Student Loan Debt

Student debt is becoming an increasing 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) and the National Student Loan Service Centre (NSLSC) to help them afford their post-secondary schooling. The problem - it can take years or even decades, to pay off student debt and this fact has become a very real burden for graduates and non-graduates alike

About two-thirds of students graduate with an average student loan debt of $22,000.00. Most graduates will start an entry-level job that does not pay well. It can take years before a graduate sees a significant increase in their income and during this time, they carry the burden of their student loan debt and its accruing interest.

While many Canadians successfully pay off their student loan debt, many others will struggle to make even a dent in the amount they owe. For those who are struggling, it may become necessary to seek ways to manage or eliminate their student loan debt, and many will consider bankruptcy or proposals. The Canadian government established the Bankruptcy and Insolvency Act (BIA) to provide individuals with a process whereby they could access possible relief from overwhelming debt. The legislation typically alleviates credit card debt, tax debt, personal loans, and line of credit debt. Student loan debt however, is treated differently under certain circumstances, under the BIA.

Seven-Year Waiting Period:

Under BIA legislation, the seven-year rule refers to the length of time an individual must be out of school before their student loan debt may be discharged through a proposal or a bankruptcy. The determining date is the last day an individual was registered as a student, also known as the end of study date. It does not refer to the last day a student was in class. Students may contact the National Student Loan Service Centre (NSLSC) to find out their exact end of study date. This information will help in determining whether or not BIA legislation may help eliminate their student loan debt automatically.

If a bankruptcy or a proposal will not automatically discharge student loan debt, there is another option available to discharge the loans. If five years have passed since the end of study date, the BIA allows an individual to make a separate application to court after receiving a discharge from bankruptcy or a certificate of full performance.

The court will consider two things when reviewing an application to extinguish student loan debt:

  1. Has the individual acted in good faith in connection with their student loan debt; and
  2. Is the individual likely to continue to experience financial difficulty in the future to the extent that they will continue to be unable to pay their student debt.

If an individual meets both of those conditions, the court will likely extinguish the student loan debt.

Dealing With Student LoanDebt:

If student loan debt is from less than seven years ago, there are still options available to make the debt more manageable. First, an individual should contact the student loan office and negotiate a payment plan. Through their NSLSC account, students may apply for a Repayment Assistance Plan (RAP). Depending on their household income and other circumstances, RAP may reduce required payments or increase the grace period from the standard six-month period. RAP may also extend a student’s repayment period from about nine years up to 14.5 years.

One of the biggest challenges to repaying student loan debt can occur when an individual has additional debts they must pay in addition to managing their student loan debt. In a case where the student loan debt itself is not discharged due to the seven-year rule, some relief is still possible when the individual is able to compromise or eliminate the additional non-student loan debt through a bankruptcy or consumer proposal.

If you are unsure how to move forward and struggling with student loan debt, and 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.

Let’s start solving your problems today!