Macleans, the Canadian news magazine, reports that the Canadian government is paying 12 collection agencies $181 million for “chasing down” $100 million in interest on $800 million in government-issued students loans that are in default. The default figures represent 180,000 non-performing loans.

According to critics, the recovery costs represent wasted dollars that could be spent on funding student borrowers who genuinely need the money. The Auditor General also says that the government’s use of private collection agencies poses problems, because there is no mechanism to ensure the private collectors comply with the policies of the Canada Student Loan program. The Canadian government has serviced all of its student loans made since 2007. That’s right, the program has accumulated $800 million in default loans in just seven years.

This is exactly the situation the US Federal government will be facing if the current student loan reform legislation is enacted. The Canadian Student Loan program is not remarkably different than the US Direct Student Loan Program, and the results of this fiasco are not going to be remarkably different, although they will certainly be on a different scale.

The FDLP was in debt to the tune of $16 billion dollars as of 2005. The debt has grown since that time, and shows no sign of improvement. From the Canadian example, you can see that the cost of pursuing defaulted borrowers is high – almost 25% of the amount owed. The only effective way to collect such debt is by turning to the private sector.

Kind of ironic, isn’t it? In order to keep the program out of the hands of the private sector, the government wants to take over student loan lending. When the debt rate goes through the roof, the government will turn back to the private sector to get some fraction of your money back. Where is the savings in that scheme?

We don’t need to re-invent the wheel here. We have a working example of exactly what is going to happen when the US adopts the same backwards student loan scheme the Canadians did. Right now, the US has a workable program that provides sufficient capital for all borrowers, has an element of self-sustenance, and has one of the lowest default rates in the program’s history.

Please, tell your Senators and Representatives that we could stand to take a lesson from our Canadian neighbors, and we don’t need to take the same failing path that they’re on. Tell your Congressional representatives to study the Canada Student Loan program and take a good long look at what they’re signing us up for.