How to consolidate student loans

Posted on 27 November 2022

Written by Chris Galea

More Canadians than ever before are facing huge student loans upon leaving school. What is even more concerning is that many individuals with student loan debts are finding them increasingly difficult to repay. In fact, 2019 figures showed that almost two million Canadian students owed the government a grand total of $20.5 billion, without including student debt from other sources like private student loans. The average student loan balance equated to around a whopping $13,000 upon leaving school. This number is steadily rising too. When this figure is paired with a difficult job market, it can mean student loan repayment becomes very challenging. When is student loan debt too much? What happens if you do not qualify for the Repayment Assistance Plan? In this article, we explain how to consolidate student loans, and what to do if you are struggling to make your student loan repayments.

What are the options for student loan debt consolidation?

Debt consolidation is the process of condensing multiple separate debts into one. Generally speaking, it has a number of advantages. Firstly, it simplifies your debts to allow you to make one monthly payment. Additionally, it often reduces your overall interest payments, bringing down your monthly payments in many cases. The problem is that student loan debt consolidation brings its own challenges that may affect your options. This is mostly around the type of student loan that you have. Is your student loan debt federal, provincial, or private? For private student loans, there can be some additional rules that can affect your consolidation options. If you are wondering how to consolidate student loans, there are typically a few ways to do so:

Debt consolidation loans

A debt consolidation loan is a new loan borrowed from a bank or financial institution used to pay off your student debts. Before agreeing to any debt consolidation loan, you should ensure that you are getting a lower interest rate than what you are currently paying across your debts. In order to qualify for a debt consolidation loan, you need to have a good credit score, and be able to use assets as collateral against your loan. This can be difficult as you are a student after all. There are a few other setbacks – many financial institutions will not lend money to consolidate government funded student loans. You will also lose tax deductions as the interest on your student loan is tax deductible. If you have a poor credit score, you can expect to pay high interest rates, which may be more than you can actually afford.

Debt management plan

An alternative to a debt consolidation loan is a debt management plan. These are typically taken out via credit counselling agencies. A credit counselling agency will work with you to collect on behalf of your financial institution. That said, debt management plans do not work for all debts. The government does not tend to deal with credit counsellors, which can make things difficult for those with government student loans. You should look to the government Repayment Assistance Plan in this instance for income based relief. A debt management plan is better placed for consolidating private student loans like credit card debts, outstanding bills, and bank loans. Even with a debt management plan, there is no reduction in the amount you pay – you will still need to repay 100% of your debt. If you need a reduction in your overall debt, a consumer proposal may be a better student loan debt relief option for you.

Consumer proposal

A consumer proposal is a legal form of debt settlement that can reduce your debt by up to 80%. It is the process of proposing an affordable monthly repayment amount, and your Licensed Insolvency Trustee will negotiate with your creditors on your behalf. Creditors are more likely to accept a consumer proposal over a bankruptcy, as in most cases they will receive more in the way of repayment. Consumer proposal offer debt relief and protection from your creditors via a stay of proceedings. For a student loan debt to be included in a consumer proposal, you must have finished school at least seven years ago. Even if you finished more recently, filing a consumer proposal on your other unsecured debts can make your student loan payments more manageable.

If you want to learn more about how to consolidate student loans, book a free consultation with the experienced Licensed Insolvency Trustees at Spergel. We have been helping Canadians gain debt relief on student loan debts for over thirty years, and we are here to help you too. We will review your financial circumstances and recommend the best path of debt relief for you. You owe it to yourself.


Chris Galea

Chris Galea is a Chartered Accountant and Insolvency and Restructuring Professional with over 20 years’ experience as an LIT (Licensed Insolvency Trustee). He is also our resident expert on tax debt, COVID debt, and the region of Saskatchewan, Canada. When he’s not at the office educating people about bankruptcies and consumer proposals, Chris is playing pick-up hockey with his friends, spending time with his family, and learning Spanish!

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