Guide to Student Debt Forgiveness
Student Debt Forgiveness in Canada
Despite years of struggling through their studies and coping with student loan repayments, many graduates will find it difficult to keep up with the debts that they’re accumulating.
Even with a relatively stable job, there are plenty of ways to seek financial aid in order to help students pay off their debts and financially achieve the financial freedom they’re looking for.
In this guide, we’ll be taking a look at a couple of ways to approach student debt forgiveness.
We’ll be outlining some of the options available, how and when you can negotiate new payment terms for your student loan, and also if the Bankruptcy & Insolvency Act can help you eliminate all of your student loan debt.
What government payment relief programs are available?
The Canadian government offers two different repayment programs that can help with student debt forgiveness.
These will typically reduce your monthly payments, could provide interest relief and even payment deferrals.
In some cases, you might even receive complete loan forgiveness depending on your current financial situation.
Revision of Terms
A typical student loan for Canadian students must be repaid within 114 months or 9.5 years.
However, if you’re having financial troubles, such as temporarily reduced income but can still repay your loan in full, you can contact the Canada Student Loan office to extend this period to up to 174 months or 14.5 years.
This added extension can give you more time to pay back your student loan but is only applicable in certain situations.
This program will essentially help you negotiate lower payment terms that are suitable for your budget.
By increasing your repayment period, you effectively reduce your monthly repayments which marks it more affordable for a lot of people.
This can be done on both a temporary or permanent basis depending on your financial situation.
In most cases, a temporary extension lasts six months and a permanent extension covers the maximum period of 174 months or 14.5 years.
In addition, you can apply to make interest-only payments for up to 12 months.
Regardless of how many months you extend your repayment terms by, you’ll still need to repay your student debt loan in full with interest.
While it can result in cheaper repayments over a longer period of time, it does mean that the interest will add up over time and ultimately result in paying more interest due to the longer period.
Repayment Assistance Plan
The alternative to revising your repayment terms is the repayment assistance plan, also known as the RAP program.
The RAP program can offer you interest relief or debt forgiveness depending on how severe your financial situation currently is.
If you’ve recently lost your job or have become unable to work, then the RAP program is an excellent solution for seeking interest relief and debt reduction to significantly reduce the amount you have to pay overall.
Unlike a revision of terms, this reduces the amount you pay overall and isn’t just an extension of the time you have to pay.
There are two main options with a repayment assistance plan.
The first is a zero payment or complete payment deferral plan that is based on your income.
The federal government offers relief from payments for individuals that earn below a certain income threshold.
For instance, someone that earns less than $25,000 may be exempt from repaying their student debt until it exceeds that amount.
The other option is a repayment assistance plan.
If your income exceeds the zero payment threshold, but you’re still struggling due to your financial situation, then you may be able to apply for a reduction in your monthly payment.
During the first 10 years, the government will provide interest relief by subsidizing the interest costs on your student loan debt.
After these 10 years, and if you still qualify, you might be able to subsidize the principal payments as well.
In order to qualify for the RAP program, you have to be eligible under the Canada Repayment Assistance Program.
This means you must:
- Reside in Canada;
- Be out of school for a minimum of six months;
- Have student loans in good standing;
- Have an affordable monthly payment that is lower than the required monthly payment.
If you meet these criteria, then you’ll likely be eligible for the RAP program.
Those with permanent disabilities can also qualify for consideration of disability-related expenses to determine if you’re eligible for RAP.
Student debt forgiveness with the Bankruptcy & Insolvency Act
Bankruptcy law in Canada states that if you have been “out of school” for over seven years, your student loans can be automatically included in a bankruptcy or consumer proposal.
This seven-year period starts on the date that you were no longer considered a student and will be used to determine if you’re eligible for student debt forgiveness through this act.
Additionally, you can also apply for student debt forgiveness in as little as five years after you stopped being a student.
However, you need to prove that repaying your student loan will cause “undue financial hardship” to be eligible for this.
If you can show the court that you’re struggling to repay this loan and act in good faith, it’s possible that the student loan debt may be completely forgiven.
If you don’t meet the seven-year rule, it’s still worth getting in touch with us to see if there are options available to help you discharge your debts.
If you’re still confused about student debt forgiveness or want to learn more about the options available to you, don’t hesitate to get in touch with us at Bankruptcy Canada.
We’d be more than happy to offer you impartial advice to help free yourself from the chains of student debt.
Simply contact us today and one of our student debt forgiveness specialists will be happy to help.