Why Are Young People Claiming Bankruptcy Earlier Than Ever? The Unseen Impact of Student Debt
Bankruptcy among young adults, a phenomenon often associated with American society, is increasingly becoming a Canadian reality. Current data suggests that one out of every six insolvencies in Canada is linked to student debt. Moreover, a significant number of individuals declaring bankruptcy are aged between 18 and 29.
The Evolution of Student Debt
The mounting student debt burden is primarily due to the continuous increase in tuition fees and living costs. Meanwhile, entry-level job opportunities have become scarce, and wages, for the most part, have remained stagnant.
Rising Tuition and Living Costs
Ontario students, in particular, have been hit hard due to the recent reductions to the Ontario Student Assistance Program (OSAP). This has made it difficult for students to cover their expenses during the academic year.
The Job Market Dilemma
Upon graduation, many students find themselves resorting to unpaid internships, part-time jobs, or minimum wage positions. These jobs barely cover basic living expenses, let alone facilitate the repayment of student loans. This lack of well-compensated work has led to an increase in the use of credit cards and lines of credit, thus multiplying the existing debt.
Strategies for Student Debt Repayment
The average time taken by a graduate to clear their student debt ranges from nine to 15 years. Some loan programs demand immediate repayment after graduation, while others offer a six-month grace period.
Repayment Assistance Program (RAP)
Unable to afford the default repayment schemes, many graduates are now turning to the Canadian government’s Repayment Assistance Program (RAP). This program caps repayment at 20% of their income. Additionally, individuals earning less than $25,000 annually are not required to make any repayments.
Finding Relief from Student Debt
Bankruptcy or consumer proposals can provide some relief from certain types of student debt. However, the Bankruptcy and Insolvency Act in Canada stipulates that government-guaranteed student loans less than seven years old cannot be included in a bankruptcy declaration.
Differentiating Private and Government Loans
Private student loans, such as those from banks, and government student loans older than seven years, however, may be included in a bankruptcy or consumer proposal.
Assistance for Managing Student Loans
Various organizations, such as Bankruptcy Canada, offer assistance to those struggling with student debt. They provide free consultations and professional guidance to help individuals regain control over their finances.
Those grappling with student debts must remember that while the situation may seem dire, there are resources available to assist them. Bankruptcy is not the only option. With careful planning and the right guidance, the burden of student debt can be managed effectively.
