Student debt is a fact of life for many Canadians pursuing post-secondary education. Many say that student debt is good debt because it is an investment in your future. However occasionally, even student debt can go bad. Learn how to resolve student loans with answers to commonly asked questions about managing student loan debt and seeking student debt help and repayment assistance.
How much does that average Canadian owe in student debt?
A survey by the Canadian University Survey Consortium1 found that graduates with student debt owe an average of $26,819 in student loans.
According to Statistics Canada, over 40% of Canadian graduates2 financed their post-secondary education with debt.
Government loans are the most common form of student debt. Almost 73%2 of graduates with loans owed money on government guaranteed student loans.
Graduates who used both government and private student loans were the most indebted, owing twice as much as those who only borrowed from one source.
When should I seek help with student loan debt?
The average student takes more than 10 years to repay their loans.
The problem with student debt is that it takes many years to repay. Roughly one-third of graduates are able to repay their loan within three years. However a much larger percentage take years to repay student debt.
The average person we help with student debt is 35 years old. Student debtors represent 15% of people we help each year3. Student loans accounted for only 30% of their overall unsecured debt. It is when graduates incur other debts, including credit card debt, payday loans and car loans, that repayment becomes a burden that can lead to insolvency.
To talk with someone about your best options for student loan debt help, contact us for a free, no-obligation consultation.
Can student loans be included in bankruptcy?
Student debt is automatically discharged in a bankruptcy in Canada if you have ceased to be a student for at least seven years.
The waiting period can be reduced to five years if you can prove financial hardship.
Bankruptcy is not your only option for dealing with student debt. Read our article Do I Need to File Bankruptcy for Student Debt?
What is the seven year rule for student loans?
The seven year limitation rule on bankruptcy and student loans is covered under section 178 (1)(g) of the Bankruptcy & Insolvency Act:
any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred (i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or (h) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).
What is the hardship provision?
Under the hardship provision, the seven year time period for student loan debt can be reduced to five years if you can prove financial hardship to the court. You must show that you acted in good faith in using your student loans (they were used for education and living expenses while in school for example, not taking a vacation) and repaying those debts is causing, and will continue to cause severe financial difficulty.
There are many court cases discussing the considerations of “good faith” so we recommend talking with a Licensed Insolvency Trustee about your situation.
How do I determine my last date of study for bankruptcy purposes?
We recommend you 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.
Can you settle student loans in a consumer proposal?
Student debt forgiveness in a consumer proposal follows the same rules as in a bankruptcy. By law, to be eligible for automatic discharge through a consumer proposal, your last study date must be at least seven years prior to the date you file a proposal to your creditors.
You can learn more here: Do Laws Make Student Loans Difficult to Deal with in a Consumer Proposal?
Can I resolve student loans less than 7 years old in a proposal?
Student loans less than 7 years will not be automatically discharged or released through bankruptcy or consumer proposal.
However, there is a special provision that can be added to a proposal to have a section 178(1) debt released. The student loan lender must vote to accept the proposal to specifically agree to a reduction in your student loan obligation under the proposal.
Please note this is rarely done in practice. Guaranteed student loan lenders are not motivated to have debts less than 7 years cleared through a proposal.
Can I stop making student debt payments while in bankruptcy or a proposal?
It is possible to stop making payments against undischargeable student loans while in a consumer or bankruptcy. Student loan lenders cannot collect on the student debt while someone is in a consumer proposal due to the protection available under the Bankruptcy & Insolvency Act.
Be aware that interest will continue to accrue and the full amount, plus interest, will continue to exist. The principle plus additional interest is payable once your proposal is completed. For that reason, many debtors continue to make small payments against student debt that cannot be discharged. You may be required to sign a form similar to the Section 178 Claim for student debt as part of your insolvency documents.
What about Canada private student loan debt forgiveness?
Private student loans are treated like any other unsecured debt in a bankruptcy or consumer proposal. There is no limitation period for private student loan forgiveness. Only government guaranteed student loans are subject to a waiting period to be discharged.
For example if you took out a student line of credit from your bank or credit union, this debt would be automatically discharged in a bankruptcy or proposal even if you used the money to pay for school expenses or it is less than seven years old.
To determine if your debt is private or government guaranteed, read our Repaying student line of credit vs student loans.
There are no special private student loan debt relief programs in Canada. Beware debt consultants advertising US style student loan forgiveness programs in Canada. If you need student debt help, private or guaranteed, talk to a Licensed Insolvency Trustee about you options.
Who should I speak to about getting student loan debt help?
Our local licensed insolvency trustees understand the rules about student debt and insolvency. As student debt experts, we can help you explore the right option for paying back student loans, even if that does not include bankruptcy.
- Canadian University Survey Consortium 2015 Graduating University Student Survey http://www.cusc-ccreu.ca/CUSC_2015_Graduating_Master%20Report_English.pdf
- Statistics Canada: Student loans and debts 2009-2010 revised http://www.statcan.gc.ca/pub/81-595-m/2014101/section04-eng.htm
- Student debt and bankruptcy study by Hoyes, Michalos https://www.hoyes.com/press/joe-debtor/the-student-debtor/