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.