Consequences Of Not Paying Student Loans

The Aftermath of Defaulting on Student Loans: A Comprehensive Guide

Student loans are a common financial burden for many individuals. They are designed to fund your education with the expectation that you will repay the borrowed amount once you secure a job with a higher salary. However, what happens when you are unable to repay your student loans? This article discusses the consequences of not paying student loans and provides some solutions for student loan debt relief.

Understanding What Fuels Your Education

The first step in dealing with student loan debt is understanding what kind of loan you have. In general, there are two primary types of student loans:

1. Government-Guaranteed Student Loans

These loans are backed by the government (federal or provincial) and are provided to offer financial aid to students. These include loans such as the Ontario Student Assistance Program (OSAP).

2. Student Lines of Credit

Student lines of credit are different from government-funded student loans. They are considered private student loans, often used to supplement education costs when government student loans do not suffice.

Consequences of Defaulting on Student Loans

Failing to repay your student loans can have severe repercussions. These can range from a negative impact on your credit report to the involvement of collection agencies.

1. Collection Agency Involvement

If you fail to make payments for nine months, your student loan defaults. In this case, the Canada Revenue Agency (CRA) takes over for collection. The CRA has the power to execute actions such as wage garnishment and freezing your bank account without requiring a court order. They may even withhold your tax refund to cover your student debt.

2. Impact on Credit Report

Student loan debt is reported to credit bureaus. If you miss payments, your credit score will deteriorate. If your account is in default or collections, it will stay on your credit report for up to six years after the last action was taken.

3. Debt Statute of Limitations

Student loan debt will not disappear unless you file for student loan debt relief. Each type of student loan debt has different rules for collection enforcement. For government student loans, there is no limitation period for collections.

Student Loan Debt Relief Options

Despite how overwhelming your student loan debt might seem, there are solutions available.

1. Voluntary Renegotiation

If you can repay your loan but need a temporary hold on payments, voluntary renegotiation is a good option. You can contact your lender to negotiate new payment terms that are manageable for you.

2. Canada Repayment Assistance Plan

If you have a government-guaranteed student loan, you may be eligible for the Canada Repayment Assistance Plan. Depending on your income and family size, your monthly payments may be reduced or even eliminated.

3. File a Consumer Proposal

A consumer proposal is a legal form of debt settlement that can reduce your unsecured debt by up to 80%, including student debt if you meet the ‘seven-year rule’. A Licensed Insolvency Trustee is required to file a consumer proposal.

4. File Bankruptcy

Bankruptcy involves assigning any non-exempt assets to your Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. Government student debts are eligible for discharge if you finished your studies at least seven years ago.

In conclusion, it’s important to understand the consequences of not paying student loans. If you find yourself struggling with student loan debt, it’s essential to seek professional help as soon as possible. Remember, there are always options available for student loan debt relief.

Find Your Personal Debt Relief Solution

Licensed Insolvency Trustees are here to help. Get a free assessment of your options.

Discuss options to get out of debt with a trained & licensed debt relief professional.