Legislative Assembly of Ontario

1997 ANNUAL REPORT, PROVINCIAL AUDITOR
MINISTRY OF EDUCATION AND TRAINING

CONTENTS

Thursday 19 February 1998

1997 annual report, Provincial Auditor: Section 3.06, Ontario student assistance program

Ministry of Education and Training

Mr David Trick, assistant deputy minister, post-secondary education division

Mr Helmut Zisser, director, student support branch, post-secondary education division

Ms Veronica Lacey, Deputy Minister

Mr Richard Jackson, manager, policy and communications, post-secondary education division

STANDING COMMITTEE ON PUBLIC ACCOUNTS

Chair / Président

Mr Bernard Grandmaître (Ottawa East / -Est L)

Vice-Chair / Vice-Président

Mr Richard Patten (Ottawa Centre / -Centre L)

Mr Marcel Beaubien (Lambton PC)

Mr Gary Fox (Prince Edward-Lennox-South Hastings / Prince Edward-Lennox-Hastings-Sud PC)

Mr Bernard Grandmaître (Ottawa East / -Est L)

Mr Jean-Marc Lalonde (Prescott and Russell / Prescott et Russell L)

Ms Shelley Martel (Sudbury East / -Est ND)

Mr Richard Patten (Ottawa Centre / -Centre L)

Mr Peter L. Preston (Brant-Haldimand PC)

Mr Joseph N. Tascona (Simcoe Centre / -Centre PC)

Mr Terence H. Young (Halton Centre / -Centre PC)

Substitutions / Membres remplaçants

Mr Morley Kells (Etobicoke-Lakeshore PC)

Mr Peter Kormos (Welland-Thorold ND)

Also taking part / Autres participants et participantes

Mr Erik Peters, Provincial Auditor

Mr Gary Peall, director, education and training audit portfolio, OPO

Clerk pro tem / Greffier par intérim

Mr Douglas Arnott

Staff / Personnel

Ms Elaine Campbell, research officer, Legislative Research Service

The committee met at 1047 in room 228, following a closed session.

1997 ANNUAL REPORT, PROVINCIAL AUDITOR
MINISTRY OF EDUCATION AND TRAINING

Consideration of section 3.06, Ontario student assistance program.

The Chair (Mr Bernard Grandmaître): Good morning, everyone.

Failure of sound system.

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Mr David Trick: ...here is an interest relief program which is about $7 million where, if a student leaves school and has a hard time making his or her payments, the government will help out with the interest payments for a period of up to 18 months. Last, there is the cost of defaults. If you add those things together, you get in the current year $504 million.

Failure of sound system.

Mr Trick: ...It used to be you got all of your loan once in September, but over the past two years we've gone to a 60-40 split. So you get two payments a year: 60% in September or whenever you start and 40% halfway through the year.

In terms of making it a more regular, for example, a monthly payment, the issue there is essentially to come to an arrangement with the banks so they'll agree to do that. A student gets his loan from the bank rather than from the ministry. The banks have expressed some concerns about the potential administrative burden of having the student come into the bank every month for his loan or in some other fashion having to police the student's attendance and issue the loans monthly. It's a discussion we've had with them. I told the private vocational schools I'd like to continue with both them and the banks because I know it's something they think is a good idea and will work for a lot of their students. I have to just say that, as of today, we're not there yet.

Mr Gary Fox (Prince Edward-Lennox-South Hastings): But I understand, in talking to the career colleges, that they're quite agreeable to administrate this part of it because, as you know, they're scared at this time because their defaults are a high percentage and they'd like to see some changes made to correct this. I feel they're quite agreeable to going along with any part of this to correct the situation.

The other point I have is on the tax break. You say that the tax break to parents is $100 a year?

Mr Trick: No. When a student applies for OSAP, we ask what their parents' income is, and based on that we calculate how much we think the parents can afford to contribute to the cost of their own children's education. Today, to take an example of a family of four earning $40,000, the calculation is that that family can't afford to contribute anything to the cost of their kids' education. Starting next year we'll be asking that family to contribute $100 and then the student provides some and OSAP provides the rest.

Mr Terence H. Young (Halton Centre): Could you please just explain exactly how this works? I've had a concern about the loan forgiveness for some time, as you know. In some cases, and it might not be many, I've always been concerned that because a loan is forgivable -- that means you don't have to pay it back -- some students would choose a lifestyle and decide to borrow more, and say, "Anything over $7,000 I don't have to pay back, so I'm going to just live and study and I might not get a part-time job or I might not get a summer job," and those are some of the students who end up with the big debts when they get their degree.

I totally approve of the principle that you're removing this forgivable part. Can you explain again how that will work?

Mr Trick: In making this change last Friday, one of the points Mr Johnson made was that the loan forgiveness program we now have is not very well understood. If you talk to, say, 10 students, you might find one or two who understand it reasonably well and a large number who simply don't understand that we're going to forgive some of their debt after graduation. One of the main purposes of changing to the Ontario student opportunity grant program is to clarify what's a loan and what's a grant and make that clear in students' minds so they don't have a higher expectation of what their debt is going to be than is actually going to be the case.

In terms of how it's structured, if you have a loan up to $7,000, that's a loan, and the amount above that is a grant. The concern you raised is, does that give an incentive for students not to, if you like, look after themselves because the amount above is a grant? I think what we're intending to do there is, first of all, we do take into account what students earn over the summer and during the course of the year. Second, I think there's a pretty good understanding among a lot of students who are working part-time that one of the reasons they're doing that is to make sure their total debt at graduation is lower than it would otherwise be. So, yes, it does affect what OSAP might give them, but then when they graduate they have less to pay back.

Mr Young: But the measures are, you're going to pay it back after the year is completed, you're going to verify with Revenue Canada that the income figures are correct and you're going to pay it into a bank account where there's a loan so that the money is not spent.

Mr Trick: Right. We pay it to the bank to which the student owes the OSAP loan.

Mr Young: When you give a student a loan now, do you always pay the tuition to the institution first, or does it just go into the student's bank account and they're supposed to write the cheque out for their tuition?

Mr Trick: There's a mixture of practices. Let me ask Helmut Zisser to pick that up.

Mr Helmut Zisser: At the time when students attend the institution and go to pick up their loan documents, they're asked to complete a confirmation of enrolment document to indicate that they're actually in school. At that time, when they receive their loan documents, there is a provision on the document for the institution to deduct the amount of the tuition. But it is up to the institution to do that. Most institutions do in fact follow that practice, so that when a student presents the loan document to the bank, the bank will then execute it as it is written, and if an institution has placed that there, then that amount of money will immediately be transferred to the institution's account and the balance would go to the student.

Mr Young: I have a two-part question then. Why don't we make all institutions do that? Because a student loan is based on need, why don't we make sure the tuition gets paid? And do we pay half the tuition for half the year or do we pay it all? Because if the student drops out in October and we've paid all the tuition, that's lost to the student and to the program. Why do we not give the living expenses monthly? We've talked a little bit about that, but if you could answer those first two questions I'd appreciate it.

Mr Zisser: When we issue a student loan we do not differentiate between the portion of that loan that would support tuition and the portion of that loan that would support living costs, because that combination will vary depending on the student's circumstances.

Mr Young: Why can't we just make it a policy, a regulation, that the loan must first go to pay the first term of tuition before anything else, make that a rule? Why do we not do that?

Mr Zisser: That is certainly the principle that is applied. When students get that loan document, the expectation by the institution certainly is that they are paying their tuition fees. Different institutions have different policies about how they charge tuition fees, whether they expect it all to be paid, whether they accept partial payments and so on. A student will be expected to use that loan to pay that. Where an institution wishes to debit the student's loan for the amount, they can do so.

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We also have to remember that in many cases the amount of loan that we're issuing to a student may be a small amount in so far as they already have a lot of means at their disposal so the amount of tuition they have to pay overall may even be greater than the amount of loan they are receiving because they have other resources at their disposal. We do not in all cases provide students with a loan that covers all of their tuition and living costs. In fact, for the majority of students we're providing less than that because students have their own resources. They've had jobs over the summer, they have scholarships, they have bursaries, they have other resources available to them.

The Chair: Thank you. I must move on.

Mr Richard Patten (Ottawa Centre): There is great interest in this program, as you well know. First of all, Deputy, it's a pleasure to meet you finally. You came to the ministry with tremendous support in the educational sector, given your reputation in what you've done in the past. My first question is, are you enjoying your job? I'm just kidding.

Ms Veronica Lacey: More now than in the fall, I'd say.

Mr Patten: By the way, your job description is one of the most stringent documents I have ever read. It seems to me that in order to achieve some of these things, you'll have to be a superwoman. I wish you all the best in trying to achieve them.

But in your performance contract, at least the copy I received, you had identified or had made a commitment to reduce the costs of the program for the 1997-98 period of time, which was scheduled at about $80 million. What is the projection of the budget now for the next year?

Mr Trick: Mr Patten, if I could pick up on that, we have achieved a reduction in the current year from last year. The main way that was achieved was the decision that the government announced a little over a year ago now to raise the threshold between loans and grants from $6,000 to $7,000. In the course of doing so, a year-over-year reduction was achieved and the full $80 million was.

Mr Patten: I think last Friday's announcement by the minister mentioned the tremendous range of success in terms of accountability by students in fulfilling their obligations between various colleges and universities. It's quite a range, 10 times the difference in some instances.

What has the ministry done in terms of those institutions where there's a significantly higher rate of default? It obviously suggests that the counsellors or the advisers at those institutions are not up to scratch or are not as competent as they are in other institutions, or are there factors that contribute to the defaults other than the counselling or the role of the institutions in advising and finally signing off on loan applications?

Mr Trick: You're right that, first of all, there is obviously quite a broad range in default rates among institutions and also within institutions among various programs. I think you're also right that there is no one thing here that distinguishes the high defaults from the low defaults, so we've introduced quite a broad range of measures, no one of which would be effective on its own but which collectively we think will be effective.

With particular reference to the high-default institutions, we've asked the ones above 38.5% to start paying for some of the costs of their defaults on loans they issue after August 1 this year. When I met with the private career colleges on Tuesday, they talked to me about a number of things they were going to do to help that along.

Certainly counselling is one issue in terms of putting students into courses they could reasonably benefit from. Financial counselling is another. They say they have some students who simply don't have a lot of experience in budgeting and in the idea of taking on debt and then paying it back. They just don't have a lot of experience in that area. Third is the nature of the course itself. We've asked them and they understand the need to take a look at courses where there simply isn't a lot of demand from employers when the student comes out and to take a look at whether they still want to offer that course or whether they want to move into some other field of education.

There is a fairly broad range of things they can do, and I say that without for a moment suggesting that the burden should all be on them, because clearly we're doing things as a ministry too.

Mr Patten: Is there a risk, with the added accountability to those institutions or pressure on those institutions, that this might tighten up the support or limit the possibility of some students who need support, and that it would somehow play a role in saying, "Now we're going to be really tough, because if the institution has to pay, we're going to be so stringent and careful"? But the other side is, maybe this is going to limit those who are in need or those who may have to get out of that institution to go somewhere else or not go to college or university at all. How are you coping with that?

Mr Trick: Certainly the discussion I had with them was they were looking at this from the perspective that they had to serve the student better. If the problem is that the program they're currently offering isn't serving the student well -- let me give an example: If they're taking a student into a computer program where one would have to have a pretty good facility with mathematics and yet the student isn't comfortable with mathematics, they recognize they either have to find some way of bridging that gap for that student or have some opportunity for a student to get up to speed before they start the program.

I think that was really the perspective they were looking at, whether their program was well suited to the student and then at the far end, was the student graduating in a way that he or she could get a job, because quite clearly that's what the student was after in coming to the career college.

Mr Patten: In some jurisdictions, I am advised by the auditor's office in response to a question I asked on the counselling side for students related to managing finances and the implications of borrowing and students graduating with big mortgages essentially -- is the ministry looking at any requirements related to anyone who has taken out a loan having to go through an hour's session, whatever it is, in financial counselling related to the accountabilities of being the recipient of a loan? I understand that in some jurisdictions it's in the legislation that there is a financial management course required before assistance is given.

Mr Trick: It's currently a fairly common practice, particularly at career colleges, and even in some of the public colleges, to require financial counselling as part of the student loan process. To answer your question, no, we haven't looked at legislating that requirement, but it's something we might discuss with some of the institutions, whether they think that would be helpful.

Mr Patten: Deputy, in terms of the contingencies program, it says you're in negotiations or plan to negotiate this with the federal government. Where are those negotiations at the moment?

Ms Lacey: We have had several discussions with the federal government, particularly at the staff level. The minister has met with the federal minister and it was an amicable discussion, but we have as yet to have solid proof that we're able to move forward on specific steps that will aid our students. We're hopeful that maybe in the next few weeks we will have stronger signals that we can come to some agreement.

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Mr Patten: We had a preliminary discussion about some of these issues before and I learned some of the rationale as to why the federal government has had agreement with the financial institutions. The federal government provides the fee to these institutions. I'm advised by one of my learned colleagues across the way that while that's not directly a financial advantage to the institution, it does get the student, because they then buy a car and they then buy a house, if they ever get to that stage, when they pay off their student mortgage. They've got a customer, in other words.

The province has a different arrangement. We provide a loan guarantee on defaults, but I understand that's been looked at. Are there negotiations going on to examine that position and, if there are, what's happening on that score?

Mr Trick: Just a little bit of history here. Up until 1994-95, the federal government and every province had an arrangement with the lenders where there was 100% guarantee given by the taxpayer for any default. In 1994-95, the federal government announced it wanted to go to a different system, where it would pay the banks a percentage of their loan each year in return for the banks taking on the risk of defaults. Eight other provinces did that as well. The Ontario government chose not to do so at that time.

I mentioned earlier that is something we would like to talk to lenders about as a way of containing some of our risks and giving them a bit more incentive to make arrangements with students who are at risk of default, rather than simply letting the student default and taking the loan back to us. In terms of the exact time frame of that, I couldn't really say, but it's clearly something that we have talked to them about and I think we will again in the near future.

Mr Patten: My final question is related to the new requirement now that parents who have an income of $40,000, a family of four, now have to pay 100 bucks. This is nickel and diming. You must be somewhat embarrassed to even have to administer a program of that nature -- a family of four with $40,000 income. Is the government that desperate that you have to institute a program of that nature? I know that's not your position, because it's a policy decision, but are there any incentives that you have tax-wise that will provide incentives for parents to contribute more in terms of tax relief for students?

Mr Trick: I have to say the major issue that we've looked at with the federal government in terms of incentives for parents to save for their children's education has been through the registered education savings plan that we talked about earlier. The mechanics there are that the personal income tax system is run by the federal government so they get the final call on how that program is designed, how it's structured. Provinces contribute to the cost in the sense that it lowers tax payable to both levels of government, but essentially we're in a position of talking to them about it and they get to make the final decision. I'm hopeful that maybe next Tuesday we'll find out some more about changes to that, but I couldn't really tell you any details.

Mr Patten: My final question is, are you monitoring the impact on students who may have been on welfare, now going to school, eligible for a loan but if they receive the loan they're off welfare? What's the dynamic there? Is that really working out? Is it a positive thing? Is it worthwhile, especially for single parents? What's your experience thus far? This is a new policy, I gather. What's the impact of that? The implication, of course, is that you want to get people off welfare. If they're going to school, their probability of employment is increased etc. The feedback I get in my riding is that that's a barrier. What is your experience on that?

Mr Trick: Personally, I couldn't give you a lot of facts and figures on that, but let me just ask if either of my colleagues has a little more available than I do.

Mr Richard Jackson: The number of sole support parents accessing student assistance this year and in 1996-97, which was the first year that this change was made, is not an appreciably different number than it was in 1995-96, prior to that change. Certainly, we may hear individual cases of that, but the raw numbers would demonstrate that hasn't really changed the profile of who is accessing student aid.

Mr Patten: So either it's working well or some of them don't realize what they've got themselves into. Anyway, I guess over time we will see that. Hopefully we're monitoring that, because that particular demographic is quite important because it's a springboard for new opportunity and getting off welfare.

Ms Lacey: We will certainly do that.

Mr Jean-Marc Lalonde (Prescott and Russell): Thank you once again for coming in front of our committee. We know that OSAP is a very important sector of our education because about 40% of the workforce in Ontario makes less than $20,000 a year, so OSAP plays a very important role for the future of our province, our economy and our country. But there are a few points. We know that in the past we've been following the federal needs assessment criteria after they were revised in 1994. Have we switched to the 1994 needs assessment?

Mr Zisser: Yes. For the current year we are using the same needs assessment approach as is the federal government.

Mr Lalonde: The 1994 needs assessment?

Mr Zisser: We are using the one that the federal government implemented at that time. The actual rates that are established and so on are set annually by the federal government and we are using the most current rates that they have provided to us. We would be doing the same thing in assessing a loan in Ontario as other provinces are who are also following the Canada student loan guidelines for needs assessment.

Mr Lalonde: Is that part of the 80% of the auditor's recommendation that you have met?

Mr Zisser: That's correct.

Mr Lalonde: Can you briefly tell us what are the 20% of those recommendations that you haven't met yet? Not in every single detail, but there are quite a few important recommendations in our report.

Mr Zisser: Yes. The Provincial Auditor had recommended that we perform regular audits to identify post-secondary institutions that do not adhere to program requirements or abuse the program. As I mentioned earlier, we are planning to start that in 1998-99 with the August cycle of audits. So that's one that's not yet under way.

The Provincial Auditor had recommended that we require explanations from applicants who report personal and spousal incomes below a specified level. We are currently doing that for people who report a zero income, but we have not set a different threshold. We're again planning to introduce that for the 1998-99 loan year.

Mr Lalonde: Without going through every one, have you now proceeded with asking for official receipts for the child care support? In the past, you didn't bother asking for child care support receipts.

Mr Zisser: Yes. We issued guidelines to institutions requiring them to do that and we have an audit strategy in place for this year where we will be conducting some spot audits at a number of colleges and universities to ensure that those procedures are actually being followed.

The Chair: One last question, Mr Lalonde.

Mr Lalonde: Last question already? You mentioned a little while ago that $10,988, approximately. Is that a grant or a loan that you give to students going to the private institutions?

Mr Trick: The first $7,000 of that is a loan and the amount above that is effectively a grant.

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Mr Lalonde: Vis-à-vis the public institution, the reason that you have gone to $10,988, what is the reason for accepting the other one higher than the public institution?

Mr Trick: First of all just to be clear, the figures that I cited to you were averages, so of course in all three sectors there would be some above and some below. The two main reasons why the figure is higher in private vocational schools are, first, typically their tuition is higher. Tuition can be multiple thousands of dollars a year, whereas it's a regulated fee in the universities and colleges. Secondly, the amount that we will lend to any student depends on their family structure. For a single student we'll lend up to $9,350; for a student who has dependants we'll lend up to $17,000. That's for a 34-week year. If you have an institution that takes in more students who have dependants, then the average loan will be higher. The more parents with children you have in an institution, the more likely it is that there will be higher loans to them.

Mr Lalonde: But the parents of the students who choose to go to a private school should be able to afford to pay the difference.

Mr Trick: No, sir. Let me be clear. I mean a parent who might have a small child who's one or two or three years old. It's the parent who's attending school. When I say that, I'm talking about students who have children of their own.

Mr Peter Kormos (Welland-Thorold): The numbers, and especially the Friday the 13th announcements by the minister -- he talked about financial assistance to post-secondary students being $504 million this year, rising to $535 next year, a 6% increase. Yet the auditor's report shows -- and I appreciate it's a year prior, 1996-97 -- program expenditures total $335 million. Where does the almost $200 million more come from in the minister's Friday the 13th announcements?

Mr Trick: I'd want to look at the Provincial Auditor's report to give you an exact answer to that question, but let me just say in general, because we are switching accounting systems over the past couple of years, there are two sets of numbers for every program in the government --

Mr Kormos: I'll bet you there are.

Mr Trick: -- one of which is a cash set of numbers and one of which is an accrual set of numbers. For the cash set of numbers the cost is recorded whenever the cash is flowed out the door. For accrual numbers we record in the current year the total cost to the taxpayer in all future years of the loans that we issue this year. The numbers I cited were accrual numbers, and if the others were cash, I'll have to take a look at them after.

Mr Kormos: On page 93 of the auditor's report he talks about total program expenditures being $335 million, and then on page 94 he breaks down where the money is being spent.

The other interesting thing is the Friday the 13th announcement utilized default rates as a beginning point for the discussion -- 18%, 28% and 35%, if I remember correctly. But I understand that you become a defaulter merely by virtue of your financial institution seeking to cash in its chit with the government. So being a mere defaulter doesn't mean that you won't be paying in the next month or the month after. Is that a fair observation?

Mr Zisser: The arrangement that we have with the financial institutions at this point requires the financial institutions to take responsibility for the loan and to attempt to keep that loan in good standing, so the initial due diligence requirements rest on the banks. Those requirements are that they work with the student to consolidate the loan. That is the process whereby the student, after their period of studies, brings all loans together and then enters into a repayment arrangement. They are responsible for making monthly payments to the banks for that. Where a student misses a payment, the bank is required to provide that student with a notice. Where the students fails to make a second and a third payment, the same process takes place. The bank can only claim a loan from the province after it has exercised due diligence by issuing the three notices. At that stage the loan is 90 days in default and those loans are then returned to the province under the guarantee provisions.

Mr Kormos: Okay, no problem. We're talking about a loan that's 90 days in default and it then becomes part of the statistics for defaulted loans, assuming the bank has not lagged in exercising its power to seek reimbursement from the government. Is that a fair observation?

Mr Zisser: Yes.

Mr Kormos: I take a look at page 107 of the auditor's report and we see that the gross amount, according to the auditor, of outstanding moneys to be collected by the province as of October 31, 1996, is $99 million. Is that an accurate number?

Mr Zisser: Yes.

Mr Kormos: What's interesting is that for the largest single amount, $55 million, under the column "Collection Efforts," the auditor indicates "Minimal collection activity in the last year." Do you dispute the auditor in that regard?

Mr Zisser: No, that would be a correct observation.

Mr Kormos: For the second largest amount, $30 million, the auditor indicates, "Returned from CCS -- no collection activity." Do you dispute that observation?

Mr Zisser: That's also a correct observation.

Mr Kormos: Then $14 million, the auditor indicates, is "Unprocessed -- no collection activity." Do you dispute the auditor's observations in that regard?

Mr Zisser: No, we've seen these numbers before.

Mr Kormos: It seems that almost $100 million of outstanding debt has been, for the largest part, ignored by the government. Is that fair to say?

Mr Zisser: When the ministry receives the loans that are being claimed by the banks, we process those claims to ensure that those are bona fide loans with the province and we then pay the bank the amount of the claim. We then transfer that loan, as a ministry, to Central Collection Service of Management Board and they are the responsible party within the government to initiate further collection activities, which they carry out through their own staff resources or by engaging the services of collection agencies.

Mr Kormos: But I'm looking at these numbers -- $55 million received minimal collection activity and $44 million received no collection activity. That's an incredible amount of money to be ignored, isn't it?

Mr Trick: Mr Kormos, if I may, I think you'll find no disagreement on our part that we have every obligation as a government to be out collecting these loans. In Mr Peters's report he gives a snapshot in time on October 31, 1996, and he is absolutely right that, for a period before that, central collection services from the government was not in a position to do very much in the way of collection activity. They are increasing their resources and they are attempting to increase the contract resources available to them.

For our part, just to cite one example I mentioned earlier, we have arranged with the federal government for Revenue Canada to be offsetting people's income tax refunds so that we have another way of accessing this money as well.

We are more than in agreement with you that more has to be done here.

Mr Kormos: You say CCS has increased their effort?

Mr Trick: The information I have is that they have taken on additional temporary staff so they can increase the effort that they are making to collect Ontario student loans.

Mr Kormos: The auditor reports that there was a 50% reduction in the staff at CCS and they had not accepted any new files for collection since May 1996. That's on page 107.

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Mr Trick: That was absolutely true at the time the auditor's report was done. I'm talking abut additional staff who have been taken on board by central collection over the past six to nine months in an effort to address exactly the kind of problems the Provincial Auditor pointed out.

Mr Kormos: One of the concerns I have as well is the goal of the ministry to effect greater tuition fee deregulation. That will mean higher tuition fees, won't it?

Mr Trick: The Minister of Finance made a statement on that subject in December and said Minister Johnson would be providing more details. So those will be coming in future.

Mr Kormos: Fair enough. But son of a gun, I brought along the performance report. It has been breeding like rabbits; it has been appearing everywhere. The Xerox machines have been overheating. It speaks of one of the goals being greater tuition fee deregulation. I understand the minister, you say, hasn't made an announcement, but that is going to mean higher tuition, isn't it?

Mr Trick: I'm going to leave that to the institutions to decide after the policy is announced.

Mr Kormos: When the minister was criticized after his Friday the 13th announcement because he spoke about a 6% increase from the past fiscal year through the 1998-99 fiscal year in student assistance -- which, as I say, you've got to know conflicts significantly, because of the double bookkeeping system, with what the auditor says. The auditor says $335 million; the minister $504 million. But heck, the $80 million that was generated by raising the threshold from $6,000 to $7,000 is far more than that 6% purported increase, isn't it?

Mr Trick: Yes, sir.

The Chair: Before you answer that question, I'd like to ask the auditor to clarify. I'm a little confused about two sets of books and so on and so forth, different accounting systems. I'd like the auditor to clarify your bookkeeping system.

Mr Erik Peters: If I may help out on the two, there are no two sets of books in this case. Both amounts were determined on what is called a modified cash basis. The difference of about $200 million, or close to that, in the numbers is largely because the loan forgiveness amount is increasing and will continue to increase over time as loans are being made, because of the limit. For example, the loan forgiveness in 1996-97 was $157 million; it's estimated in 1997-98 to be $350 million. All of it is right there. The interest paid has also increased because the amount of loans outstanding has increased, and the interest relief is a small amount in there too. So there are three, but the biggest component, from what we have determined, how you got to your $504 million, David, appears to be in the loan forgiveness number. But there are not two sets of books. This is actually performance of the program.

Mr Kormos: I was using their lexicon, but I appreciate the clarification; I enjoyed theirs as well. A response to the minister from David Scott of the Council of Ontario Universities indicated that funding based on your numbers was $592 million in 1996-97 and decreased to $504 million in 1997-98. Is Mr Scott correct when he says that and when he is reported in the Toronto Star as saying that?

Mr Trick: This refers to the reduction of $80 million that we talked about earlier? Yes.

Mr Kormos: When the minister talks about a 6% increase, it's after the grab of $80 million and then putting back in $30 million? Are my numbers reasonably correct there?

Mr Trick: Yes.

Mr Kormos: The auditor also talked about the disincentive banks have to collect outstanding debts. Do you agree with that observation?

Mr Trick: Yes. This goes back to our earlier point that at present the guarantee is held 100% by the government and that we'd like to change that.

Mr Kormos: Why was there no action on $44 million of debt and only minimal action on $55 million of debt, as reported in the auditor's report?

Mr Trick: Mr Kormos, I'd be happy to find out a little bit more about that. Without making excuses, I have to say that the deputy minister and Mr Zisser and myself have only been involved in this program for the last 12 to 18 months and I couldn't tell you very much of the history prior to that.

Mr Kormos: Since you have been involved, you indicated that the CCS has hired temp staff or new staff?

Mr Jackson: Our understanding is that Central Collection Service has indeed hired temporary staff to take action on not just our accounts but other accounts owing to the provincial government. I can tell you that all of our defaulted loan accounts are now sitting with Central Collection Service for collection purposes. We are not sitting on them and not acting on collection.

Mr Kormos: Fair enough.

The Chair: Mr Kormos --

Mr Kormos: You used up my time, Chair.

The Chair: I'm not trying to stop you. I would like to ask the auditor to clarify what was said, so the ministry can be more helpful to you.

Mr Kormos: Thank you kindly, Chair. Your assistance is always a pleasure.

The Chair: You haven't lost anything; you haven't lost a minute. Auditor.

Mr Peters: I'll do it in a minute. Part of our 1997 report deals with the failure of CCS to collect accounts. We have already discussed in subcommittee of PAC that once Parliament resumes, in those sessions later on there will be a session on the whole Central Collection Service problem. This is just to clarify that very often it's not the ministry that is directly at fault; they do their role, they turn it over, but there is another problem here in the works that will be addressed at a later stage.

Mr Young: Mr Chair, may I ask the auditor a question on the same subject?

The Chair: Yes, and again, Mr Kormos, you won't be losing any time.

Mr Young: Do you recognize any difference in trying to collect money in a normal bank loan situation from people who are working and students who haven't found work yet?

Mr Peters: There will definitely be a difference.

Mr Young: Right. Do you recognize that there might be a point where government might make an agreement with a student that, "When you find employment, we want you to come and sit down and offer us a repayment plan, and we want you to keep in touch"? Does that make sense to you?

Mr Peters: Yes.

Mr Kormos: You've transferred those 45,000 outstanding files to the CCS. That's what I understand you to have told me. When were they transferred?

Mr Jackson: I couldn't give you the specific date at this point, but it was certainly somewhere around the time of this audit report. If you take a look on page 109 of the audit report, you will note that it's not simply a ministry response but a response from Central Collection Service.

Mr Kormos: I'm not disputing that. I understand that. CCS doesn't happen to be located up in Downsview as well, does it?

Mr Young: You can head up there tomorrow morning.

Mr Kormos: Well, we might have to go take a look. Have you received any reporting back? Do you know what CCS is doing with your 45,000 cases, amounting to $99 million, the majority of which have received merely minimal collection exercise and the balance, none?

Mr Zisser: CCS is certainly indicating that they have increased their collection efforts and that they are currently collecting revenue. We are advised by them that their collection of revenue for 1997-98 will exceed the previous year's level they had reported, so as a result of adding the additional resources, they are working the accounts; they are contacting individuals to try to get them to enter into repayment. They're certainly able to receive calls from individuals wishing to start repayments on their student loans. I think that is the type of activity the auditor referred to that had ceased for some brief period of time, and that is the activity that has been reinstated by CCS, so as we currently continue to transfer accounts to them, they are working those accounts to collect the moneys owed to the government.

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Mr Kormos: The auditor notes on page 108 that effectively the greater the delay there is before you commence a collection proceeding, the more difficult it is to effect a collection. Do you agree with that proposition?

Mr Zisser: That is why I think the approach they have now instituted, which is to have staff on hand to be able to immediately follow up on the accounts, is resulting in additional collections by them.

Mr Kormos: Fair enough, but we're talking February 1998 right now. As of October 31, 1996, 14,000 files had received no collection activity, and that amounts to $44 million of the money owing to the ministry. The fact that CCS was shut down to the tune of 50% and wasn't receiving these files until the auditor's report, and the delay that effected, will impair their ability to collect even if they're fully staffed, won't it?

Mr Zisser: I think those were true statements at that time, and as a result of the Provincial Auditor's recommendations CCS has certainly taken steps to make sure those accounts are being worked. As I said, any accounts we are now transferring, including those historical accounts, are receiving attention and collection activities are taking place.

Mr Kormos: What I'm going to suggest is that there is a whole lot of those arrears that may become uncollectible by virtue of the inaction on those files for a period of what could be well in excess of two years in view of the fact that the October 31, 1996, is the accumulated number of files and accumulated debt.

Mr Zisser: We do not know precisely what the repayment patterns are for students who default on their loans. There is some evidence to suggest that it is sometimes quite possible to get into repayment on loans later on than that because individuals have managed to find employment, have increased the amount of earnings and are now in a better position to repay, but I don't think there is very good information at this point that would lead us to know how student loans differ from standard consumer loans in terms of collection efforts.

Mr Kormos: Why did the ministry let these files -- well, I'm not saying they did. What did the ministry do as these files accumulated with no collection efforts on the part of CCS? I get the impression they weren't even shipped over there. I was told that they were only shipped over as of the timing of the auditor's report. Am I correct in the interpretation of that comment, that the files were sitting at the ministry until the auditor's report came out?

Mr Zisser: No, the practice within the ministry was to transfer the accounts to CCS at the time we paid the claims. I think the one group of files identified within the Provincial Auditor's report were files that had in fact been transferred to CCS and that had been returned to the ministry by CCS because they were not at that time able to pursue collections on the files.

Mr Kormos: Very much so: 10,000 files, $30 million worth returned to the ministry from CCS with no collection activity, but 4,000 in the ministry that were unprocessed, no collection activity. The ministry didn't even ship them over to CCS. Why not?

Mr Zisser: We receive files from banks on a daily basis. Sometimes those are small amounts; sometimes they can be large numbers because banks follow different processes in terms of preparing files for shipment to the ministry, so at any time we will have claims on hand that we will be processing. I think that figure of the 10,000 that's referred to in fact referred to files we were in the process of preparing for payment and transfer to CCS.

Mr Kormos: Did your ministry express its concern to the government about the inability or the failure of CCS to act on the files you had shipped to them and had returned to you, some 10,000, $30 million worth, with no collection activity?

Mr Zisser: We were certainly in contact with CCS during this time. We certainly had expressed to them our concerns around the whole area of how collections would proceed and we were seeking clarification as to by what process collection activities would be undertaken in the future.

Mr Kormos: Your understanding is that the 50% reduction in staffing is what prevented CCS from acting on any of these files.

Mr Zisser: It was our understanding that CCS was at that time pursuing some business directions to find a more effective form of collections and that's what --

Mr Kormos: But they hadn't accepted new loans since May 1996. That's what the auditor's report said: They didn't accept a single file since May 1996. We're talking February 1998 now.

Mr Zisser: And they have been accepting files from us since last year and all of those accounts are now being pursued for active collections.

The Chair: On that note we will recess until 1:30. I would like to invite the deputy minister to be back with her colleagues for more questions.

The committee recessed from 1207 to 1334.

The Vice-Chair (Mr Richard Patten): We'll resume our session. Again, thank you for being with us this afternoon. We'll continue with the rotation, 15 minutes per caucus. Mr Young, if you would like to start.

Mr Young: I want to get a good understanding of this $90 million that's in arrears and why it's in arrears. Mr Kormos was trying to talk about the logistics of sending it to central collections, and I understand that's important, but doesn't this relate to the high level of youth unemployment in our society at large? All we know is, when you say something is in arrears, there's been no payment for 90 days. That's the only definition I think we have thus far.

What I'd like to know is what percentage of these students have said: "I really want to pay my loan. I want to pay it back as soon as I can. I don't have a job. As soon as I have a job, I will contact you and begin to pay it." What percentage fit into that category, what percentage fit into the category where they just disappear and they can't find them, and are there any other categories?

For those who are working and should be paying back and have agreed to pay back the loans and aren't, we definitely want to give those to professionals at finding them and sitting them down and saying: "We have to have a plan here to get this money back. You made a commitment." For the others, I think we have to go to them and say: "We understand you're in dire straits. We want you to get work as soon as possible. As soon as you do, please come and see us and we'll put together a repayment plan that you can meet."

Can you try and give me a better understanding of what students fit into each category and what measures we are taking, if we're taking any, to deal with the unemployment situation among young people?

Mr Zisser: First of all, the vast majority of students are repaying their student loans. So we start from that, that it is working for the vast majority of students. But there is an indication over the past two years where we've been measuring default that students are finding it more difficult to repay their student loans. Both the federal government and the provincial government have measures in place to assist students who wish to repay their student loan but who are unable to make those payments because of the fact that either they don't have a job or the job they have doesn't have sufficient earnings for them to meet their loan repayment obligations.

Mr Young: Could you tell us a little bit about those?

Mr Zisser: In the case of the provincial and federal programs, in both programs a student isn't required to start repayment at the time they finish school. They have six months from the time they finish school to enter into repayment arrangements with their bank. If at that time they still don't have employment or, based on the job they have, they can't meet the monthly payment, there is an interest relief program available to students.

The way the Ontario interest relief program works is that it looks at a student's income, and if income is insufficient to meet the payment, the province will continue to pay the interest on that loan for the following six months. Students are required then to present themselves at six-month intervals for a period of up to 18 months and they can receive this kind of assistance. That's one of the tools that is there to assist students who run into repayment difficulties.

Mr Young: Would those students, where the government is working to mitigate their circumstances, appear in the number of students who are in arrears?

Mr Zisser: No, they would not, because those are students who are continuing to maintain their loan in good standing during this period.

We do not have independent information at this point that gives us any sense as to why students are defaulting on their student loans. The federal government has commissioned some research over the past few years to look at that, and the general findings that come from there are that about half the students who go into default go into default because they simply don't have the ability to meet their repayment obligations. They don't have the income to make the payment.

Mr Young: About half?

Mr Zisser: About half.

Mr Young: That's an educated guess.

Mr Zisser: That's what has come out of the type of research that the federal government has done. The other half are students who would be able to repay had they elected to do so.

Mr Young: Let me understand what happens when a call goes out from a collection agency, whether it's central collections for the province of Ontario or if in fact it were contracted out. If the collector managed to get the person on the phone, it's not just a matter of them saying: "When are you going to start paying your student loan? You are overdue." Is it a matter of saying, "You should go in and talk to your bank manager," or do they actually negotiate over the telephone and say, "What can you pay us? What can you do? Are you working part-time?" and that sort of thing? What happens in that process?

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Mr Zisser: At that point it is a debt owed to the crown, and whether it's central collections carrying out the collections or it's a collection agency, they would be following standard collection practice, which is to try to persuade the person to enter into a repayment arrangement. They would certainly be showing some flexibility in terms of the amount of money they're willing to accept on a monthly basis, and in some cases they're willing to look at a settlement at an amount other than the actual outstanding principal.

Mr Young: So they do settle some of them.

Mr Zisser: Yes.

Mr Young: I assume the student would then, if they could get credit, assemble credit, go to a financial institution and say, "Would you lend me this amount of money so I can pay off my student loan?" That might happen sometimes?

Mr Zisser: There would be any number of avenues that students would be asked to explore. Depending on what a student's circumstances are, they may be going back and asking their parents for assistance; they may be asking their spouse for assistance. Some of them may very well be in a position to take out a bank loan to retire this debt. Others would simply enter into a repayment arrangement on a monthly basis and start paying down the debt.

Mr Young: But being that we're not experts at it and we're not doing a very good job at it, isn't the answer really to give it to a financial institution that is expert at administering financial arrangements and financial instruments and expert at keeping and maintaining a relationship with an individual and expert at collecting money when it gets behind? Doesn't it really make sense to pass over the entire package to a financial institution that is expert at those things and then do something like the federal government has done, which is to pay a percentage fee for them to administer that?

Mr Zisser: Certainly in the case of the federal government, what they are essentially doing is paying a risk premium so that the banks continue to own the loan. They have essentially gotten out of the loan guarantee business for the majority of loans. They leave the loan with the bank. The federal government simply pays a flat percentage of the value of the loan at time of consolidation, and then the banks decide how to pursue that. Whether banks pursue that collection through internal resources or whether they also do that through external resources, those are choices that they make.

Mr Young: But doesn't it make sense for us to pursue something like that, because we're not very good at collecting money? The banks are in that business, and they're in the business of building a relationship with clients so that they can lend them money for their cars and their homes and having a lifetime relationship with those clients. Doesn't it make sense for us to pass it over to the experts and then pay the fee, rather than let these things get into arrears further and further?

Mr Zisser: We would certainly think that if we could get an arrangement like the federal government has, it would be a very good one.

Mr Young: That is something that you're pursuing?

Mr Zisser: Yes.

Mr Fox: My question is this: We have talked about defaults in the past year and what's currently owed in the past year. What's the total over the years to be collected in OSAP loans in default? This has been around for a number of years, so let's have a figure for total default.

Mr Peter L. Preston (Brant-Haldimand): Is that accumulated collections?

Mr Fox: Accumulated default.

Mr Preston: We know what the default is. You want to know how much they have been able to collect over the years?

Mr Fox: No, no. Total default over the years.

Mr Young: What's been written off every year, accumulated.

Mr Jackson: I don't have a historical total with me. I was actually looking for the table in the Provincial Auditor's report.

Mr Peters: Starting at page 106.

Mr Jackson: That's the total since 1993-94, year by year. Prior to 1993-94, there certainly are going to be loan defaults, but they would not be anywhere near this size. The annual loan portfolio prior to 1993-94, loans that were issued, would be around $80 million to $90 million, but when the program was restructured in 1993-94 from a grant and loan program to a loan-with-loan-forgiveness program, the annual portfolio in that year went to approximately $500 million and is now up to $700 million a year.

Mr Fox: So you're saying the grand total then is around $700 million?

Mr Jackson: No. We can go back and find the figures at some point here for the committee, but prior to 1993-94, the annual loan portfolio, the amount that was issued each year, was considerably smaller than it is at the present day, and the reason is that we had a grant program. As a result, we were issuing about $90 million a year in Ontario student loans.

The program changes in 1993-94 put a lot more reliance initially on loans. As a result, by the time we are in 1997-98, we're going to issue on an annual basis about $700 million in loans. That's not the default value.

There will be defaults back into the past, but they won't be of the magnitude that you see on page 106 of the auditor's report.

Mr Fox: So you haven't given me any indication of a definite figure of what our total default is?

Mr Jackson: Right. I said I don't have that information with me.

Mr Fox: Would the auditor have that information?

Mr Peters: Since the program started, it's about $135 million.

Mr Gary Peall: That's since the change that he was speaking about.

Mr Fox: Since the 1993 change, it's $135 million?

Mr Peall: Yes.

Mr Fox: Any indication of before that that's still in default? I mean, it was written off, there's no question about it, but this is accumulated.

Mr Peters: No, we don't have that.

Mr Fox: It would be an astronomical figure, wouldn't it?

Mr Peters: I honestly can't --

Mr Fox: So we'll have to settle for $135 million since 1993?

Mr Preston: Yes, plus a whole batch to be added to that.

Mr Fox: Thank you.

Mr Preston: There's $14 million that was not even processed. Not processed by whom?

Mr Zisser: Those would be accounts that have not yet been processed; that is, we have not yet paid the claim to the bank and forwarded that to central collections for collection purposes. There are at any time some claims sitting with the ministry awaiting processing.

Mr Preston: We're going to have a $125-million default, or we had that last year, roughly? You're saying 23%. It's $550 million, and 25% --

Mr Trick: For the current year, the figure is $90 million.

Mr Preston: The current year?

Mr Trick: Yes.

Mr Preston: So it's 20%, roughly?

Mr Trick: It would be a little bit higher than that, but yes.

Mr Preston: When we're talking $125 or $500 million, a percentage or two really isn't a lot, but I want to find out why the $14 million and how it becomes $14 million. If it's $14 million, how often does this happen, or are we always $14 million behind in processing?

Mr Zisser: The banks submit claims for loss to us on an ongoing basis. It is not an even activity, because the banks structure their activity and sometimes put an effort on in terms of clearing out their accounts, so we may receive a large volume from a specific bank, and at other times we receive small amounts. Over the course of the year, the banks submit claims. Generally they're at least 120 days overdue at the time we are receiving them, but it is not a smooth amount so that every month we are getting the same amount.

Since we have a limited number of resources to process those claims, if we get a sudden flood from banks, it will take us a bit longer to work those down than if they were coming in in a steadier stream. But we do need to process each of those claims to satisfy ourselves that, first of all, it is a claim made on a bona fide loan that we had authorized and that the amount of the claim is appropriate before we then authorize the payment of the claim to the bank.

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Mr Preston: Would the banks take over to the point where we get out of the loan guarantee business? I think the parameters for granting a loan are going to get much more stringent. I think this morning you said that if a person has three bad credits over 90 days over $1,000 he wouldn't be considered.

Mr Trick: That's correct.

Mr Preston: He wouldn't be considered by anybody. If they were all $900, would we consider them? You've got to know when you get that kind of a person asking for money you're not going to get it back with those kinds of parameters. There's not a credit institution in the world that would give money out with that kind of a credit record -- three in the last three years over $1,000 have defaulted. How can you expect to get money back with that kind of credit reference? That's my question.

Mr Trick: I appreciate the point you're making here. We are going to be the second province in Canada to do any credit checking at all prior to a new student getting a loan. New Brunswick is the only province that does this today. We have adopted the same credit-checking standards that New Brunswick has adopted, trying to strike a balance between being diligent in terms of not issuing loans to people who clearly will not be able to pay them back, on the one hand, and, on the other hand, recognizing that the purpose of the program is also to help people make a new start in life in some cases. We're trying to balance those two objectives and essentially we've decided to go exactly where New Brunswick has gone. If, over time, the evidence is that we should change those standards, then we'll have to address those over time.

Mr Preston: What is the average age of a person applying for OSAP?

Mr Jackson: I don't have the average age figure. We're talking a group of people in --

Mr Preston: Not even ballpark?

Mr Jackson: The majority of our students are in the 18- to 24-year-old range.

Mr Preston: By the time they're 18 years old they can have three $1,000 debts in the last three years and still qualify.

The Vice-Chair: Mr Young, two minutes.

Mr Young: In my conversations with students I've discovered that there is still a small minority who are abusing the system, making less money available for students in real need. Two of the situations were described to me by students. One is, when they fill out the application for their student loan they say they're living on their own and they're not, they're living with their parents, so they have extra money. In some cases they even invest the money while they're in university to make interest or to make profit or whatever. The second one is, they say on their student loan form that they're paying board to their family members when they're not. I have no idea how many. I'm sure it's a small minority, but what are we doing to try and audit this and avoid this abuse of the student loan program? As a matter of fact, one of the students said to me they joke about it. They call it the Ontario stereo acquisition program.

Mr Jackson: First, with respect to the latter part of your question dealing with students who claim they pay room and board on the application form, that is not a field on the application form that we ask for information. We provide a living allowance to people based on the fact that they are living at home. This year we introduced, in conjunction with the federal criteria, a practice where even if you were deemed to be an independent student for OSAP purposes, your parents aren't involved in the process, you're required -- and if you do indeed live at home we give you the at-home living allowance rate, which is just basic miscellaneous expenses. So what a student may declare for room and board just scribbling on the application form is not going to impact the amount of assistance they get through OSAP.

With respect to the first part of your question -- I'll characterize it as address manipulation -- when the application forms are submitted to financial aid offices they are reviewed, and one of the things that someone is checking for is the address that the person is claiming.

Mr Young: How do they do that?

Mr Jackson: Does that match up with the address that they've applied for at the institution.

Mr Young: That's all they do? There are no sporadic checks or anything?

Mr Jackson: There is not at this present time a specific audit activity surrounding student addresses reported to us, no.

Mr Young: What one student told me is: "Once you get the money, you never hear from them. You've got it, you're on your own."

Mr Trick: Mr Young, if I could pick up on that, in terms of the particular thing that you're talking about on addresses, it's true that we don't do home visits or things like that to verify students' addresses. I would mention that it is no longer the case that once students get money they never hear from us again. We have over the past year and a half introduced, for instance, income verification against income tax information for both students and their parents and, in relevant cases, their spouses as well. This is something that hadn't been done in the past. The Provincial Auditor mentioned we should do it as a matter of routine.

Mr Young: What I'm suggesting, though, is as students talk a lot among each other, if they found out there were sporadic checks and that the odd student had been found who was cheating, that would spread like wildfire and it would cut down the abuse. That's my suggestion.

Mr Lalonde: I have quite a few questions. First of all, I'm going to refer to page 275 of the auditor's report. When we look at the accounts receivable, we have a total amount of $389 million in May 1996, but when I look at it, in May 1996 the government announced that the collection of non-tax accounts receivable was a good candidate for outsourcing. At the time of the announcement the Central Collection Service had a staff of 49. However, 20 staff, including three collection managers, left between May and December 1996 and were not replaced. My question on this: The fact is that you cannot accept any new accounts. What's been done about it at the present time? Does it mean that any collectible amount after 1996 is there, not being touched or not being bothered by anyone at the present time?

Mr Trick: No, it doesn't mean that. The Provincial Auditor's report looks at matters at the point in time, obviously, when the report was written. There was a period when central collections was not in a position to take new files from us. As you know, they have gone through an effort to look at outsourcing, and people from central collections, when they testify in front of you, will be able to tell you a little more about how that has worked out and tell you more details there. But I don't want to leave the impression that these files are still with the ministry and nothing is happening to them, because they have gone to central collections and there is collections activity being undertaken.

Mr Lalonde: Who has been handling them now?

Mr Trick: They go to the Central Collection Service, which is a part of Management Board Secretariat, and that is the part of the government that's responsible for doing collections.

Mr Lalonde: I know everything has been computerized in the last couple of years, and everyone agrees with the new technology. But if we don't have the staff to enter this information into the computer, it's going to be pretty hard to follow up on them. Do you intend to replace some of the staff until you have everything in place properly?

Mr Trick: The particular issues you're dealing with there would refer to the Central Collection Service rather than to the Ministry of Education, so I couldn't really speak to the details of their management processes. But I'm sure they'd be happy to tell you more about them.

Mr Lalonde: You've been sending them to the central collections agency but you know now that they cannot handle them. How is it going to be handled?

Mr Trick: My understanding is that they are undertaking collections on the files that we send to them. I'm sorry, I'm not in a position to tell you more details about exactly what they're doing. I'd really have to refer that to them.

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Mr Lalonde: Before I go to my other question, I'd just like to know if the criteria to qualify for OSAP loans differ for applications that come from the rural area vis-à-vis the urban sector; the fact that in the rural area it could amount to a lot more than for a student who comes from the urban sector because there is no public transportation available. For example, in my riding there's no public transportation and they have to commute to Ottawa, they have to rent an apartment for their boarding.

Mr Jackson: In situations where students are required to move away from home to go to school, when we are assessing their financial need we are providing them with a living allowance based on the costs of going away to school, which is a higher living allowance than for the student who lives with their parents and goes to a post-secondary institution in their own community.

Your description was someone commuting on a day-to-day basis. There is an allowance in the assessment to cover the costs of transportation to and from school. If an individual is required to, say, physically move from Timmins to come to school in Toronto, we provide in the assessment an allowance for return trips home that gives an individual one return trip home per term, to get you to school, to get you back to school.

Mr Lalonde: But what I referred to in my area, and it is the same in other areas in Ontario, is that there's no public transportation and we're about 40 or 50 miles away from the universities or the colleges. Due to the fact that now they don't have set school hours for certain programs, there's no way they could travel with other people unless they buy their own cars, and you know how much it costs to buy a car, and then they have insurance and everything. So they have to live in Ottawa.

You referred to Timmins. There's a big difference between Timmins and Toronto. If they come to university here in Toronto, definitely they would have to stay in Toronto, but we've had cases in the past where the answer we got when we applied for the OSAP loan was, "Well, all you have to do is live with your parents." Even if you're 20 miles away, it's impossible, because there's no public transportation. I wonder if this is taken into consideration when they do apply.

Mr Jackson: We provide a monthly transportation allowance in that situation that you describe that is the equivalent of $60 a month.

Mr Lalonde: Monthly; so it doesn't cover the room and board then.

Mr Jackson: If someone requires room and board and is required to live away from home, they are eligible for a living allowance at an away-from-home rate, considerably higher than the at-home rate. We're talking in terms of a monthly living allowance, in addition to that transportation allowance I described, of approximately $800 a month.

Mr Lalonde: Has the minister estimated how many students will be affected by this change announced last Friday? There are quite a few changes in there.

Mr Trick: There are a number of changes, and I'm not sure we have an estimate for each one, but the one that would affect incoming students the most I think is the credit screening where the minister estimated -- and this is based on New Brunswick experience -- that roughly 1% of new applicants to the program would be affected.

Mr Lalonde: Second, the minister keeps referring to the OSOTF supplementing student assistance. Does the ministry have the figures on how many students in each school are able to access assistance under this program?

Mr Trick: We have estimated that over a 10-year period the figure will be about 180,000. There is an annual reporting requirement from the universities and colleges where they'll tell us year by year what the details are. Since this is the first year for which there are any disbursements, we don't have those reports in yet, but when we do get them in, the information will be available.

Mr Lalonde: Thank you. That's pretty good. Also on last Friday's announcement, how much money is currently provided for loan forgiveness?

Mr Trick: In the current year it'll be approximately $300 million. Since we haven't come to the end of the year yet, I couldn't give you a more precise number than that.

Mr Lalonde: Around $300 million.

Mr Trick: It would be in the range of $300 million and we'll have to wait until after March 31 before I could give you a more precise number.

Mr Lalonde: Also, in the announcement it was mentioned that it would cost $10 to file next year's application through the regular mail. Do you have an idea how much money the government will be making from that, or is it going to be reinjected into the OSAP program?

Mr Trick: The announcement was that for applications that are made through a paper application there would be an application fee of $10; where students apply through the Internet there would be no charge. The reason for that is, when we did a study there was about a $10 difference in our processing costs for the two. In terms of how much revenue we will get, we don't know that yet because it depends really on how many students apply by mail and how many do not. We do get a little over 200,000 applications a year.

Mr Lalonde: By mail?

Mr Trick: A little bit over 200,000. So the issue really is, we don't know how many will come by Internet and how many by mail.

Mr Lalonde: I think you must be aware that not every student has a computer with the Internet and in this case, again, we are penalizing the one who cannot afford to be connected to the Internet.

Mr Young: Every student has access to the Internet.

Mr Kormos: Thanks for coming back. We're talking defaults versus amounts outstanding, and I really want to clarify so we're sure. The auditor, on page 107, shows the amount outstanding as of October 31, 1996, to be $99 million. To be fair, let's say October 31, 1997, a year later, what is the total amount of outstanding and payable that is overdue debt?

Mr Jackson: If you could give me a minute, I will find it in my binder.

Mr Kormos: While you're looking for that, seeing as how there are four of you up there and one of you is going to find the number, the auditor, when he addressed us yesterday and in his report, talked about the status of, effectively, privatization of the CCS. Again, you may not be able to answer this, because I understand you're not here as Management Board bureaucrats, but we were left with the impression that in so far as the auditor knew at the beginning of December 1997, I believe, the process of privatization had not been completed yet. Do you have any information about this process of privatization, in effect converting CCS from a collection agency to a mere management operation?

Mr Trick: Mr Kormos, to the best of my knowledge it hasn't been completed, but I couldn't give you any more detail than that.

Mr Kormos: Fair enough. I'm interested then because there was an ad hoc contract referred to in the auditor's report that was given some 6,000 student loans amounting to $18.4 million. That's on page 110 of the auditor's report. These apparently had been written off, and that was in November 1996. So four private collection agencies, notwithstanding that the total privatization hasn't occurred yet, were given the responsibility for picking up $18.4 million in debt, and it's averaging around $3,000 per debtor. Here we are 14 months later. What's been the effectiveness of the privatization of that debt collection?

Mr Trick: I'm afraid I'd have to refer that to Central Collection Service since it's their contract and I wouldn't be in a position to report on the results they achieved.

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Mr Kormos: But it's your money, isn't it, the ministry of colleges and universities?

Mr Trick: I'm certainly not trying to avoid your issue here, but within the government Central Collection Service does the collections for the entire government. Our responsibility is to process the documents to such a form that they're in a position to collect them, but I'm afraid none of us is in a position to report on their processes after that.

Mr Kormos: So the chief bureaucrats in the ministry of colleges and universities, the Ministry of Education, haven't been told what the impact was of the November 1996 contracting with four private collection agencies for arrears of $18.4 million? You haven't been told one way or the other?

Mr Trick: I'm afraid I'd really have to refer those questions to them, sir.

Mr Kormos: Ms Lacey, you're the chiefest bureaucrat. Has anybody told you?

Ms Lacey: No, Mr Kormos, I have not been told.

Mr Kormos: Isn't that frustrating?

Ms Lacey: Management Board is following a process and we are trying to do the best we can.

Mr Kormos: Quite right, but isn't it frustrating? Here you are. No malice, but you're taking a little bit of heat. You took a little bit of heat from the auditor, and nobody's telling you. That's over a year ago and nobody filled you in on the effectiveness of that blitz to pick up $18.4 million in arrears?

Ms Lacey: What we can talk to you about are the issues that were raised earlier this afternoon, where we're trying the best we can to ensure our own practices are in line with our stated objectives.

Mr Kormos: Fair enough.

Have we got numbers yet on the current status of arrears?

Mr Jackson: This is information we received from Central Collection Service on February 17, 1998. They are presently collecting 45,360 delinquent student assistance accounts, and they total $158.2 million.

Mr Kormos: That's $158.2 million.

Mr Jackson: In addition to those we are putting through, subject to the passing of the federal legislation that Mr Trick mentioned earlier this morning, there are some 9,056 accounts, totalling $19.4 million, that will be submitted for collection through the income tax setoff program.

Mr Kormos: What's interesting is that the number of claims -- they're processing 45,000. That also happens to be the total number of claims as of October 31, 1996, although the number has risen from $99 million to $158.2 million. I'm looking at page 107. Do you understand what I'm saying? The number of claims has remained the same in over a year, yet the volume has gone up by $60 million in terms of the dollar value.

Mr Jackson: I'm really not in a position to speculate on: Are these the same accounts? Are these different accounts? Are these a rollover of accounts? I anticipated we would get a question like this at public accounts so I did try to find out what's over there.

Mr Kormos: Listen, the impression I'm getting is that you people have been trying to find out a whole lot over the course of the last couple of years, to no avail, and through no fault of your own.

But the figure you give us of $158.2 million, you say CCS reports that's the amount of arrears they're currently pursuing. Is that the total amount of arrears payable to the province of Ontario by students in arrears? I understand that's the amount they're pursuing, but is that the total amount of arrears?

Mr Jackson: That is the total amount of arrears, is my understanding.

Mr Kormos: That's a remarkable increase over the course of one year. I appreciate that the bar graphs of "Total Cost of Defaulted Loans" on page 106 reflect a tremendous increase.

We might have gone through this a little bit earlier. What collection techniques have historically been used to pursue these debts?

Mr Zisser: My understanding from conversations we've had with CCS is they have used a combination of methods, from using their own staff to using external contractors to carry out the collection for portions of the portfolio. As I understand it, there has always been a practice of using external collection agencies to collect on accounts.

Mr Kormos: All right. But is it like those letters I'm still getting from Time-Life publishers saying, "You owe us $37 for your porch and basement repair book and if you do not pay immediately your credit rating will be put at risk"? Is it dunning letters? Is that the tactic?

Mr Zisser: I don't have a history with the collection side of this business, but I have certainly visited collection agencies. I would say that the collection practices are probably much more active than that, that they're not using letters.

Mr Kormos: Are they seeking judgements? Are they filing Small Claims Court actions? The limit is $6,000 in Small Claims Court, I think it is now. Are they getting judgements?

Mr Zisser: I don't know the range of methods that are being used by the collection agencies when they receive the accounts.

Mr Kormos: When you say "collection agencies," are you speaking of the private ones now?

Mr Zisser: Both the CCS as well as the collection agencies they may employ from time to time to pursue these accounts.

Mr Kormos: Your ministry isn't aware and hasn't been advised of the tactics being utilized by CCS to effect collections?

Mr Zisser: It's my understanding that currently the approach CCS is using is that it is calling individuals to enter into repayment arrangements with them, that the additional staff they've hired, as well as the staff who are currently there, are pursuing collections through a strategy of calling.

Mr Kormos: Okay. We've got the figure of $158.2 million outstanding, 45,000 cases as of two days ago. We were told earlier that the auditor's report resulted in a whole lot of files being shipped over to CCS. I hope I'm correct on both accounts. Am I correct?

Mr Zisser: The reason the amount of accounts there is now greater than it was at the time the Provincial Auditor tabled this report is that we have processed additional claims and all of those claims have been sent over to CCS for collections.

Mr Kormos: Sure. Again, I take your word for it. CCS advises you that $158.2 million is outstanding as of two days ago and that they began this process, we presume, in the late fall of 1997, because until then they didn't have the files, correct?

Mr Zisser: They had some of the files, but as I understand it, they were not in active collection.

Mr Kormos: How much money has CCS collected over the last year?

Mr Zisser: I don't know.

Mr Jackson: I do not know how much money Central Collection Service has collected. I think the Provincial Auditor found a similar situation. I note on page 107, "Neither Central Collection Service nor the ministry could provide us with reliable information regarding the results of past collection activity...." We're not the collectors.

Mr Kormos: I understand.

I've got to tell you, I come from a community where people -- my grandmother, for instance -- some of you are tired of hearing about her -- was illiterate, from eastern Europe, couldn't read or write. She ran a small grocery store. She knew how much her customers owed her and she knew how much she had to pay for the utility bill and how much she had to pay for the rent on her location. There was an old country peasant lady who had no reading or writing skills either in her own language or least of all in English. Do you understand my frustration at you folks not being able to give us these kinds of data when people where I come from, without all of your resources and without computers, know these sorts of things? They know them off the tops of their heads because they're important to them. Isn't it important to us to know?

Mr Trick: I'd certainly understand the frustration of your wanting a briefing on central collections, and we're just not the right people to give that briefing to you. I want to emphasize the sorts of responsibilities we've taken here compared to them. The responsibility we have undertaken is to try to run this program more effectively so that loans that are given out are given to people who are likely to be able to repay them. We have a repayment plan so that students are likely to be able to afford to repay their loans. These are the kinds of things we've been undertaking for the past year. I appreciate that doesn't get to your problem with central collections, but there are people in a better position than we are to tell you more about that.

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Mr Kormos: Ms Lacey, I've been re-reading this 1997-98 performance contract that targets, for instance, OSAP costs for loans issued in 1997-98 reduced by $80 million -- that's the target that has been achieved -- that talks about a default control strategy for OSAP, implemented savings revenue increases and staff reductions. It appears that target has been achieved. I understand there is going to be an announcement shortly for a 15-year repayment period with some sort of income sensitivity, so that target in your performance contract will be achieved. I understand that there is within the ministry work going on with respect to tuition fee deregulation, that there has always been some at the University of Western Ontario, so that target has been achieved.

It seems that the targets in that performance contract are being pursued. I trust, then, that the target for a $667-million reduction in education spending remains a target for the ministry as well in view of the fact that the others all appear to be under way. Will you tell us whether that target is going to be achieved as well, or pursued?

Ms Lacey: Mr Kormos, I think we're here this afternoon to talk about student loans, the business plan for the government that we have been working on that speaks to a number of issues that are clearly of interest and concern to the ministry. As you have seen this afternoon, we follow the desires and direction in the best way possible. Some objectives are clearly objectives that we're working on. Others, as you have heard this morning and this afternoon, have obviously not been achieved. But I think this afternoon we're talking specifically about student loans.

Mr Kormos: And you don't want to talk about the $667-million objective, do you?

Ms Lacey: I think what I said was that we're here to talk about one specific subject. I don't think I'm in a better position to talk about that than I am to talk about the evaluation of grade 3, grade 6, grade 9 students, or than I am about the reform of apprenticeship programs or about many other topics. In fact, I don't know but I think there are several hundred objectives in that performance review, so I think this afternoon specifically we will address the questions you will have on this topic, Mr Kormos.

The Vice-Chair: Time is up. Thank you. Saved by the bell. That's all the questions we have over here? Mr Lalonde, you're fine? Mr Kormos, okay? Thank you for appearing before us. We may invite you back to discuss the other part of education at some point, but for now it was on the real stats of the program. Thank you for coming before us.

Ms Lacey: Thank you, Mr Chair.

The Vice-Chair: By the way, there was one question the auditor had related to the collections. Do you want to comment?

Mr Peters: Yes, I just want to very quickly comment that on this specific point that you raised, Mr Kormos, there is a dual response. The first part of the response is actually from the Minister of Education, but there is also a response from the Central Collection Service, and their particular problem hopefully will come before the committee later on in the spring.

Mr Kormos: I appreciate that. I was just flabbergasted that the ministry wouldn't be advised of what was being done on their behalf by CCS.

Mr Peters: Then I may add just a quick comment. To the best of my understanding, and maybe the ministry staff should correct me on that, once the account is turned over, the money that is collected does not flow back to the ministry, so the account stays there and their interest is somewhat diminished.

Mr Kormos: Once again, quite right, but surely the deputy minister would want to know how effective that collection process is.

Mr Peters: And communication definitely has to be there. That's right.

Mr Kormos: We have things like Web sites and Internet and telephones.

The Vice-Chair: Do we have a few minutes to talk about the report in closed session?

The committee continued in closed session at 1430.