Student Loan Debt

Student Loan Debt in Canada

Student debt is increasingly becoming a problem in Canada. Tuition fees in most provinces continue to rise at exponential rates, requiring students to take out loans. Many students in Ontario rely on the Ontario Student Assistance Program (OSAP) to afford their post-secondary schooling. The problem is that it can take years or even decades to pay off student debt, which can be a real burden for graduates.

About two-thirds of students graduate with an average debt of around $22,000. That is a lot of people with a lot of debt, most of who will be starting entry-level jobs that do not pay much. It can take time to work your way up in your career before you see a significant increase in your paycheck. In the meantime, student loans are still there with interest piling on.

While many Canadians can successfully pay off their student loans, some struggle to make a significant dent in it. For them, it might be necessary to take added measures to eliminate their debt, which is why many consider bankruptcy and proposals.

Discharging Student Loan Debt

The Canadian government established the Bankruptcy and Insolvency Act (BIA) to give people a way to find relief from their debts. It is typically used to alleviate credit card debt, tax debt, personal loans, and lines of credit debt. Student loan debt used to be discharged the same as these debts but are now being treated differently under the BIA. As a general rule, current legislation requires consumers to be out of school for seven years before their student loan debt can be discharged through their bankruptcy or proposal.

Seven-Year Waiting Period

The seven-year rule refers to the length of time an individual must be out of school before their student loans can be discharged through a proposal or through bankruptcy. This date is the last day you were registered as a student, also known as the end of study date, and not the last day you were in class. You can contact the National Student Loan Service Centre (NSLSC) to find out what your exact end of the study was and what will give you a good idea for when your student loan debt can be eliminated.

Even if your student loan debt is not automatically discharged through a bankruptcy or a proposal, you still have another option to have them discharged. The BIA allows you to make a separate application to court after you have received your discharge or certificate of full performance, as long as it has been five years from your end of study date. The court will consider two things when reviewing your application to extinguish your student loan debt:

  1. Have you been acting in good faith in connection with your student loans?
  2. Are you likely to continue to experience financial difficulty in the future to the extent that you cannot pay your student debt?

If you meet both of those conditions, the court will likely extinguish the student loan debt.

Dealing with Student Loan Debt

If your student loan debt is from less than seven years ago, there are still options available to you to make your debt more manageable. First, you can contact your student loan office and negotiate a payment plan. The NSLSC has a Repayment Assistance Plan (RAP) you can apply for through your account online. Depending on your household income and other circumstances, you could get reduced payments or an increased grace period. Typically, you will have a grace period of six months after you graduate and, after that, monthly payments are based on paying off the loan in about nine years. Through RAP, you could extend your payment period up to fourteen and a half years.

One of the hardest parts of paying back student loan debt for most people is managing other debt along with it. Even if your student debt cannot be discharged due to the seven-year rule, you can still compromise or eliminate your other debt through a bankruptcy or consumer proposal. Under the Bankruptcy and Insolvency Act, filing a consumer proposal or bankruptcy will provide relief from the struggle to pay all of your debts.

If you are unsure how to move forward and struggling with deciding on how to move forward and deal with your student loan debt or other consumer debt, call us today. Our associates will listen to you, review options with you, and explain to you how we can help you get out from under the burden of debt.

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