Recent graduates are often stuck with tens of thousands of dollars in student loan debt. Right now, the average student debt among Canadian university grads is $28,000, which can take years to pay off. Unfortunately for some, paying down student loan debt is extremely difficult, and sometimes impossible.
Fortunately, the government of Canada has certain measures in place to help Canadians with their student loan debt obligations. Read on to discover how to obtain student loan debt relief if you’re struggling financially.
Student Loan Debt Relief Measures In Canada
There are several programs available from the Canadian government that are designed to help minimize the financial burden of student loan debt:
Repayment Assistance Plan (RAP)
If you’re having difficulty repaying your student loan, you may be eligible for the federal government’s Repayment Assistance Plan (RAP). This program has two phases:
Interest relief. The Canadian government will pay any interest owed on the federal portion of your student loan that your reduced payments don’t cover.
Debt reduction. After 5 years of RAP or 10 years after you graduate, whichever comes first. The government will begin paying down the principal and any outstanding interest.
If you qualify for this repayment assistance, you’ll make your affordable monthly payments. In some cases, you may be exempt from making loan payments throughout the eligibility period. Your loan balance loan will continue to be paid off until it’s fully repaid.
Repayment Assistance Plan For Borrowers With Disabilities (RAP-D)
You may be eligible for the RAP-D program if you have a disability. This program will help lower your student loan payments or eliminate them altogether. You may also be able to save more by claiming expenses associated with your disability.
When you’re on RAP-D, the Canadian government will pay both the principal and the interest portions not covered by your reduced monthly loan payments.
Canada Student Loan Interest Rate Elimination
The government of Canada recently eliminated the interest for Canada Student Loans and Canada Apprentice Loans. This move is designed to help alleviate the financial burden of post-secondary tuition costs and increase access to quality education. However, any interest accumulated on student loans before April 1st, 2023 will still need to be paid by the borrower.
Loan Forgiveness For Family Doctors And Nurses
Nurses and doctors working in rural areas may be eligible for loan forgiveness. As of 2023, nurses may qualify for loan forgiveness of up to $30,000, and doctors may be eligible for up to $60,000. Soon, other eligible professionals may qualify for this program, as the government plans to expand the program’s eligibility.
What Happens If You Can’t Repay Your Student Loan Debt?
If you’re at risk of missing payments you’ll be met with certain repercussions, including the following.
Can Affect Your Credit Score
If you miss your student loan payments, your credit scores could be negatively affected. If your loan payments are reported to the credit bureaus, any missed payments could also be reported. Since your payment history is used during the calculation of your credit scores. A missed payment may
and your credit report will reflect your payment history. A low credit score will make it difficult for you to get approved for loan products in the future.
Sent To Collections
If you are at least 9 months behind on your student loan payments. The federal portion of your loan will be sent to the Canada Revenue Agency (CRA). The CRA will likely begin the collection process. Once your loan is in collections, you won’t be able to get student aid any longer. You’ll need to bring your student loan payments up to date in order to be eligible for student aid again.
Other Student Loan Debt Relief Measures In Canada
If you are having trouble keeping up with your student loan payments and are at risk of defaulting, you have a couple of options to relieve yourself of this financial obligation.
Bankruptcy
As a last resort, you may consider bankruptcy as a means to eliminate your outstanding student loan debt. However, you’ll have to wait until at least 7 years after you’re no longer considered a student in order to qualify. After this point, your student loan debt will be eligible for discharge through bankruptcy along with any other eligible debt.
That said, there is a loophole if you want or need to file for bankruptcy. You can convert your student loan to a regular personal loan. You can then use the funds from your personal loan to pay down your student loan debt and consolidate all other debt you may have. In this case, your personal loan would likely be eligible for bankruptcy.
Just keep in mind that if you consolidate your government student loan with a personal loan, you’ll no longer be able to take advantage of any benefits associated with student loans, such as tax credits on loan interest or very low-interest rates.
Hardship Provision
You may not have to wait 7 years after you cease being a student if it means that your student loan will cause you excessive hardship. In this case, the court may agree to reduce this time period to 5 years under the “hardship provision.” If the court determines that you’ve done all you can to keep up with your loan payments and are experiencing significant financial difficulties. You may be discharged from your student loan debt before the 7-year mark.
Consumer Proposal
A consumer proposal can eliminate certain student debt. Depending on how old the loans are, whether they’re with a bank or are government-backed student loans, and how much you can afford.
With a consumer proposal, you can negotiate new repayment terms with your creditors with the help of a Licensed Insolvency Trustee (LIT) in order to make your payments more affordable. You can also take advantage of a “stay of proceedings,” which stops your creditors from continuing to come after you to collect on outstanding debts.
As is the case with bankruptcy. Student loan debt can be included in a consumer proposal if it’s been at least 7 years since you left school. Even if you’re student loan debt is not eligible to be included in your consumer proposal, because it hasn’t been 7 years since you left school. You will be permitted to stop making payments until your proposal is complete.
Final Thoughts
If you’re having difficulty keeping up with your student loan payments, there are several options to consider that can help. Depending on your situation, you may be eligible for any one of the many student loan debt relief programs available.
