVID-19 impacted CRA’s collection strategy?

Key messages:

• We understand that this is a difficult time for Canadians whose financial situations may be affected by Covid-19. As a result, collections activities have been suspended until further notice.
• If someone is unable to pay an existing Canada Student Loan debt in full, you may be eligible for payment arrangements. Payment arrangement parameters are being expanded to reflect current realities from the impacts of COVID-19.
• If your student loan is in collections, and the individual has defaulted a result of COVID-19, they may be eligible to rehabilitate* their student loan.
• We encourage those individuals to call our toll free number at 1-800-675-6184 to learn more.

*How does how rehabilitation work?

• If a borrower is in arrears of payment(s) on their CSL for 270 days or more (nine months), their loan is considered to be in default and is transferred to the Employment and Social Development Canada (ESDC) Accounts Receivable system (the Departmental Accounts Receivable System [DARS] until April 1st 2020, and the Public Sector Collections and Disbursements [PSCD] system thereafter), for the Canada Revenue Agency (CRA) to manage collections.
• Once in default, the borrower is restricted from further student financial assistance, such as additional loans and grants, in-study interest free status, or repayment assistance.
• To remove the restriction on a loan in collections, borrowers are required to bring their loan back into good standing through the process of loan rehabilitation by setting up a payment arrangement with the CRA, paying or capitalizing their outstanding interest, and making the equivalent of two monthly payments in accordance with their payment arrangement. Effective January 1st, 2020, borrowers have a one-time option to capitalize their interest (adding all outstanding interest to the principal of their loan) rather than paying the interest.
• The borrower must then contact the Canada Student Loans Program (CSLP) to confirm that they have met the criteria required for rehabilitation and ensure that the CRA repayment requirements are up to date until the rehabilitation request is approved by CSLP.
• Approved rehabilitated loans are transferred from DARS/PSCD and re-established in the NSLSC system (Galaxy) via the Canada Student Loan System (CSLS), where the restriction on the loan is removed and the NSLSC resumes managing the loan.
• Rehabilitation helps debtors improve their circumstances by allowing them to regain eligibility for repayment assistance, or further funding to go back to school.

PACP Committee Information

PACP Member Profiles

Chairperson

Kelly Block (CPC)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• N/A

Vice-Chairs

Lloyd Longfield (Lib.)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• Compliance Individual.
• Appeals Individual.

Maxime Blanchette-Joncas (BQ)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

Q-184² — October 23, 2020 — Mr. Blanchette-Joncas (Rimouski- Neigette—Témiscouata—Les Basques) — With regard to the erosion of multiple government services in the Quebec administrative region of the Lower St. Lawrence over the past 25 years: (a) how many and which departments and agencies, in full detail, have reduced or increased their staffing in the abovementioned region; (b) what is the exact number of public service jobs involved; (c) what specific impact studies were completed as part of the decision-making process that led to these staffing reductions; (d) what performance assessments and analyses were conducted as part of this process in each of these departments and agencies; (e) exactly how much in overall payroll did the transferred or abolished jobs amount to; (f) what were the full costs incurred by the government to relocate public servants and their families; and (g) what socio-economic analyses did the government conduct before the various decisions to abolish or relocate these jobs, including the list of the various findings of the public consultations on these issues?

Reply being prepared by FAB and HRB.

Correspondence:

• Nil for the CRA.

Members

Luc Berthold (CPC)

Key Issues raised in the House of Commons:

• Nil for the CRA.

Written Questions:

• Nil for the CRA.

Correspondence:

• N/A.

Kody Blois (Lib.)

Key Issues raised in the House of Commons:

• Taxation.
• Corporate income tax.

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Greg Fergus (Lib)
(Parliamentary Secretary to the President of the Treasury Board and to the Minister of Digital Government)

Key Issues raised in the House of Commons:

• Income tax
• Tax relief

Written Questions:

• Nil for the CRA.

Correspondence:

• Nil for the CRA.

Matthew Green (NDP) (National Revenue Critic)

Key Issues:

• Income tax

Written Questions:

• Nil for the CRA

Correspondence:

• Nil for the CRA

Philip Lawrence (CPC) (National Revenue Critic)

Key Issues:

• Canada Revenue Agency
• Audits on Small Business owners.
• Canada Emergency Wage Subsidy

Written Questions:

Q-32² — September 23, 2020 — Mr. Lawrence (Northumberland-Peterborough South) — With regard to the Canada Revenue Agency’s approach to workspace-in-the-home expense deductions in relation to the COVID-19 pandemic’s stay-at-home guidelines: are individuals who had to use areas of their homes not normally used for work, such as dining or living rooms, as a temporary office during the pandemic entitled to the deductions, and, if so, how should individuals calculate which portions of their mortgage, rent, or other expenses are deductible?

Signed reply sent to PCO on November 3, 2020

Correspondence:

• N/A

Francesco Sorbara (Lib.)
(Parliamentary Secretary to Minister of National Revenue)

Key Issues:

• Tax relief.

Written Questions:

• Nil for the CRA

Correspondence:

• Collections Individual.
• Income tax regulations

Len Webber (CPC)

Key Issues:

• C-210 – An Act to amend the Canada Revenue Agency Act (organ and tissue donors).
• Income Tax Returns

Written Questions:

• Nil for the CRA

Correspondence:

• N/A

Jean Yip (Lib.)

Key Issues:

• Nil for the CRA

Written Questions:

• Nil for the CRA

Correspondence:

• Tax Free Savings Account.
• Interest penalties Individual.

Associate Member

Luc Desilets (BQ) (National Revenue Critic)

Key Issues:

• Canada Emergency Wage Subsidy.

Written Questions:

• Nil for the CRA

Correspondence:

• N/A