While studies have shown that students are often optimistic about their ability to earn great wages after graduation and easily repay their debts, the reality is that many may people wind up juggling student loans, in addition to other debt accumulated during their post-secondary years.
As Licensed Insolvency Trustees we often help individuals in BC who have either recently finished school and are looking for advice on how to manage student debt, as well as individuals who have been struggling to deal with student loans for some time. Read on for general tips to help you pay off your student debts, as well as an overview of legal options for Canadians to consolidate and write-off student loans and other debts.
Tips for Repaying Student Debt
If you’ve recently finished your post-secondary studies or are preparing to start a post-secondary area of study, consider these strategies to help you manage your student debt repayments, now and later:
- Make a budget. Before committing to student loans (or any other type of debt), map out how much money you’ll really need.
- Factor in tuition, books, rent, groceries and any other costs of living.
- Consider whether you can earn some of these funds through a part-time or summer job and have a back-up plan for emergencies or a deficit in what student loans may extend to you.
- If you’re granted more than you think you need, don’t be tempted to spend it all – avoid taking on more debt than necessary!
- Use all the resources available to you. Extra resources can add up to great savings later, so be sure to explore all the potential benefits and sources of assistance.
- Do you have an RESP?
- Are there grants, scholarships or bursaries you can apply for?
- Will your parents be contributing to your education or costs (or housing you in general)?
- Build a post-grad plan. Know your loans, grace periods and payment due dates.
- Keep in touch with your lenders if you move or your contact information changes.
- Figure out a realistic plan to pay down your debts and avoid relying on more credit.
- Know when to ask for help – whether or not your payments are behind.
- If your income is falling short of allowing you to make your student loan payments and you’re concerned your payments are going to fall behind, contact a student financial assistance office. The government has procedures in place that may be able to provide some student loan relief for you, such as reducing your monthly payment.
- If you need more than temporary relief, connect with a Licensed Insolvency Trustee as soon as possible. They are the only debt help professional endorsed by the Canadian government to help you manage your debts – including student loans.
Legal Options to Deal with Student Loans in Canada
Contrary to what many people may believe, in BC (as well as the rest of Canada) there are two options that allow you to have student loans forgiven. Both solutions are only available by working with a Licensed Insolvency Trustee and can also be used to stop collection actions, including wage garnishments from Canada Revenue Agency collecting on student loans.
Consolidate Student Loans in a Consumer Proposal
A Consumer Proposal may be a suitable option for debt relief and a financial fresh start if you want to consolidate your student loans with other debts and have the financial ability to make some repayment towards the overall balance of your total debts.
Consumer Proposals are a unique type of legal debt consolidation that allow a person to consolidate virtually all their debts (such as student loans with credit card debt and other common debts) into one settlement offer, reducing the amount you need to repay, with the unpaid portion of your overall debt and accumulated interest being forgiven by your creditors.
- Most people will repay only a portion of their total debt, in full settlement – ranges of debt repayment of 30-70% of the total balance are common, with the remainder being forgiven or “written off” by the lender.
- Consumer Proposal offers are tailored to your specific situation and can last for as little as a few months, but cannot extend past 5 years.
- Consumer Proposals require no borrowing and there are no added interest charges or costs to be paid by you.
Discharge Student Loans in Bankruptcy
A personal bankruptcy can be used to discharge (write-off) student loans, as well as to get debt forgiveness from other common debts such as credit cards, overdrafts, lines of credit, payday loans and more. Not only is bankruptcy quite a private and unobtrusive process – for most people, personal bankruptcy in BC generally:
- Lasts for 9 months.
- Allows you to keep virtually all your assets.
- Costs as little as $2,300, paid through manageable monthly payments with a Licensed Insolvency Trustee.
Types of Student Loan Debt in Canada
In Canada there are 3 main types of student loans available:
- Federal student loans
- Provincial student loans
- Private student loans
- In addition to bank-funded student loans, many major financial institutions will also offer specialized lines of credit and student credit card products.
Regardless of which type of student loan you have, a Licensed Insolvency Trustee can help you manage these student debts. Private (bank-funded) student loans will be treated as any other consumer debt (like a credit card), with no special exception. Government student loans may also be treated the same way, depending on when your studies ended.
Timing for Student Loan Debt Forgiveness in Canada
A key factor in dealing with government student loans is how long it has been since your studies ended:
- If it has been 7 years or more since you finished school, both a Consumer Proposal or a bankruptcy can eliminate in full your unpaid student loans, as well as accumulated interest.
- If it has been less than 7 years since you went to school and you are starting a Consumer Proposal or bankruptcy, you will still include your student loans in either process, but the unpaid amounts will ‘survive’ and need to be repaid after your Consumer Proposal or bankruptcy has been completed.
- If it has been more than 5 years but less than 7 since you last attended school and started bankruptcy or a Consumer Proposal, the court may grant an order that would discharge your otherwise remaining student loans under a special financial hardship clause.
Even if your Consumer Proposal or personal bankruptcy does not completely write-off your government student loans, dealing with other debts you have (such as credit cards, lines of credit, etc.) can greatly improve your budget and allow you to be in a better position to repay any surviving student loans.
A Licensed Insolvency Trustee will help you determine what amounts, if any, would survive your Consumer Proposal or bankruptcy before you commit to a process and will help you weigh the pros and cons of all debt options available to you. We believe that making informed decisions about available debt management strategies is key to our clients moving forward with success and from a position of confidence.
For more information on options for student and government debts, consumer debts and business debts, book your free debt consultation with a local Sands & Associates debt help professional today.