Student Loans Are Treated Differently Than Other Debts
When it comes to financing education in Canada, the government has established unique loan programs to help citizens afford post-secondary education. Specifically, the Canada Student Loan Program stands out from typical loan structures, offering opportunities to students who might otherwise be unable to afford higher education. This article aims to detail the singularity of student loans in comparison to other types of loans.
Diving Into the Canadian Student Aid: A Broad Overview
The Canadian government, in collaboration with provincial and territorial governments, has developed a strategic initiative to provide financial aid to students. This unified application process comprises two primary funding options:
- Canada Student Grants
- Canada Student Loans
The central objective of these initiatives is to make education more accessible and affordable for Canadian citizens.
A Closer Look at Canada Student Grants
Canada Student Grants are a form of financial assistance that students do not have to pay back. There are various grants available, each based on specific eligibility criteria, evaluated by the student’s province or territory of residence during the application process.
Factors affecting the grant amount include:
- Student’s province or territory of residence;
- Family’s total income;
- Presence of dependents;
- Tuition fees and living expenses;
- Disability status of the student.
Delving into Canada Student Loans
Unlike grants, Canada Student Loans require repayment. However, they differ from traditional bank loans, credit cards, and lines of credit in certain key aspects. Primarily, the interest rates are typically lower and do not start accruing when the loan is disbursed. Instead, these loans are interest-free while the student is in school and during the initial six-month post-graduation period.
This six-month non-repayment period commences when:
- The student graduates or completes their final semester;
- A student shifts from full-time to part-time studies;
- A student leaves school or takes a leave of absence.
Although there’s a non-repayment period, students are free to make payments towards their loans at any point, without any penalties. If a student can repay their loan before the end of the six-month period, they can avoid paying any interest.
Understanding the Repayment Assistance Plan
The Repayment Assistance Plan (RAP) is a remarkable feature of the Canada Student Loan Program. If students face financial difficulties in repaying their student loan, they can apply for this program.
Eligibility for the RAP depends on the student’s disposable income. In some cases, students might not have to make payments that exceed a certain threshold or might not have to make payments at all. This type of assistance, which is not available with traditional loans like bank loans or credit cards, is exclusive to Canada Student Loans.
If students qualify, the RAP helps reduce the loan amount over a period of 15 years, or 10 years for students with a permanent disability. It’s important to note that students need to reapply for RAP every six months.
The Revision of Terms Plan: An Alternate Repayment Option
The Revision of Terms Plan offers students the option to extend their repayment period to 15 years, thereby reducing their monthly payments. However, a longer repayment term means the student will end up paying more interest over time.
Under this plan, students can:
- Temporarily or permanently extend their repayment period;
- Make only interest payments for a short period (up to 12 months over the lifetime of the loan);
- Alternatively, students can opt to reduce the repayment term and pay off the loan earlier without any prepayment penalty.
Canada Student Loan Rehabilitation: A Way to Reinstate Defaulted Loans
A student loan default occurs when a student misses nine monthly payments. Once a loan defaults, it’s sent to the Canada Revenue Agency (CRA) for collection, and the student becomes ineligible for assistance until they catch up on missed payments.
Students can rehabilitate their defaulted student loans by:
- Applying to update their loan status;
- Making two regular monthly payments;
- Paying all outstanding interest, or adding all unpaid interest to the loan balance (one-time option);
- If successful, students receive a revised loan repayment schedule within 30 days.
Dealing with Student Loan Debts: Getting Help
For many Canadians, student loan debt is a major financial burden. Economic conditions, underemployment, unexpected life events can all contribute to this problem, making it hard for students to repay their loans.
Student loan difficulties can interfere with life and financial goals like travel, homeownership, retirement planning, marriage, or starting a family.
Like other types of loans, student loans can be included in insolvency proceedings, such as Bankruptcy or a Consumer Proposal. However, this is only an option for individuals who have ceased being a student for at least seven years. If this is not the case, consulting with a Licensed Insolvency Trustee can still be beneficial as they can provide advice and explain available options to deal with student loans and other types of debt.
Conclusion
Understanding how student loans differ from other types of loans can help students make informed decisions about their finances. The Canadian government’s initiatives, such as the Canada Student Loan Program, provide unique relief measures for students. However, it’s essential for students to understand the implications of these loans, especially when it comes to repayment and potential debt situations.
