Resolve student loan debt: student loan FAQs

Posted on 16 May 2023

Written by Alan Spergel

For so many Canadians these days, repaying student loans is an ongoing challenge – even more so with the current student debt crisis. In fact, it is now almost accepted that most Canadians taking on post-secondary education will graduate with a hefty amount of debt hanging over them. While for many individuals, student loan debt can be considered a positive form of debt, an investment for the future, for others it is not. If left unpaid and employment is difficult to secure, it can quickly spiral and become a bad debt. If you are struggling with student loan debt in Canada, at Spergel we are here to help. In this article, we will share some of our top tips to resolve student loan debt, and help you to understand how to manage your student loan debt and seek student debt help.

How much does the average Canadian owe in student loan debt?

In shocking statistics, the average student loan debt in Canada for a bachelor’s degree is a whopping $28,000. According to the Canadian University Survey Consortium, students also owe in addition on average $3,000 in credit card debt on top. Government funded student loans are the most frequent form of student debt in Canada, and the vast majority of graduates with student loans will typically owe money on government funded student loans. It is not uncommon to see graduates who take on both government and private student loans often owing more than the average amount too.

When should you get help for student loan debt?

Student loan debt takes years to repay. According to the Canadian Student Loan Program, the average student in Canada will take 10 years to repay their student loan debt. At Spergel, we see many individuals looking for help with their student loan debt in their mid to late thirties, and often older too. Despite facing crippling student loan debts, often it will make up just a portion of their overall debts owed. Because of the hefty cost of living and rising interest rates, student loan debt is often just the tip of the iceberg. It can encourage students and graduates to find themselves facing credit card debt, payday loans, and car loan debt too. All of these debts can quickly become unmanageable, and often lead to insolvency. The sooner you address your financial issue, the better – and often the more debt relief options will be available to you too. At Spergel, our experienced Licensed Insolvency Trustees have been helping Canadians gain debt relief for over thirty years, and we are here to help you. Unlike other debt relief firms, you will be assigned your very own Licensed Insolvency Trustee to assist you throughout your debt relief journey, instead of being passed from person to person.

What is the best way to resolve student loan debt?

No matter how bad you might feel your student loan debt situation is, there is always a debt relief solution. Here are some of the most popular forms of debt relief for resolving student loan debt in Canada:

  • Voluntary renegotiation. In some cases, you can try to contact your student loan lender and negotiate new payment terms that are more affordable for you. Transparency about your situation and a solutions focused attitude can go a long way. Voluntary renegotiation is a good option if you can pay your loans in full and only need temporary relief. If you need more significant support, this may not be the right option for you.
  • Canada Repayment Assistance Plan. The Canada Repayment Assistance Plan is only applicable to government guaranteed student loans. If you can provide evidence of financial hardship, your monthly payments can be reduced depending on your income. In order to be eligible, you must live in Canada, and have finished your studies at least six months ago. You must not have defaulted on your student loans. While the Canada Repayment Assistance Plan does not eliminate your student debt, it provides payment relief to those who need it most.
  • Bankruptcy. Bankruptcy is the process of assigning any non-exempt assets you may have over to a Licensed Insolvency Trustee in exchange for the clearance of your unsecured debts. An important point to note is that government guaranteed student debt is only eligible for discharge via the Bankruptcy and Insolvency Act if you have been out of school for more than 7 years. This can be shortened to 5 years if you can prove evidence of financial hardship.
  • Consumer proposal. A popular bankruptcy alternative, filing a consumer proposal is the legal process of suggesting an affordable monthly repayment figure to your creditors. A Licensed Insolvency Trustee will help to negotiate with your creditors on your behalf. If accepted, your debt can be reduced by up to 80% and you will receive protection from your creditors via a stay of proceedings. Much like with bankruptcy, consumer proposals will only discharge debt over 7 years old.

Although neither consumer proposals or bankruptcy can eliminate student debt if it is less than 7 years old, significantly reducing or eliminating your unsecured debts can make it much easier for you to repay your student loan debt. This is because it can clear other debts and improve your cashflow. At Spergel, one of our experienced Licensed Insolvency Trustees can review your financial circumstances and recommend the best form of debt relief for you.

What is the seven year rule for student loans?

The seven year rule on debt relief for student loan debt is referenced in section 178 (1)(g) of the Bankruptcy & Insolvency Act:

any debt or obligation in respect of a loan made under the Canada Student Loans Act, the Canada Student Financial Assistance Act or any enactment of a province that provides for loans or guarantees of loans to students where the date of bankruptcy of the bankrupt occurred (i) before the date on which the bankrupt ceased to be a full- or part-time student, as the case may be, under the applicable Act or enactment, or (ii) within seven years after the date on which the bankrupt ceased to be a full- or part-time student; or (h) any debt for interest owed in relation to an amount referred to in any of paragraphs (a) to (g).

When establishing your last date as a student and understanding how old your student loan debt is for filing either a consumer proposal or bankruptcy, you should have this date verified professionally. You should call Canada Student Loans or your province’s student loans body for confirmation of the official date you ended your studies.

What is the hardship provision?

You may have heard of the hardship provision when looking into student loan debt relief. If you are able to provide evidence of financial hardship, the seven year period that must pass in order to qualify to have your student loan debt reduced can be shortened to five years. You will need to share proof of intending to use your student loan for good, for example, using it for education or a vocation. You will also need to show how repaying this debt is causing financial hardship. If you would like to apply for the hardship provision, it is a good idea to speak to a Licensed Insolvency Trustee for advice on your unique circumstances.

If you file for a consumer proposal or bankruptcy, can you stop making student debt payments?

Not all Canadians realize that if you file a consumer proposal or bankruptcy, you can stop making payments on your student debt. Both forms of legal debt relief offer full protection from creditors including student loan lenders, meaning that legally they cannot continue to contact you. While this sounds great, it does not wipe your student loan debt, however. Your student loan debt will also continue to accrue interest, and therefore gradually become more expensive. Once your consumer proposal or bankruptcy is completed, you will be expected to continue to make your payments. For this reason, you should continue to make your payments where possible.

How do you resolve student loan debt on private loans?

Private student loans work differently to government funded student loans. In fact, they are much the same as any other unsecured debt. This means they can be filed as part of a consumer proposal or bankruptcy. Unlike government funded student loans, there is no seven year rule or limitation period. All you need to do is pass the waiting period in order to have the debts discharged. This is to prevent individuals taking out student loans simply to have them discharged as part of a consumer proposal or bankruptcy.

Who can I speak to in order to resolve student loan debt?

At Spergel, our experienced Licensed Insolvency Trustees know student loan debt inside out. We have been helping Canadians gain debt relief and free themselves from student loan debt for over thirty years. We will review your financial circumstances and advise you on the best option for repaying, reducing, or eliminating your student loan debt altogether. If you need student debt help, it is best to reach out sooner rather than later so that you can gain peace of mind.

If you are looking to resolve student loan debt, book a free consultation with Spergel. Our experienced Licensed Insolvency Trustees are well versed in student loan debt and have helped over 100,000 Canadians gain debt relief. We will assess your student loan debt and advise you on the right pathway to a fresh financial future. Reach out today – you owe it to yourself.

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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