According to the Canadian Federation of Students, the average college graduate carries approximately $27,000 in student loan debt. Today, nearly 2 million graduates have student loans that total more than $20 million. Though many individuals go into this type of debt in the hopes that it will pay off, many find that they can spend a decade making payments and barely put a dent in their debt. In fact, one in six insolvencies in Canada involves a consumer who has student debt. Student loan borrowers who file for insolvency have an average student loan balance of $15,000 remaining. If you’re like many college graduates in Canada and your student debt has become oppressive, it may be time to explore some of the repayment options available to you through the nation’s various student loan agencies.
Repayment Assistance Plan
You may qualify for the Repayment Assistance Plan if you live in Canada, graduated from college at least six months ago and are up-to-date on your loan payments. If accepted into RAP, the Government of Canada may reduce your monthly student loan payments so that they do not exceed 20% of your income. Depending on your income, the government may decide that you qualify for no monthly payments.
Once on this particular plan, the Government of Canada and your territorial or provincial government will assume the financial responsibility of your student loan interest. After 60 months on the program or 10 years after you complete your schooling, whichever comes first, the governments will begin to cover the principal as well the interest that exceeds your set monthly payments. After 15 years, if any debt remains, it will be forgiven. If you qualify for RAP, you will need to reapply every six months.
Revision of Terms
If you struggle to make monthly payments toward your student debt, or if you would like to pay off your loan more quickly, you can request a change in the terms of your loan. Under this plan, you can extend the terms of your loan by up to 15 years, which would significantly reduce your monthly payment amount. However, on this plan, you are still responsible for interest and principal, meaning the longer you extend your loan, the more you’ll end up paying in both.
If your hardship is only temporary, you may wish to ask for a decrease in payments for a specified time frame. During this short period, you would make reduced payments but still pay interest and principal. Once the period is up, your monthly payments, interest and principal would return to the normal amounts.
Finally, you may request interest-only payments for a short period. If approved, you would pay interest only for up to 12 months.
If your consumer proposal is accepted, you may be able to combine all your unsecured debt, including your student debt, into one manageable monthly payment. A Licensed Insolvency Trustee will negotiate with your creditors on your behalf to make it so that you only have to repay a portion of your debts. Eligibility requirements for this form of debt relief are as follows:
- You graduated seven or more years ago (applicable only if you hope to include your student debt).
- Your consumer debt totals more than $5,000 but less than $250,000.
- You want to eliminate interest and put a stop to wage garnishment and collections calls.
- You can repay a portion of your debt but need more time to do so.
- You do not want to forfeit your house or other assets to pay off your debt.
Relief Options for Borrowers with Permanent Disabilities
Canada has two debt relief options for student loan borrowers with severe permanent disabilities. The first is the Repayment Assistance Plan for Borrowers with a Permanent Disability (RAP-PD). RAP-PD works exactly like RAP, except the eligibility requirements concern disability more than they do income.
If you qualify for the Severe Permanent Disability Benefit, the government will forgive your loans entirely. Bear in mind that if you qualify for and accept this benefit, you will not be eligible for future Canada Student Loans or Canada Student Grants.
If it has been seven or more years since you graduated, you may be able to discharge your student loans through bankruptcy or insolvency. Depending on how dire your financial circumstances are, this may be the best way for you to free yourself of student debt. Your situation may merit bankruptcy if you can relate to one or more of the following:
- You owe more money than you make.
- You cannot pay your monthly bills without resorting to credit.
- One or more creditor is garnishing your wages.
Your debts must total more than $1,000 to qualify for bankruptcy.
If you don’t qualify for any of the above options, you may want to consider consolidating your debt with a consolidation loan. Learn more about consolidation loans and whether or not this option is right for you.