Student debt has become a common concept across the world so if you are looking for student debt help you aren’t alone.
With more students applying for higher studies, the need to fund their education has become increasingly important.
While you can always fund a part of your education by taking up a part-time job on the campus or through a Teaching Assistantship or Research Assistantship in your department, the fact is the cost of the degree and living expenses, together, create a huge sum that needs additional financial support via loans.
However, student loans are also viewed less as loans and more as an investment into the future of a student.
The overall perspective of a student loan is a positive one.
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Financial institutions extending student loans to applicants, do so in the hope that the student completes the degree and with the job they secure, will pay off the principal and interest amounts hence accrued.
This holds most of the time.
However, there have also been times when student loans have gone bad.
At the end of the day, a student loan is a loan.
And the best way to handle a strong financial instrument like a loan is to know all about it and how you can handle it the best.
In this article, we answer all your questions regarding student loans.
Student loans in Canada: An overview
The Canadian University Survey Consortium recently reported that graduates who had applied for student loans owed an average amount of $26,819 in student debt.
Yet, another study showed that over 40% of graduates had chosen student loans to finance their post-graduate education.
Most student loan applicants prefer government loans to finance their studies.
Approximately, 73% of graduates have applied to government-guaranteed student loans.
While most students tend to choose a single source of student loans, i.e., either government or private, there are also ones who have drawn a mix of both kinds of loans and more indebted (sometimes twice as much) as compared to their single-loan counterparts.
The government provides attractive and easy interest options to student borrowers.
They do so to encourage higher studies and have been moderating their interest rates per market movements to ensure less burden on their student loan holders.
In their budget, in November 2019, the government proposed a reduction in fixed and variable interest rates on their Canada Student Loans.
While the fixed interest rate was slashed from prime+5% to prime+2%, the variable interest rate was reduced from prime+2.5% to only the prime rate.
Further, in January 2020, the government announced a new option to rehabilitate Canada Student Loans that have defaulted.
Student loan defaulters will have the option of adding their interest to their loan’s principal amount and subsequently make two payments to rehabilitate their loan.
Now with a clear overview of the current student loan status in Canada, let’s dive in straight into the student loan FAQs you might be interested in.
What is the nature of Canadian (Federal) Student loans?
Federal student loans in Canada are interest-free loans for full-time students.
The interest on these loans is paid by the Canadian government while you are studying full-time.
Students who have availed a Canadian student loan must confirm their student status at the end of each academic year.
Your repayment period will begin 6 months after you complete your degree.
The interest on your federal student loan will start accruing from the time your course gets completed and you stop being a full-time student.
Who is eligible for a Canadian student loan?
To be eligible for a Canadian federal student loan, you must meet the following requirements.
- Be a citizen of Canada;
- Live in a province which issues federal student loans;
- Prove need for financial assistance;
- Demonstrate satisfactory academic records;
- Be registered and enrolled in a degree, program or diploma where you are studying full-time or at least 60% of a full-time course.
Can student loans be discharged in bankruptcy?
Yes, student loans are discharged in a bankruptcy, automatically.
In Canada, this is applicable if you have not been a student for the last 7 years.
If you can prove financial hardship, then the waiting period could be reduced to 5 years instead of the usual 7.
However, bankruptcy is not the only option to deal with a student loan.
There are several alternatives, such as:
- Opting for a consumer proposal, that lets you renegotiate the terms for repayment with your lenders, via a Licensed Insolvency Trustee;
- Student debt consolidation, which is not a popular option, as it just replaces an old debt with a new one, it is still an option many students consider;
- Applying for student loan forgiveness and negotiating new repayment options.
What is the 7-year rule and how does it apply to student loans?
The 7-year rule states that a discharge from bankruptcy frees you from the obligation of paying your student debt if you file for bankruptcy after at least 7 years of completing your studies or being a part/full-time student.
This rule, however, applies to private student loans.
What does hardship provision refer to?
The hardship provision lets you reduce your 7-year time period to 5 years provided you can prove your financial hardship at the court of law.
You will need to show to the court, that you used your student loan in good faith and used the financial assistance for education and living expenses while in school, and not for any non-essential spending such as vacations or luxury purchases.
You will also need to prove in court that continuing paying these debts will keep causing you severe financial distress.
How do I verify my last date of study for student loan repayment purposes?
To find out the last day of study for student loan repayment purposes, you can call Canada Student Loans at 1-888-815-4514.
Is it possible to resolve student loans that are less than 7 years old?
Student loans that are less than 7 years old are not discharged automatically through bankruptcy or released through a consumer proposal.
However, there is a way of getting the debt released by adding section 178(1) to a consumer proposal.
In this case, the lender should vote to accept the proposal and must, specifically, agree to a decrease in your overall student loan obligation.
However, this is rarely an accepted practice, as guaranteed loan lenders are usually not eager to have loans less than 7 years resolved through a proposal.
Do I need to continue paying student loan payments while in a proposal or when I file for bankruptcy?
You may stop making loan payments against your student loan while in a consumer proposal or bankruptcy.
Lenders cannot collect payment against student debts when they have filed for bankruptcy or are in consumer proposal because of the protection provided by the Bankruptcy & Insolvency Act.
However, the interest component keeps accruing and the principal amount including interest continues to exist.
Filing for bankruptcy or a consumer proposal does not make the student loan disappear.
It is, therefore, advisable to continue making small payments towards your student loan that cannot be discharged yet.
You may need to sign and add a form like the Sec 178 claim, to your overall insolvency documents.
What is Canada’s private student loan debt forgiveness about?
In Canada, private student debt is treated like all other unsecured debt when it comes to filing for bankruptcy or a consumer proposal.
However, unlike the government-guaranteed student loans that are subject to the 7-year waiting period to be discharged, private student loan forgiveness has no limitation period.
Consider the following instance, if you have taken out a student loan or line of credit (LoC) from your bank, then this student debt would automatically be discharged in the event of bankruptcy or consumer proposal, notwithstanding whether you used the money to pay for tuitions or educational expenses or if the loan is less than 7 years old.
Also, on the other hand, there are no student debt relief programs in Canada for private student debt.
In case you need assistance with either private or guaranteed student debt, a Licensed Insolvency Trustee can help you with the options you have at your disposal.
Where can I find answers to other questions regarding my student debt?
If you have any further questions related to student debt that you would like answered, or you have specific queries regarding your student debt status or insolvency, you should reach out to a Licensed Insolvency Trustee.
With professional advice, you will be able to explore more options for student debt help, without resorting to the path of bankruptcy first.