The government has decided that it would not be in the interest of students or taxpayers to renew arrangements with financial institutions to deliver and administer the Canada Student Loan Program (CSLP).

We made this decision after months of good faith negotiations, during which we made a fair offer of compensation to the banks - an offer most banks chose not to accept.

After examining our options, and in order to ensure no disruption to students needing loans, we are preparing to put in place a direct financing system for the CSLP when the current agreement expires on July 31, 2000.

Full details on the direct financing arrangement will be available once consultations with provinces and stakeholders are completed.

Every effort will be taken to ensure that the transition from the current arrangements to an alternate arrangement is as seamless as possible for students.

This decision will not mean a return to the guaranteed system of students loans that pre-dated our current agreement with the banks.

Students who have already consolidated their loans and are into repayment will not be affected at all.

These students should continue to repay their loans to their financial institution in an orderly fashion, in accordance with their individual arrangements with their bank.

Our offer to the banks to renew the existing agreement included an increase in premium being paid to the banks to compensate them for the rising rate of defaulted loans - an increase that could have cost us as much as $100 million per year.

The new premium would have been set at 6.95% for borrowers attending universities or colleges and 22.95% for borrowers attending private vocational institutions. This differential rate was offered to reflect the fact that the default rate at private vocational institutions is twice that of public institutions.

The response of lenders was inadequate: some did not respond at all and those who did respond were not able to make sufficient financial commitments to cover the needs of the program.