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How much student debt is there in Canada?

Student debt in Canada stood at $18.2 billion in 2016-2017(source) while the average student loan in Canada was $5318 over the same period.  

Although we can estimate student loan debt in Canada, each case must be treated and assessed individually, as everyone borrows different amounts and has different repayment capacities.

Can student loans be cancelled in Canada?

Student loans cannot be forgiven in Canada, which means your debt will likely follow you and accumulate if you can't afford to meet your payment obligations. However, there are various debt relief options you can pursue that will help you in your repayment journey.

Although student loan forgiveness is not available in Canada as it is in other countries, you should continue to monitor the situation. Trudeau and the federal government are currently under pressure to forgive up to $20,000 of student debt per person due to the financial pressures experienced during the Covid-19 pandemic(source). However, you should continue to repay what you can from your student loan while exploring alternative options with professionals if necessary.

Do student loans disappear after 7 years in Canada?

Unfortunately, there is no general rule that allows student loans to disappear after 7 years in Canada. However, there is a rule where the 7-year period comes into play.

If you decide that declaring bankruptcy is the best solution for you, the 7-year period is extremely important. If you file for bankruptcy 7 years or more after you have completely finished your full- or part-time studies, your loan may be cancelled.

Declaring bankruptcy before you've been out of school for 7 years means you still have to repay your loan. So it's important to determine the best time to declare bankruptcy if that's what you're considering. Talking to a licensed insolvency trustee will help you make this decision.

What happens if you never pay your student loans?

Ignoring your financial responsibilities is never a good idea, as it will cause you more problems in the long run. Since we've already established that Canada does not currently have a student loan forgiveness policy, never paying your student loans is not a viable option.

Failure to pay your student loan debt can result in a range of penalties, including, but not limited to:

• Rising interest rates
• Be ineligible for future financing
• A poor credit rating
• Being contacted by collection agencies
• A lawsuit

Never paying your debt should never be an option. Instead, enlist the help of adebt professional to help you manage your student loan.

Solutions to get out of student loan debt

If you begin to feel the stress and pressure of student loan debt, you'll need to look for solutions that will help you control your debt and minimize its long-term effects not only on your credit score and financial situation, but also on your mental state and future prospects.

Here are a few solutions you might consider:

Repayment assistance plan (RAP)

The Repayment Assistance Plan is a plan offered by the Canadian government in collaboration with your province. You will be eligible for the Repayment Assistance Plan if you are a resident of Canada, have a student loan in good standing and the amount you are able to pay per month is less than the required payment .

If, after assessing your monthly family income, you are unable to make the required monthly repayments, you can apply for help from the Repayment Assistance Plan. This plan helps you by covering all or the remainder of the interest you owe, as you contribute what you can to the repayment of the principal loan and, if you can, part of the interest.

This initial RAP stage can continue for up to 10 years. If, after 10 years, you are still unable to repay your loan, you can apply for the second stage. In the second stage, you'll continue to pay as much as you can, based on an assessment of what you can afford. However, the government and your province are now committed to repaying all the principal and interest you can't pay until your loan is paid off.

Revision of conditions

Revising the terms of your loan is also an option that many people choose to help them repay their student loan debt. As the title suggests, it's a process whereby you renegotiate your payment terms to gain flexibility in your monthly payments.

Under the terms and conditions of a revision of conditions, you are able to do several things. First, you can choose to temporarily lower your monthly payments. This reduces both your principal loan and your interest rates. Your second option is to extend the time you have to repay your loans, which then lowers your monthly payments. Finally, you can decide to pay only the interest on your loan for a short period .

These are short-term solutions and you need to be aware of the repercussions, because even if they solve your current financial problems, in the long term you'll end up paying more interest because it will take you a little longer to repay your loan.

Consumer proposal

If seven years have passed since you left full-time or part-time studies, you may want to consider filing a consumer proposal. A consumer proposal is organized by a licensed insolvency trustee who helps you renegotiate the amount of debt you owe to creditors .

It's an option often considered instead of bankruptcy, because it allows you to keep your assets and also protects you from legal action by your creditors .

Personal bankruptcy

If you are unable to take advantage of any of the above options, you may consider filing for personal bankruptcy. Again, you must have been out of school for at least 7 years to pursue this option.

Filing for bankruptcy is sometimes the only option people have. If you're completely unable to make payments on your student loans, have a loan over $1,000 and are unable to pay your other bills and payments, bankruptcy is a possibility.

Personal bankruptcy erases all your debts, but you must relinquish your personal assets. While this can be a frightening and intimidating prospect, filing for personal bankruptcy will immediately relieve you of all your debts, allowing you to make a fresh start, so don't dismiss this option just yet!

Need help getting rid of your student debt?

While student aid and the temporary financial security provided by student loans are a great tool to keep students in school, they can also lead to financial stress and debt.

Although loans, especially student loans, are taken out with the firm intention of repaying them, sometimes unforeseen circumstances make this difficult, especially in the current financial climate of the Covid-19 pandemic. The important thing to remember is that you're not the only one with financial worries, and you shouldn't try to cope alone.

If you're having trouble repaying your student loans, credit cards or any other form of unsecured debt you're unable to pay, seek professional help.

Groupe Serpone's licensed insolvency trustees can provide you with the information and advice you need to clear your mind and reduce your debts. Our experts can work with you to explore different debt relief options and help you find the solution best suited to your needs and personal situation.

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