If you are a Canadian with outstanding student loan debt, you may be eligible for student loan forgiveness.
There are many repayment assistance programs that exist both federally and provincially, but most of these programs focus on reducing your student loan debt payments which still leaves you with an outstanding balance on your student debt. If you have researched the topic of student loan debt forgiveness or relief programs, you have undoubtedly run across the national repayment assistance plan and those in your applicable province.
By and large, these programs are income-tested. This means that they are based on how much money you earn, disregarding how much your expenses may be. This system affords many people relief, but of course, life is complicating and with the rising costs of living you may still be struggling with your student debt.
Thankfully, there are ways you can have your student debt reduced, or eliminated altogether. The two primary options are a consumer proposal or bankruptcy. Both of these can be used to have your Canada student loan or your provincial student loan forgiven, provided that you meet certain criteria.
In this blog post, we will discuss how this works and how the consumer proposal and bankruptcy options can help those struggling with student loan debt.
What is student loan forgiveness and how does it work in Canada?
Student loan debt can be a difficult burden to bear, especially for students who have limited employment income or those facing unusual financial hardships. This leads to many seeking relief and forgiveness from their debt.
Student loan forgiveness is the process by which a part or all of an individual’s student loan debt is reduced or eliminated entirely. Similar to the concept of debt consolidation, there are many methods and programs available to obtain relief.
So, can I get my Canada Student Loan forgiven?
Fortunately, there are options available for repaying one’s student loans and even potential canada student loan forgiveness of some or all of the debt owed. However, the only real way to see student loan debt forgiven (having the principal balance owing reduced) is by filing either a consumer proposal or bankruptcy. Both programs are debt relief options that are regulated by the Federal Government to assist struggling Canadians. They are often referred to as government debt relief programs, despite them not actually being offered by the federal government.
But of course, there are certain eligibility requirements that must be met.
Who is eligible for student loan forgiveness in Canada and what are the conditions for eligibility?
In order to be eligible for student loan forgiveness you must meet the following parameters:
- You must have been out of school for at least 7 years*, and
- You must be eligible to file a consumer proposal or bankruptcy.
*If you have received multiple student loans and have different end-of-study dates associated with each you may be eligible to have some of the student loans forgiven even if you have been a student in the last 7 years. Contact us for a detailed assessment.
Conditions that must be met to file a consumer proposal or bankruptcy
In general, any insolvent person can file a consumer proposal or bankruptcy. The definition of an insolvent person in accordance with the Bankruptcy and Insolvency Act is:
The definition is fairly broad and so most individuals who owe more than $1,000 in debt would be eligible if they are struggling to keep up with their debt.
Note for those who owe more than $250,000 of debt, excluding your principle residence mortgage: You will be required to file a Division 1 Proposal instead of a consumer proposal. This comes with its own set of rules and considerations.
How to apply for student loan forgiveness in Canada
True student loan forgiveness, as mentioned above, is only really possible by way of filing a consumer proposal or bankruptcy.
If you are considering these there are a few steps you must take:
- Locate a Licensed Insolvency Trustee: In order to apply for either consumer proposal or bankruptcy, you must first contact a Licensed Insolvency Trustee.
- They will discuss all your options: Your Licensed Insolvency Trustee will discuss with you all the options to deal with the debt, and cover the benefits and consequences of filing bankruptcy or a consumer proposal as they relate to your specific situation.
- The decision is up to you: After you have had a chance to review all the options, it will be up to you as to whether or not filing a consumer proposal or bankruptcy is in your best interest.
- File the option you desire: Once you have decided, your Trustee will prepare all the required paperwork and assist you in filing your chosen option.
What are the benefits of getting your student loans forgiven in Canada?
As a previous student, you are likely aware of the financial stress that often comes with your student loan debt. However, there is hope!
There are several benefits to getting your student loans forgiven. The obvious benefit is that the payments you make towards your debt will likely be much lower than they previously were, as well as a reduction in the principal amount owing on your student loans and other debt.
Other benefits include less stress, better sleep, and generally just a better quality of life.
It does not hurt to seek out information regarding student loan forgiveness. If you want to learn more, do not hesitate to contact us.
How to prepare for student loan forgiveness if you’re approved
If you’ve been approved for student debt forgiveness either by the process of discharging your eligible student loans through bankruptcy or via a creditor-approved consumer proposal, congratulations!
It’s important to take a few steps now to make sure that you are prepared so that the process goes smoothly and you’re able to successfully manage your finances moving forward.
To give yourself the strongest foundation possible, start by developing smart money management practices such as keeping a budget that puts your income and expenses into clear perspective, creating an emergency fund, and saving for future goals or purchases.
Additionally, it can be helpful to create other forms of support around your financial needs such as enrolling in courses on personal finance or working with a financial advisor. There are many free courses and resources available online.
As long as you’re diligent and mindful about building these habits and systems now, it will help you reach greater levels of financial freedom in the future.
What are the risks associated with student loan debt forgiveness in Canada
Obtaining relief from your student loan debt can work wonders, but of course, it is not without its risks.
The main risk is that you miscalculate the last date of study, as this will make you ineligible to discharge your student loan debt in both a consumer proposal and bankruptcy.
Thankfully, there are ways to mitigate this risk. To ensure you have accurately calculated the last date of the study, it’s important to call the student loans office and inquire. Even if you are 100% sure in your mind about when you finished school, we have seen different dates reported to the student loan office. A simple call can save you a great deal of stress in the long run!
What if I am not eligible to have my student loans discharged?
If you are not eligible to have your student loans discharged in a consumer proposal or bankruptcy, you have other options.
One of the best places to start is researching repayment assistance, which you may be entitled to if you meet certain criteria set out by the provincial and federal governments. Repayment assistance can adjust your payments to a level that fits with your income and family size, making it easier for you to pay back your loan.
Another option if you have good credit is to consider refinancing/consolidating your student loans and other debt into a new single bank loan. This can sometimes lead to reduced payments and reduced interest. Ensure you read the terms you agree to as there are many lenders out there who claim to assist and push high-interest products.
Even if you can not discharge your student loan debt a consumer proposal or bankruptcy may still help
In the event you are struggling with debt in general and have student loans that do not meet the 7-year test, a consumer proposal or bankruptcy may still be viable options.
Because both options deal with all of your other dischargeable unsecured debts they can provide relief on the other debts which can allow you breathing room to better tackle your student loans. We have seen many people file and shortly afterwards increase their monthly payments on their student loans to pay the debt down faster.
In addition, and should you choose, while you are under the protection of a consumer proposal or bankruptcy you are not required to make your student loan payments. The loans will still have interest applied to them, so we do recommend continuing to make interest-only payments if you are able. However, the relief of your other debt, along with the elimination (or reduction, should you choose to pay interest-only monthly payments) of your student loan payments may be enough to get you ahead.
Consult with a professional Licensed Insolvency Trustee
It’s important to understand that help is available. Consulting with a Licensed Insolvency Trustee (LIT) is an excellent first step in creating a plan for managing your debts and understanding the options available to you.
An LIT is a professional and impartial debt specialist who can provide advice, counsel and guidance on personal insolvency matters. They have the knowledge and experience needed to help you design a solution that fits your unique financial situation.
Don’t continue to struggle alone – consult with our team today to get back in control of your debt.
Conclusion: You do not need to struggle with student debt
Student debt can feel very daunting and it may seem like you’re never going to be able to pay off your loans. It can be a source of stress that interrupts your life. But there is hope; with dedication and commitment, you do not have to struggle with student debt any longer. Having already graduated, you have made a big step towards financial security and beginning the journey towards eventual debt repayment. There are many strategies and services that can help ease the process, making sure that the loans are repaid in full in the long run ends up being well worth it in the end.
This article was written by Angela Rodgers, CIRP, LIT. She is a Licensed Insolvency Trustee and the President of Powell Associates Ltd. She has worked in the insolvency industry for over 20 years. No matter if you are looking at filing bankruptcy, a consumer proposal, or simply looking for debt management advice, Angela can help.