Do I get my tax refund or will it go to my student loan?

Posted on 14 September 2023

Written by Alan Spergel

Tax season can be a time of both anticipation and anxiety for many Canadians. While some eagerly await their tax refunds, others worry about the possibility of their refunds being offset to pay off outstanding debts, such as student loan debts. In Canada, the government has certain rules that allow them to collect overdue student loan payments through tax refunds. However, understanding the rules and regulations surrounding this process is crucial for individuals who are concerned about whether their tax refund will go towards their student loan debt. In this article, we share everything you need to know about your tax refund, and how to tackle your student loan debt. So, do I get my tax refund or will it go to my student loan?

Understanding student loans in Canada

Before getting into the details of tax refunds and student loans, it is essential to have a clear understanding of how student loans work in Canada. Student loans are financial assistance provided by the government (or private organizations) to help students cover the costs of their education. These loans typically have lower interest rates than other types of loan, and they come with various repayment options designed to accommodate borrowers’ financial situations. In Canada, there are two main types of student loan: federal and provincial/territorial. The Canada Student Loans Program (CSLP) manages federal student loans, while each province and territory has its own student loan program for residents. Borrowers may have both federal and provincial/territorial loans, each with its own set of rules and regulations.

Do I get my tax refund or will it go to my student loan?

The Canada Revenue Agency (CRA) is responsible for issuing tax refunds in Canada. If you have an outstanding student loan debt, federal and provincial/territorial governments have the authority to request the CRA to apply your tax refund towards your student loan balance. This process is known as a tax refund offset. This scenario is more likely to happen if you are in default, and behind on your payments. For this reason, it is really important to stay aware of your student loan status, make your payments in full and on time, and look at repayment assistance options if required. If your tax refund is subject to offset, you will receive a notification in advance, and you can dispute it if you think it is unfair. You should contact your student loan service provider or government agency to begin your appeal process. While there has been some relief from the government on student loan collections due to the pandemic, this relief has ended, meaning stricter measures are being taken once again. You should also note that simply owing money on student loans will not automatically prevent you from receiving a tax refund. Defaulting is most likely to prevent this.

How can I prevent my tax refund going to my student loan?

There are a few key ways to prevent this from happening. Firstly, you should stay on top of your student loan – be aware of what your balance is, when your payments are due, and your monthly repayment figure. You can decrease your chance of a tax refund offset taking place by staying current with your payments. If you have defaulted on your student loan payments or are in a state of delinquency – you have missed several payments – it is more likely to happen. The amount that can be offset from your tax refund depends on the terms and conditions of your student loan agreement and your remaining balance. By understanding these terms and what you owe, you can be better prepared for what could happen. If you owe a lot of student loan debt and have missed multiple payments, it is likely that your entire tax refund could be used to repay your student loan debt.

How can I tackle my student loan debt?

If you are struggling to make your monthly student loan payments, do not fear – you have options. At Spergel, we have been helping Canadians to gain debt relief for over thirty years. Here are some of the most common ways to gain support for student loan debts:

  • Repayment assistance programs – these programs can offer relief by reducing your monthly payments, based on your household size and income. They may even forgive some of your debt in some situations.
  • Refinancing – refinancing involves taking out a new loan with a lower interest rate or reduced monthly payments to replace your existing student loan payments. This could mean, however, that you lose federal benefits and protections.
  • Debt consolidation – debt consolidation loans are new loans that are taken out to allow individuals to condense multiple different loans – including student loans – into one. This simplifies monthly payments, and often reduces your overall interest rate.
  • Consumer proposal – provided you finished your studies at least seven years ago, you may be eligible to file a consumer proposal. Consumer proposals can reduce your overall debt by up to 80%, including student loan debt, while enabling you to keep your assets. You need a Licensed Insolvency Trustee to help you file.
  • Bankruptcy – if you feel that you need a more drastic measure to enable you to begin a fresh financial future, bankruptcy could be the answer. If you finished studying at least seven years ago, your student loan debt could be cleared when filing bankruptcy.

Licensed Insolvency Trustees are the only professionals in Canada legally able to file all forms of debt relief. This makes them well placed to review your financial circumstances and recommend a pathway to a fresh financial future, free from the stresses of debt. At Spergel, our Licensed Insolvency Trustees have been helping Canadians to resolve their student loan debt for over thirty years. Unlike other bankruptcy firms, at Spergel, you are assigned your very own Licensed Insolvency Trustee to walk you through the debt relief journey, instead of being passed from person to person.

If you have more questions on ‘do I get my tax refund or will it go to my student loan’, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees will review your financial circumstances and help advise you on a form of debt relief that is right for you. Reach out today – you owe it to yourself.

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Alan Spergel

Alan Spergel

Alan Spergel is the founder and President of Spergel. A leader in our industry, he is also a former chair of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) and has served on Canada's Superintendent of Bankruptcy Management Board. He actively supports multiple charities, ensuring that Spergel gives back to our communities and has recently been appointed as Chairman of the Board of the Humber River Hospital Foundation. Outside of the boardroom, you can find Alan playing golf, tennis, or skiing and enjoying quality time with his grandchildren.

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