How Can I Consolidate My Student Debt?
Options For Consolidating Student Debt
About 49% of Canadian students have to take out student loans and graduate from university with an average of $15,300 in debt.
In addition, 20% of students have student loan balances exceeding $25,000.
More than $28 billion in student loans are owed to the Government of Canada, which doesn’t even account for private loans.
So if you’re struggling to repay your student debt in Canada, you’re not alone.
Many graduates are having trouble repaying large student loans, and are wondering what their options may be for debt relief.
How can you consolidate your student debt, and make it easier for you to repay what you owe?
In this blog, we will take a look at a few of your options for consolidating student debt.
A Debt Consolidation Loan
A debt consolidation loan is provided by a bank or financing company and gives you a lump sum with which you can repay your existing student debts.
Then, you simply repay the loan directly to the lender.
This may be a good option for student debt consolidation if you have a better credit score now than you did when you got your initial student loans.
You may be able to get a lower interest rate with a debt consolidation loan, which will decrease the total amount you repay, as well as your monthly payments.
However, it’s important to note that this method of student debt consolidation will not typically work if you have government student loans.
Most banks are not willing to lend you money to repay government loans.
In addition, you may lose tax-deductible benefits when you consolidate your debt, and you may not qualify if you do not have enough assets to pledge as collateral.
Repayment Assistance Plan (RAP)
If you only have government student loan debt, or the majority of your debt is carried by the federal or provincial government, the Repayment Assistance Plan (RAP) can help you manage your monthly payments, and eventually forgive your student debt.
You can apply for RAP as soon as your student loan repayment program starts.
If you are eligible and are accepted into RAP, your payment will be lowered, and may not exceed your income by 20%.
In some cases, you may not have to make payments at all.
The Government of Canada will pay all of the interest that your new payment doesn’t cover.
After 10 years post-graduation or 60 months in the RAP program (whichever comes first) both the principal and interest that exceed your monthly payments will be covered by the government.
Once you are in RAP for 15 years (10 years for those with permanent disabilities) any remaining loan balances will be forgiven, and you will be debt-free.
The primary drawback of RAP is that it takes 15 years to have your debt forgiven, and this method will only work for government loans.
Private student loans will not be forgiven through RAP.
Debt Management Plans/Debt Consolidation Programs
Most credit counselling agencies offer Debt Management Plans or Debt Consolidation Programs.
Your credit counsellor may negotiate with each creditor individually, and get better payment terms for your loans and debt.
However, this does not work with all types of debt.
If you try to use a debt management plan to negotiate a better rate on student loans, you may run into difficulties.
Usually, the government is not willing to deal with credit counsellors, since the RAP is an option for most government borrowers.
In addition, private lenders may choose not to work with your credit counsellor.
Not only that but even if you do consolidate your debts, you will typically still need to pay 100% of what you owe.
In some circumstances, a debt management plan or debt consolidation program may be a good option if you have only a small amount of student debt, but have a lot of unsecured debt like personal loans, lines of credit, and high credit card balances.
Consumer Proposal Program
A consumer proposal is an alternative to bankruptcy.
This process must be done through a Licensed Insolvency Trustee (LIT).
Your LIT will help you come up with an offer to all of your creditors to repay a percentage of what you owe.
This repayment period may not exceed 5 years.
If your proposal is accepted, you will make a single payment to your trustee, who will then distribute your payment to all qualified creditors.
This method of debt relief may help you repay less than you owe.
However, consumer proposals are not always the best option for student debt relief.
This is because of the “seven-year rule.”
For your student debt to be relieved through a consumer proposal, you must have graduated from school at least 7 years ago (or 5 years if you have hardships repaying your student debt).
If you do not meet this requirement, you may want to consider the RAP for government loans, or a debt consolidation loan for private student loans.
Even if you can’t eliminate your student debt, a consumer proposal program may be useful if you have a lot of other types of debt, such as credit card debt, bank loans, and payday loans.
If you are able to set up a payment plan and discharge these debts, you will be in a better financial position and will be able to repay your student loans more easily.
Learn More About Your Options For Student Debt Consolidation
There are a lot of options that may help you consolidate your student debt, or consolidate and eliminate other debts, which may make it easier to repay what you owe.
If you’re wondering what options may be right for you, we’re here to help.
We’re experts in credit counselling and student debt relief.
After consulting with you, we will be able to develop a plan of action that will help you get out of debt, and help you work toward a better financial future.