Every year thousands of Canadians take on student debt, and increasing numbers of graduates are struggling to make enough money to pay their student loans.
As a result, there are several types of student debt relief designed for different situations.
You need the right professional
In our office, we see countless new graduates who are struggling to pay their student loans while they work entry-level jobs. Because it can take several years to get a job that pays well within an established career, most student loan organizations do offer some support for up to 10 to 15 years following enrollment.
Keep in mind that not all of these plans are created equal – in Canada, a Licensed Insolvency Trustee (LIT) can help you navigate the best solution for your circumstances, especially if you have been out of college or university for more than 7 years.
Student loan organizations offer payment plan options for those who have been out of school for 0-15 years.
A Licensed Insolvency Trustee can assist with student debt relief for a student loan of any age. There is a greater benefit with student loans when you have been out of school for 7 years or more.
By consulting a LIT, you could receive advice about all of your options, not only the options offered by the National Student Loan Service Centre or the financial institution.
7 Year Rule
Payment Plans Through Student Loan Offices
Student Debt Relief Through Consumer Proposals
Student Debt Relief Through Bankruptcy
Pro Tips: Student Debt
Consult An Expert!
How long has it been since you were in school?
This is an important question when it comes to student debt assistance. You need to know your “End of Study date”, which you can receive by calling the National Student Loan Service Centre.
If you file a bankruptcy or consumer proposal, before you have been out of school for more than 7 years, you could still be responsible to pay your student loan debt.
Repayment Assistance Plan – National Student Loan Service Centre
Because so many new graduates struggle with student debt during the first few years of starting their career the National Student Loan Service Centre offers a Repayment Assistance Plan (“RAP”), in two stages. The first stage is limited to 60 months of RAP or 10 years after you finish school, whichever comes first, in which, if you qualify, the government will pay the interest component of your monthly student loan payments and defer the principal payments. You must re-apply and qualify for this RAP, every 6 months.
In the second stage of the RAP, the government will begin to cover both the principal and interest that exceeds your reduced monthly payments. As long as you remain eligible for RAP the balance of your loan is gradually paid off and repayment obligations will not exceed 15 years (or 10 years for persons with permanent disabilities) after leaving school. You must re-apply and qualify for this RAP, every 6 months.
For full details on Repayment Assistance Plans, visit the National Student Loan Service Centre.
Consumer Proposal – Student Debt Relief
If you are struggling to repay your debts, including your student loan, a consumer proposal could be a great way to reduce to your monthly debt payment to an amount you can afford.
Consumer proposals have for many years, and continue to be, the #1 debt forgiveness choice for Canadians.
And here’s why:
You can negotiate to repay what you can afford.
Your proposal is based on your budget and a comparison of what creditors would recover in a bankruptcy.
Stops creditors from continuing legal action or collection calls.
All your unsecured debts will be consolidated (i.e. credit cards, line of credit, tax debt, etc.).
The proposal can range in length, up to 5 years; you have the option accelerate payment, if you can afford to.
There is a possibility of keeping you assets.
A consumer proposal can only be administered by a Licensed Insolvency Trustee (LIT). The LIT will review your financial situation, debt, and personal circumstances to determine if you are a good candidate for a proposal. If you qualify, you can then build a proposal with your LIT that is based on your budget and what you can afford to pay. Your LIT will handle the negotiation process with your creditors.
You will receive creditor protection the moment you file your proposal. Your creditors will have 45 days to vote, and the final decision is based on a vote by your creditors, if more than 50% of your creditors (by dollar value) accept the proposal it is legally binding on all creditors, including those who may have voted against the proposal.
If your consumer proposal includes student loan debt when your “end of study date” is less than 7 years prior to filing the consumer proposal you can still file a consumer proposal and receive all the benefits listed above, but you will not get full relief from your student loan debt.
Benefits of filing a consumer proposal, when your “end of study date” is less than 7 years.
Relief from principal payments on student loan debt, while your proposal is ongoing.
Student debt collection will stop for as long as your consumer proposal is ongoing.
Ability to apply to Court for hardship relief under section 178(1)(g) of the Bankruptcy and Insolvency Act.
Although you are not obligated to make principal payments, during the proposal; we recommend you make interest payments. Because the student loan debt is not released by your consumer proposal, interest continues to accumulate while you are in the consumer proposal.
A consumer proposal is an excellent opportunity to catch your breath, so-to-speak. You could significantly reduce your monthly debt payments, allowing you the time to progress in your career and you may even have the chance to get ahead on your student debt.
Personal Bankruptcy – Student Debt Relief
If a consumer proposal isn’t right for you, personal bankruptcy may be a better alternative. For some people, the 5-year commitment to a proposal seems like a lifetime and just want to clear their debts as quickly as possible in order to focus on starting over. There are many different scenarios.
The process of personal bankruptcy is generally the same whether you do or don’t have student loan debt.
The variance is how the student loan debt is treated, based on the number of years since your “end of study date”.
When your bankruptcy happens within the 7 years after your “end of study date”, your student loan debt will not be released; unless you successfully make a hardship application under section 178(1)(g).
When your bankruptcy happens 7 years after your “end of study date”, your student loan debt will be released, when you are discharged from your bankruptcy; unless National Student Loan objects to your discharge and the Court orders you to repay all or a portion of your student loan debt.
Pro Tips: Student Debt (<7 Years)
Call the National Student Loan Service Centre and get your “End of Study Date” don’t guess, know when the 7 years expires to better evaluate all your options.
If you are getting close to the 7-year milestone and would prefer not to sign up for an even more extended payment plan, it may be worth waiting just a bit longer until you qualify for other student debt options such as a consumer proposal.
Consumer proposals for your other debts? YES, filing a proposal for your other obligations may indirectly make it quite a bit easier to get on top of your student debt.
If your financial situation is severe, you may qualify for ‘financial hardship’ which might release your student loan debt, even if it has been less than 7 years since your “end of study date”.
It can be a huge relief to know that you do have options. Student loan debt repayment options should never be a one-size-fits-all approach.
How do you know which one is right for you? Consult with a Licensed Insolvency Trustee (LIT).
Powell Associates Ltd. is a Licensed Insolvency Trustee. We are experienced, hands-on insolvency practitioners who understand the personal impacts of major financial stress;
You won’t be stuck in an assembly line process.
You will expect and receive prompt responses and resolution of issues from our supportive and experienced team.
We will review your debt solution options, including filing a consumer proposal or personal bankruptcy.
We help Canadians with overwhelming debt get fresh financial starts.
Once you file a consumer proposal or personal bankruptcy, we deal directly with your creditors on your behalf. Your unsecured creditors are required to stop contacting you or continuing legal proceedings against you. Contact us for a free consultation.
We offer free consultations to review your financial situation and practical debt resolution options. Contact us to discuss your situation over the phone, a video chat, or in-person in Saint John, Moncton, Fredericton, Charlottetown, Dartmouth, or Miramichi.