Education is a means of personal and professional development that often comes at a steep price. As such, many students resort to loans to fund their academic pursuits. However, life’s unpredictability may lead to financial difficulties, making loan repayment a challenge. In such circumstances, legal debt relief solutions like consumer proposals can be explored. This comprehensive guide aims to answer the pressing question: Do consumer proposals forgive student loans?
Consumer Proposals: An Overview
A consumer proposal is a legal agreement set up via a Licensed Insolvency Trustee (LIT) that allows you to repay a fraction of the debt you owe to your creditors. This agreement, once accepted by the creditors, halts all collection actions, including lawsuits and wage garnishments.
While a consumer proposal can significantly alleviate financial burdens, it’s important to note that it can also impact your credit score negatively. This effect, however, is temporary and can be rectified once the consumer proposal is paid off and you work towards rebuilding your credit.
Eligibility of Student Loans for Consumer Proposals
One might wonder if student loans, a common source of debt among young adults, can be included in a consumer proposal. The answer depends on the age of the student loan debt. It is the time elapsed since the end of your studies, known as the “end of study date,” that determines if your student loan is eligible for inclusion in a consumer proposal.
Do Old Student Loans Qualify for Consumer Proposals?
If you have been out of school for more than 7 years, your student loans are eligible for inclusion in a consumer proposal. This means that if your consumer proposal is accepted, your student loan debt would be included in the debt that is compromised or reduced.
What About New Student Loans?
For recent graduates or those who have been out of school for less than 7 years, the situation is different. Student loans that are less than 7 years old are not automatically discharged in a consumer proposal. Even if your consumer proposal is accepted and completed, you will still be responsible for repaying your student loan debt.
Negotiating Student Loan Terms in a Consumer Proposal
While recent student loans may not be automatically discharged under a consumer proposal, it is possible to negotiate with your lender. If your lender agrees to the terms of your consumer proposal and assures that they will not pursue any further payments after the proposal is paid off, your student loan can be included in the consumer proposal. This agreement is more likely to happen if you are closing in on the 7-year mark.
Can a Consumer Proposal Help Regardless?
Even if your student loan doesn’t qualify for forgiveness under a consumer proposal, the proposal can still provide relief by dealing with your other debts. By reducing or eliminating other unsecured debts like credit card debt, personal loans, or payday loans, a consumer proposal can free up some of your financial resources, making it easier to manage your student loan payments.
Alternatives to Consumer Proposals for Student Loan Debt
If a consumer proposal doesn’t seem like the right fit for your situation, there are other debt relief solutions that could help with your student loan debt.
Bankruptcy
Bankruptcy is a legal process that discharges your debts if you can demonstrate that you’re financially incapable of repaying them. Like consumer proposals, bankruptcy can discharge student loan debt if you’ve been out of school for at least 7 years. However, bankruptcy has severe consequences on your credit and should be considered as a last resort.
Repayment Assistance
The Canadian government offers repayment assistance programs that can make student loan repayment more manageable. These include the Repayment Assistance Plan (RAP) and the Repayment Assistance Plan for Borrowers with Disabilities (RAP-D). As long as you remain eligible, these programs can help reduce your student loan payments or even cover them entirely.
Conclusion
Dealing with student loan debt can be overwhelming, especially when facing financial difficulties. While consumer proposals can provide relief, they come with certain conditions and potential drawbacks. Therefore, it’s crucial to consider all available options and seek professional advice when dealing with student loan debt. Whether a consumer proposal is the right choice for you depends on your unique financial situation and the age of your student loan debt. It’s always recommended to consult with a Licensed Insolvency Trustee to explore the best course of action for your financial future.
