Did you know that the average post-secondary student takes more than 10 years to repay their student debt? This is why one in six insolvencies involves someone looking for Canada student loan forgiveness. Many more are looking for some form of National or OSAP repayment assistance plan.
In this Guide to Canada Student Loan Forgiveness, we outline what you need to know about:
- Which student debt relief programs defer payments and which options result in student loan forgiveness;
- How you can take advantage of Canada and OSAP repayment assistance programs;
- How the Bankruptcy & Insolvency Act can eliminate student loan debt.
Student Private Loan Forgiveness or Government Guaranteed Loan?
The debt forgiveness and repayment assistance options available for student loans differ depending on whether you have a private student loan, or a government guaranteed student loan through the federal government or provincial student loan program.
Private loans, from a bank, parent or other financial institution, are repaid directly to your lender. They might include a student line of credit, student credit card or overdraft. Any term revisions must be negotiated with the creditor. There are no national or provincial private student loan debt relief programs in Canada.
Student loans from private lenders are discharged in a bankruptcy or proposal with no limitations or waiting period. For example, if you have a student line of credit through your bank and you graduated 2 years ago, this debt will be eligible for forgiveness in a bankruptcy or consumer proposal.
Canada Student Loan Repayment Assistance Plan (RAP)
If you are struggling to keep up with your student loan payments, you may want to consider studen loan payment relief through the National Student Loan Repayment Assistance Plan or RAP.
Under the RAP program your monthly payments may be reduced or eliminated entirely, depending on the severity of your financial situation and your income level.
Zero Payment Relief Based on Income:
The federal government allows for a relief from payments for individuals earning below a certain income threshold. For example, an individual earning less than $25,000 is not required to repay their student debt until their income exceeds this amount.
Deferring payments however will increase the total interest you pay over time. While it may give you temporary student debt relief, this can just postpone the problem.
If your income exceeds the Family Income Thresholds for Zero Payment, you may be eligible for a reduction in your monthly payment.
- 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.
To be eligible under the Canada Repayment Assistance Program you must reside in Canada, be out of school for at least six months and you cannot already be in default on your student loans.
Those with a permanent disability can qualify for consideration of disability-related expenses when determining financial eligibility.
Ontario Student Loan Forgiveness and OSAP Repayment Assistance
When you apply for a student loan in Ontario, your OSAP loan is administered through the National Student Loans Service Centre (NSLSC).
When you pay back OSAP, no payments are required on your OSAP loans for six months after your last date of study. After that you are eligible to apply for payment assistance or OSAP interest relief through the Canada under national repayment assistance plan.
If your loans were issued by PEI or Manitoba you will need to apply through your provincial student financial assistance office.
Debt Forgiveness Under the Bankruptcy & Insolvency Act
Student debt is eligible for discharge under the Bankruptcy & Insolvency Act under certain conditions.
Specifically, student loan debt and bankruptcy law states that:
If you have been “out of school” for more than seven years (often called the seven-year rule) your student loans can be automatically included in a bankruptcy or consumer proposal.
The import date to know is the “date you ceased to become a student” or “end of study date”. It is this date that the government will use to determine eligibility for the discharge of your student debt under the BIA. You can verify your end of study date by calling 1-888-815-4514 for Canada Student Loans or 1-807-343-7260 for Ontario Student Loans.
You can apply to the court to have your student debt discharged in a bankruptcy or proposal as early as five years after your end of study date if you can show that repaying your student loans will cause “undue financial hardship”.
You can be eligible under the hardship provision if you can show the court you acted in good faith in using and repaying those debts is causing, and will continue to cause severe financial difficulty. This is not an easy requirement to pass. There are many court cases discussing the considerations of “good faith” and hardship. Talk to your Licensed Insolvency Trustee if you think this is a viable option for you.
Newer student loans less than seven years
Both a bankruptcy and consumer proposal should still be explored even if your student loans do not meet the seven-year rule if you have significant other unsecured debts like credit card debts. Obtaining a discharge of these debts can make student loan repayment easier. In addition, a pro-rata share of your consumer proposal payments will be applied to student debt that survives bankruptcy.
Learn more about student debt help with our student debt help FAQs.
Student Loan Debt Advice From a Licensed Insolvency Trustee
Did you know that only Licensed Insolvency Trustees are the only government regulated experts on debt management?
As licensed debt experts, the team at Hoyes Michalos will review your specific situation to help you decide if bankruptcy or a consumer proposal is the right option to help you with your student loan repayment.