There’s a particularly bizarro-world quality to debates around student debt in Canada. Whenever someone brings up the idea that student debt should be cancelled—as the student movement has advocated for a long time—you can expect arguments to unfold a certain way.
Advocates of debt cancellation point to the many clear, obvious ways that debt relief would benefit debtors and the economy as a whole. Then, talking heads and think tanks that normally support the upward redistribution of wealth jump in to make the argument that, actually, student debt relief is a subsidy towards the wealthiest households. Tax cuts for the rich we can get behind, but debt relief? A bridge too far!
Is there any merit to the common refrain that erasing student debts in Canada would mostly benefit wealthy and privileged individuals? We can thoroughly disprove this notion by analyzing household student debt data from the Survey of Financial Security. Student debt is indeed closely tied to wealth—but it serves to reinforce existing class inequalities.
The richer you are, the less likely you are to take on student debt
People in the bottom 40 per cent of wealth-holders in Canada hold most of the country’s student debt in Canada—over $27 billion. Households with a negative net worth—that is, they owe more in debts than they own in assets—owe nearly 60 per cent of that debt. The richest 20 per cent of households, with top-tier incomes and wealth in the multi-millions, owed only one-tenth of all student debt. It is not even possible to produce reliable estimates of how much the even-wealthier households at the top of the wealth distribution hold, because student debt is mostly unheard of at such heights.
Net worth is the second-most important predictor of whether a household owes student debt, behind age. The immense financial pressures of student life—high tuition, expensive living costs, and losing income due to working less or not at all—mean that most students have no choice but to outspend their very low incomes while they are in school. There are essentially only two ways to sustain this situation: relying on family wealth and resources or taking on debt. Statistics Canada has shown that there is a massive gap in post-secondary education savings between low-income and high-income families that is mostly explained by family wealth or lack thereof.
Nobody escapes student debt, except for the wealthy
While young people are the most likely to owe student debt, the total amount owed is distributed surprisingly evenly across households. People are impacted by student debt across all ages and at each stage of life.
There’s one reliable exception to this even distribution—wealth. The wealthier one is, the less likely they are to owe student debt. The wealth-based differences in owing student debt were the most extreme for borrowers in their thirties and forties. While nearly a third of the poorest households in that age range were still carrying old student loans, relatively few of the most affluent households owed any debt.
It isn't just that wealthier people are less likely to owe student debt. University graduates with no student debts had about twice as much wealth, measured by net worth, as graduates with debt. Since wealth tends to increase with age, the net worth gap also grows, ballooning to nearly $1 million for university-educated households headed by those ages 50 and up.
Student debt-free people are much wealthier for three main reasons. First, is simply that they are generally born into much more family wealth, which is how they avoid student debt in the first place. Second, debt-free graduates can avoid the corrosive impact of student debt on lifetime wealth accumulation. By reducing disposable income, limiting savings potential, and restricting access to credit, student debt is well-known to hinder the lifetime wealth potential of borrowers. So the already-wealthy people that evade student debt can hoard even more wealth over time unhindered.
As if that double advantage were not enough, the benefits of a university education are not equally enjoyed by all graduates. Compared to lower levels of education, post-secondary education offers graduates greatly improved chances of earning higher wages and achieving financial stability. Among university graduates, however, those from low-income families have much lower earnings compared to those from high-income families, who can capitalise on their many advantages to secure higher-paying jobs.
We can see this trend clearly in the student debtor to debt-free income gap among university graduates. Those that were still holding student loans in their forties as of 2019 had average household size adjusted after-tax incomes ($49,600) that were much lower than those without student debt ($66,300).
Financial assets chase student debt away
Households headed by individuals over 50 years old hold nearly a third of Canadian student debt—mostly owed by adult children still living at home. Since the student debtors, in this case, live at home with their parents or guardians, their assets and debts are all counted together. This offers a closer look at the relationship between intergenerational family wealth and student debt.
Among households with university-level education, those free of student debt owned nearly $800,000 more in assets. What sets these families apart in terms of asset wealth? The households without student debt were richer in every possible way. On average, they had tens of thousands of dollars more cash in the bank. The value of their homes and pension savings were also much higher—the only sources of lasting wealth usually available to working-class people.
We can attribute nearly half—45 per cent—of the wealth gap to the ownership of financial and investment assets like stocks, mutual funds, real estate, and business ownership. So the parents of the student debt-free own a lot of capital assets, while student debtors own very little. In general, it is ownership of such assets – which provide passive income and offer much potential for wealth accumulation – that sets the wealth of the richest households in society apart from the rest of us.
Universal debt relief is the way forward
The evidence is clear that the benefits of student debt cancellation would go to individuals and families with low to modest levels of wealth. In the big picture, the student loans of the wealthy are a minor consideration—just $1 out of every $10.
When opponents bemoan the unfairness of universal student debt relief, they’re often hiding their real complaint—that universal programs are much more effective and durable than their means-tested counterparts. Universal programs, by the very nature of being universal, create a massive constituency that supports maintaining the program.
Imagine if Canadian health care had only been available to people below a certain income threshold. Middle class and rich Canadians—who also have disproportionate political influence compared to the poor—would have no self-interested incentive to support the maintenance of the public system. But with a universal program, it belongs to everyone—and it’s everyone’s responsibility to defend it.
That’s what the opponents of debt relief are really trying to avoid. If they have to make any program at all, they would much rather create a debt relief program that is so means-tested as to be impenetrable, and only benefits a small and vulnerable constituency without significant political influence to defend themselves against rollbacks.
If we want to actually implement wide-scale student debt relief—or, pushing even further, free education—then there’s only one way to make those programs last, and it’s to make them universal. Doing so would be a historic win for working people in Canada—no matter what bad-faith arguments opponents use.
