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What is the Amount of Student Debt in Canada?

Student debt in Canada amounted to $18.2 billion in 2016-2017 (source), while the average student loan in Canada was $5,318 during the same period.  

While we can estimate student loan debt in Canada, each case must be handled and assessed individually, as everyone borrows different amounts and has varying repayment capabilities.

Can Student Loans Be Discharged in Canada?

Student loans cannot be cancelled in Canada, meaning your debt will likely follow you and accumulate if you are unable to meet your payment obligations. However, various debt relief options are available to assist you with your repayment process.

While student loan cancellation is not available in Canada as it is in other countries, you should continue to monitor the situation. Pressure is currently being placed on Mr. Trudeau and the federal government to cancel up to $20,000 in student debt per person due to financial pressures experienced during the Covid-19 pandemic (source). However, you should continue to repay what you can of your student loan while exploring alternative options with professionals if necessary.

Do student loans disappear after 7 years in Canada?

Unfortunately, there is no general rule that causes student loans to disappear after 7 years in Canada. However, there is a specific rule where the 7-year period becomes relevant.

If you decide that declaring bankruptcy is the best solution for you, the 7-year period is extremely important. If you declare bankruptcy 7 years or more after fully completing your full-time or part-time studies, your loan may be discharged.

Declaring bankruptcy before 7 years have passed since completing your studies means you will still be responsible for repaying your loan. Therefore, it is important to determine the optimal time to declare bankruptcy if this is a path you are considering. Consulting with a Licensed Insolvency Trustee will assist you in making this decision.

What happens if you never pay your student loans?

It is never advisable to ignore your financial responsibilities, as this will lead to more significant problems in the long term. Given that Canada currently lacks a student loan cancellation policy, never paying your student loans is not a viable option.

Failing to pay your student loan debt can result in a range of penalties, including but not limited to:

• Increased interest rates
• Ineligibility for future funding
• A poor credit score
• Contact from collection agencies
• Legal action

Never paying your debt should not be considered an option. Instead, seek assistance from a debt professional to help manage your student loan.

Solutions for Student Loan Debt Relief

If you begin to experience the stress and pressure of student loan debt, you will need to seek solutions that help you manage your debt and minimize its long-term effects, not only on your credit score and financial situation but also on your mental well-being and future prospects.

Here are some solutions you might consider:

Repayment Assistance Plan (RAP)

The Repayment Assistance Plan is offered by the Canadian government in collaboration with your province. You will be eligible for the Repayment Assistance Plan if you are a resident of Canada, have a student loan in good standing, and the amount you can afford to pay monthly is less than the required payment.

If, after an assessment of your monthly family income, you are unable to make the required monthly repayments, you may apply for assistance through the Repayment Assistance Plan. This plan assists you by covering all or the remaining portion of the interest you owe, provided you contribute what you can towards the principal repayment and, if possible, a portion of the interest.

This initial stage of the RAP can continue for 10 years. If, after 10 years, you are still unable to repay your loan, you may apply for the second stage. During the second stage, you will continue to pay as much as you can based on an assessment of your affordability. However, the government and your province will now commit to repaying the entire principal and interest that you cannot afford, until your loan is fully repaid.

Review of Terms

Reviewing the terms of your loan is also an option many individuals choose to help them repay their student loan debt. As the name suggests, this is a process where you renegotiate your payment terms to gain some flexibility in your monthly payments.

Under the terms and conditions of a terms review, you are able to do several things. Firstly, you can choose to temporarily decrease your monthly payments. This allows for a reduction in both your principal payment and interest rates. Your second option is to extend the time you have to repay your loans, which subsequently lowers your monthly payments. Finally, you can decide to pay only the interest on your loan for a short period.

These are short-term solutions, and you must consider their long-term consequences. While they may resolve your immediate financial issues, you will ultimately pay more in interest because it will take you longer to repay your loan.

Consumer Proposal

If seven years have passed since you completed your full-time or part-time studies, you might consider filing a consumer proposal. A consumer proposal is arranged by a licensed insolvency trustee who helps you renegotiate the amount of debt you owe to creditors.

This option is often considered as an alternative to bankruptcy because it allows you to retain your assets and also protects you from legal action by your creditors.

Personal Bankruptcy

If you are unable to benefit from any of the aforementioned options, you may consider filing for personal bankruptcy. Again, you must have ceased your studies for at least 7 years to pursue this course of action.

Filing for bankruptcy is sometimes the only option available to individuals. If you are completely unable to make payments on your student loans, have a loan exceeding $1,000, and cannot pay your other bills and payments, bankruptcy may be a viable solution.

Personal bankruptcy eliminates all your debts, though it requires you to surrender your personal assets. While this prospect can be daunting and intimidating, filing for personal bankruptcy will immediately free you from all your debts, enabling you to make a fresh start. Therefore, do not dismiss this option prematurely.

Do you require assistance in managing your student loan debt?

While student aid and the temporary financial security offered by student loans are valuable tools that enable students to pursue their education, they can also lead to financial stress and debt.

Although loans, particularly student loans, are taken out with the firm intention of repayment, unforeseen circumstances can make this challenging, especially given the current financial climate of the Covid-19 pandemic. It is important to remember that you are not alone in facing financial difficulties, and you should not attempt to navigate this situation by yourself.

If you are struggling to repay your student loans, credit card balances, or any other form of unsecured debt, it is advisable to seek professional assistance.

The Licensed Insolvency Trustees at Serpone Group can provide you with the information and guidance needed to alleviate your concerns and reduce your debts. Our experts will explore various debt relief options with you and help you find the solution best suited to your needs and personal circumstances.

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