Cutting Interest on Student Loans

Student Loan Interest Cuts: A Comprehensive Analysis

The recent policies regarding cutting interest on student loans by both provincial and federal governments have garnered much attention. However, experts suggest that these measures might not entirely resolve the impending financial challenges faced by many due to student debt.

The New Policies

The British Columbia’s Provincial Government recently made a significant announcement: they plan to abolish interest charges on BC student loans, over-awards, risk-sharing, and guaranteed loans from February 19, 2019. Both current borrowers and future recipients of BC student loans are set to benefit from this change.

According to the 2019 BC Budget, the average graduate will save approximately $2,300 in interest over a ten-year repayment period. This figure is based on both federal and provincial student loans totaling $28,000. Additionally, the Federal Budget 2019 proposed interest rate cuts and a six-month grace period before interest begins to accrue, estimated to save loan borrowers around $2,000.

Let’s break it down:

$4,300 average savings on interest / 120 months (ten years) = $35.83 per month actual impact

While this reduction in student loan interest is a welcome change, it might not significantly affect many students who often grapple with low earnings post-graduation.

The Ongoing Student Debt Crisis

The housing crisis and high cost of living might still leave students plagued with substantial debt from their post-secondary studies. Moreover, parents who fund their children’s education might also continue to feel the financial strain.

The 2018 BC Consumer Debt Study by Sands & Associates revealed that 4.7% of respondents cited student loans or student lines of credit as the primary cause of their debt.

This student debt crisis isn’t confined to BC; an Ontario-based Licensed Insolvency Trustee firm, Hoyes Michalos, reported that the fastest-growing group filing bankruptcy were millennials, with over three in ten carrying student debt.

Spending Habits and Income Expectations

A proprietary research by Bankruptcy Canada revealed that 22% of students use credit cards for most of their daily purchases.

When asked about their income expectations five years post-graduation, a significant 73% of students anticipated earning a salary greater than $50,000.

However, the reality paints a different picture:

 

$27,500 – Median employment income of a British Columbian (not in census families) in 2016

$68,690 – Median employment income of British Columbian families in 2016

 

Is it Too Little Too Late?

It’s not uncommon for our trustees to provide debt help to individuals who’ve been out of school for over a decade and are still burdened with substantial student loans.

Student Debt Assistance

Contrary to popular belief, Canadians struggling to repay their debt have options beyond the debt repayment programs offered by lenders. The Federal Government provides exclusive legal standing to Licensed Insolvency Trustees to offer debt help solutions that can restructure and even eliminate an individual’s student (and other) debts entirely.

 

Privately held (bank) student loans can be cleared through a Consumer Proposal or bankruptcy, like any other type of basic unsecured debt.

Provincial and/or Federal student loans and interest can be managed by filing either:

  • A Consumer Proposal: This legal debt consolidation effectively combines and reduces all consumer debts, including student loans and other government debts. Debts may be reduced by up to 70-80% or more, with no interest.
  • A Personal Bankruptcy: When a person can no longer make meaningful partial repayments on their debts, filing for personal bankruptcy will result in forgiveness of essentially all debts.

Important Factors to Consider

Timing is crucial when considering these options:

 

  • If it has been seven years or more since you were last a student, your government student loans and interest will be fully settled upon completion of your Consumer Proposal or bankruptcy.
  • If it has been less than seven years since you were last a student, your unpaid government student loan and interest balances will need to be repaid following your Consumer Proposal or bankruptcy.

 

However, you may be granted relief from making payments while either option is in progress, although interest will accrue.

Amounts your creditors receive through your proposal or bankruptcy go towards reducing the surviving balance.

If you were a student five or more, but less than seven years ago, you can file a court application to have the student loans released (forgiven) under a special hardship clause.

Use this Free Online Debt Options Calculator to evaluate your options for eliminating debt.

For those who have been to school within the last seven years, or would not qualify for the special discharge order, a Consumer Proposal or personal bankruptcy may still be advantageous options to consider. With other consumer debts (such as credit cards, lines of credit etc.) eliminated, they might find themselves in a better position to pay off their remaining student loans.

Want to learn more about legal debt solutions that can consolidate, reduce and write-off student and consumer debt? Schedule your confidential free debt consultation today!

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.