A Guide to Student Loan Debt Relief Options

Posted in Personal Bankruptcy

guide-to-student-loan-debt-reliefSince it takes the average student 10 years to repay their student loan debts in full, and many graduates are finding it difficult to obtain long term, sustainable positions in their chosen career path, it is not surprising that many find that after years of struggling they are no longer able to keep up with their student loan payments. In our Guide to Student Loan Debt Relief, we outline what you need to know about:

  • how and when to negotiate new payment arrangements;
  • how you can take advantage of government repayment assistance programs to change the term of your loan or apply for repayment assistance;
  • How the Bankruptcy & Insolvency Act can eliminate student loan debt, including how the 7 year rule works.

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Student Loan Debt Relief Options

1. Voluntary Renegotiation. If you are experiencing a temporary reduction in income and but can afford to repay your loans in full, you can contact your student loan lender to negotiate new payment terms. This may mean extending the loan permanently or for just a short period of time.

2. Government Repayment Assistance. Most student loans in Canada are now government guaranteed. This means that the bank will not experience any financial loss in the event of default so they may not have any incentive to renegotiate payment terms with you. If you are struggling to keep up with your student loan payments in Ontario, you can apply for Student Loan Repayment Assistance. The options under this program allow you to request:

  • Term Revision - either temporary or permanent, for a maximum of 14.5 years
  • Repayment Assistance - this program is more difficult to qualify for as you must meet certain income and financial needs criteria. You may, however, be eligible to have payments limited to a maximum of 20% of your income. During the first 10 years the government will subsidize interest costs on the student debt. After 10 years, if you still qualify, they may subsidize some of the principal payments as well.

3.  Debt Forgiveness under the Bankruptcy & Insolvency Act.  Bankruptcy law states that if you have been 'out of school' for more than 7 years (often called the 7-year rule) your student loans can be automatically included in a bankruptcy or consumer proposal. Both alternatives should still be explored even if your student loans do not meet the 7 year rule as there are alternatives if you have not only student loans, but other significant debts as well.

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8 thoughts on “A Guide to Student Loan Debt Relief Options

  1. J. Douglas Hoyes, CA, Trustee

    Hi Jason. Student loans are only automatically discharged in a bankruptcy or a consumer proposal if you have ceased to be a student for seven years. So, if you graduated six years ago, your student loan would not be automatically discharged.

    However, I would suggest you contact us now, for two reasons. First, we may be able to help with other debts. Second, if it is necessary to wait for another year, we can give you some advice on what to do over the next year so that you are in the best position to file when the time is right.

  2. nancy

    I graduated 2007 and I went through consumer proposal started 2012 .do you think I can be discharged from it ..I don’t understand. .also I’m on disability right now after a car accident. .

  3. J. Douglas Hoyes, CA, Trustee

    Hi Nancy. In order for a student loan to be automatically discharged your consumer proposal or bankruptcy must start more than 7 years after you graduated. In your case it appears that your consumer proposal started 5 years after you graduated, so your student loans would not be automatically discharged. However, it is still possible to deal with your student loans if the student loan lender specifically voted to discharge your student loans, or if you go to court under the hardship rules. I would suggest you contact your trustee for a more detailed explanation, since they have the full details on your file and are in the best position to answer these questions (which presumably they discussed with you when you originally filed).

  4. veronica

    So I had received my student loan in 2006 had to withdrawal from school and am up to my ears in debt. Are you able to help me? If do how much does it cost?

    1. J. Douglas Hoyes, CA, Trustee

      Yes, we are available to help you. If you have “ceased to be a student” for more than seven years your student loan can be automatically discharged in a bankruptcy or consumer proposal. If you withdrew from school in 2006 that is easily more than seven years.

      The cost of bankruptcy depends on many factors. You can read more about it here: http://www.hoyes.com/personal-bankruptcy/cost-of-bankruptcy-fees/ I suggest you contact your local Hoyes Michalos office and one of our professionals can review your options in more detail, and help you decide on the best course of action.


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