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Student Loan Debt Forgiveness in Canada

There are over 100 universities and colleges in Canada for students to pursue higher education. These educational institutions offer over 15,000 different programs of study for undergraduate, graduate, doctorate degrees, and certificates and diplomas. But, post-secondary school tuition isn’t cheap. 

Many Canadians take out student loans from the federal government, provincial governments, private lenders, and banks to cover tuition fees. Unfortunately, many student loan borrowers still struggle to pay off their debt, even years after graduation. COVID-19 enhanced those struggles, with the 355,000 jobs lost in Canada last year and disproportionate financial effects of COVID-19 for younger Canadians

Here we’ll discuss everything you need to know about student loan debt, including the cost of education in Canada, student loan debt compared to other forms of debt, student loan debt forgiveness, and more. 

Are you struggling with student loan debt? Call us today to learn how to get out of debt.

What is the cost of education in Canada?

Post-secondary education in Canada is generally cheaper than in the United States. On average, the cost of post-secondary education for Canadian students is $19.498.75 per year. Students who live with their parents spend less, about $9,300 per year. However, students who live in school dorms or rental apartments spend almost $20,000 per year. 

These averages consider the cost of tuition, transportation, groceries, entertainment, books, supplies, rent, and extra-curricular. And, international students usually face higher fees for housing and tuition than local students. Generally, post-secondary education costs depend on many factors, including:

  • The school
  • Degree type
  • Credit requirements
  • Housing
  • Scholarships
  • Residency
  • Living expenses

Tuition fees vary depending on a student’s program of study. For example, professional programs like dentistry, medicine, law, and pharmacy usually cost more than programs in the arts. And, master’s programs are usually more costly per year than undergraduate programs. 

For more information about the cost of education in Canada, visit Statistics Canada

When do you have to repay student loan debt?

The Federal government paused the interest period for student loans as a COVID-19 relief measure. So, graduated students don’t have to begin repaying their student loans until 6 months after graduation. Student loans also don’t begin accruing interest until after the 6-month mark.  

Student loans automatically have floating interest rates, also known as variable rates. These interest rates move up and down with the market. However, students can change their floating rate to a fixed rate during their repayment period. Borrowers are responsible for making monthly payments, which increase depending on the interest rate of the loan. 

Student loan borrowers can visit the National Student Loans Service Centre (NSLSC) for more information about interest rates. 

How do student loans affect loan debt in Canada?

Most university students graduated with student loan debt. The average student loan debt for both Bachelor’s and Master’s graduates is about $28,000. 

Student loans make up a significant portion of the average Canadian’s debt. The average student debtor owes about $46,000 in debt, with almost $15,000 of that debt in student loans. That’s almost a third of someone’s entire debts. 

Debt load is higher for students in Ontario, with $2,301.5 million in student loans for both part-time and full-time students. Graduates in Alberta also face high student loan debt, with $503.3 million in Canada Student loans. 

Canada Student Loans Program annual report 2018 to 2019 – Canada.ca

Can I declare bankruptcy to get out of student loan debt?

If you’re struggling to keep up with your student loan payments, you’re not alone. The average debtor owes over $14,000 in student loans. While many see bankruptcy as a last result of unmanageable debt, the rules are different for student loans. 

If you successfully declare bankruptcy, you won’t have to continue paying many of your debts, except for your student loan debt. Your student loan debt is ineligible unless it’s been at least 7 years since your last day as a full-time or part-time student. 

The Seven-Year Rule

You are still responsible for student loan monthly payments even after you declare bankruptcy. However, if you file for bankruptcy at least 7 years from your graduation (or end date of being a student), your student loan debt is eligible for discharge. Therefore, if waiting 7 years to include your student loan debt in bankruptcy is too difficult, you might benefit from the hardship provision. 

Hardship Provision

Sometimes, the court rules in favour of reducing the bankruptcy eligibility period for student loan debt from 7 years to 5 years. You will have to apply to the court for an early discharge under the “hardship provision.” The court will approve your application if:

  1. You acted in good faith

The court will examine your financial records and look at how you spend your loan money. The court will also review your efforts to complete your schooling, as well as your use of other assistance programs. 

  1. You experienced or will experience undue hardship that prevents you from repaying your student loan debt. 

Undue hardship, in this case, means financial difficulty. If you can prove that repaying your loan will hurt your finances significantly, such as affecting your ability to pay your basic living expenses, the court will consider that.  

But, there are other options if your debt is younger than 7 years. 

What if I can’t afford my student loan payments?

If your student loan debt is relatively fresh and younger than the 5- or 7-year rule for declaring bankruptcy, other options are available. For example, the Government offers a few student loan forgiveness programs. 

Revision of Terms 

Most student loan borrowers are eligible for a revision of terms. You can request a change in your loan terms if you want more or less time to pay off your debt. A revision of terms offers extensions of up to 15 years, which lowers your monthly payments overall but results in more interest paid overtime. 

Here are the specific, possible results of a revision of terms:

  1. Temporary decrease of payments

You can temporarily extend your loan term to reduce your overall monthly payments. 

  1. Permanent loan term extension

An extension helps you permanently lower your monthly payment amounts. However, you will pay more interest over time with this option. 

  1. Interest-only payments

For a maximum of 12 months, you can make interest-only payments. This will reduce your overall monthly payments for that period but doesn’t eliminate more of your principal.

Repayment Assistance Plan (RAP)

The Government of Canada’s Repayment Assistance Plan (RAP) offers government financial assistance towards your loan if you cannot make your payments. Students can apply to this program once they begin paying off their student debt. 

If accepted to this program, you won’t be responsible for making any payments that exceed your income by 20%, or sometimes any payments, period. The government will pay any interest owed that the revised payment plan doesn’t cover. Additionally, the government will cover both principal and interest costs if they exceed your reduced monthly payments. 

Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD)

The federal government offers a specific RAP for borrowers with a permanent disability. Like the regular RAP, the government contributes to your loan payments, helping you reduce or eliminate your payment responsibilities. Under the RAP-PD, you can also use expenses related to your disability to lower your loan payments. 

When applying for the RAP-PD, you should fill out a Disability-Related Expense Form (PDF, 320.75 KB)

Conclusion

Student loan debt is a stressful financial burden for many Canadians. But, if you’re struggling with making your student loan debt payments, there are options available to you. Speak to a credit counsellor today to learn more about budgeting, credit management, and debt consolidations. 

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