Every year thousands of Canadians take on student loan debt in order to cover the cost of living and tuition during college or university.
Increasing numbers of graduates are unable to afford their student loan debts due to economic changes and the resulting difficulty to find work in their field of study. It is common to graduate with student loan bills. It can take years for new graduates to obtain a well-paying job to afford repayment. During this time it can be challenging to manage student loan debt while working entry-level jobs. New graduates have government support systems to help with student debt. If you’ve been out of school for more than 7 years this may change. Navigating student loan repayment options can be a challenge, and knowing your options can make a difference. Student loan debt resolution works differently than it does with other types of unsecured debt such as credit cards. If you are struggling to repay student loans, there are debt relief options tailored specifically to you.
Get Relief From Student Loan Debt
Approval for debt relief depends on your budget, how old your student debts are, and if they are government guaranteed loans or private loans with a bank. If it has been seven years or more since you attended school, and you have more student loan debt than you can manage, the top two debt relief alternatives are consumer proposals and bankruptcy. A Licensed Insolvency Trustee (LIT) will be able to help you weigh the pros and cons and decide which option is best for you. In this article, we explain exactly what the debt relief options are.
Have you had your student loan debt for less than seven years?
If it has been less than seven years since you graduated from college or university, you are still eligible for many different types of student loan assistance. We advise you to contact the student loan office or the National Student Loan Service Centre. These organizations will be able to assist you with payment arrangements and repayment assistance plans. Some of these plans offer interest-only payments or even a temporary reduction in payments. They may also offer you more time to repay what you owe, possibly extending your grace period up to 14 years.
For people who are really struggling financially, it may be possible to be granted reduced interest for 10 years. Following this, a reduced principal if they can prove financial hardship. But, there are particular requirements in order to qualify under financial hardship. Keep in mind that many of these options will keep you tied in debt for a more extended period of time. As a result, you will ultimately end up paying more interest on your student debt. The only persons exempt from increased interest are those who plead hardship and receive gradually reduced payments.
The good news is if you are past the seven-year window, you can eliminate your debts quickly and free of interest by applying for a consumer proposal or student loan bankruptcy.
Reduce Student Loans With A Consumer Proposal
If your student loan payments are more than you can afford and it has been seven years more since you completed your college or university education, a consumer proposal can help you negotiate for lower repayment and eliminate your debt in five years or less. A proposal consolidates all your debts (including credit cards etc.) into single monthly payments over an extended timeline of up to five years. In many cases, a consumer proposal will allow you to reduce your total debts by up to 70%. Once filed, no legal action can be taken against you by creditors.
During your proposal, a Spergel Licensed Insolvency Trustee (LIT) will negotiate with your creditors. Your LIT will negotiate a lesser amount that is both fair to your creditor(s) and affordable for you. The final decision is determined by a vote among your creditors. While some creditors may vote against your proposal, the final decision is based on the majority, and the success rate of proposals is over 90%. If accepted, the proposal is legally binding on all creditors. If you are eligible for automatic release upon completion, you will be able to walk away from the consumer proposal debt-free.
Here are just a few of the reasons why consumer proposals are the preferred choice for long-standing student loan debt relief:
- You’re not required to turn over any of your assets (i.e. home, vehicle, investments)
- You can reduce the amount of debt you owe by up to 70%
- It’s easy to consolidate all of your debts into one single monthly payment that you can afford.
- You do not pay interest.
- You’re legally protected from collections calls and wage garnishment.
- Creditors cannot take any legal action against you.
- All creditors are legally bound by the agreed-upon terms of the proposal.
If you have outstanding unsecured debt, you can file for a consumer proposal at any time. You can file even if you’ve recently graduated post-secondary school. Your student loan debt will simply not be included within your proposal as it is non-dischargeable. However, student loan lenders will not be able to collect during this period, but charges will resume once the proposal is completed. You can choose to continue to make payments towards your student loan during this period. Since your credit card and other debt payments will be significantly reduced or eliminated, this is a great time to pay off as much of your student debt as possible. For many people, this offers a bit of a breather and a chance for them to catch up on student debt. Ideally, you will be able to have all debts cleared within a reasonable period of time.
Student Loan Bankruptcy
Declaring student loan bankruptcy works differently in Canada than declaring personal bankruptcy. There are special laws surrounding government student loans and discharge. If you’re not eligible for a consumer proposal, student loan bankruptcy might be the best option. Either will eliminate your student debts. Similar to a proposal, you must have been out of school for more than 7 years in order to declare student loan bankruptcy. If you have private bank loans through a student credit card or student line of credit, they will be eligible for discharge under the Bankruptcy & Insolvency Act regardless of the time frame.
We recommend the following, if it has been less than 7 years since you attended school:
- If your 7 year anniversary is soon, wait to file for bankruptcy.
- With unsecured debts such as credit cards and student debt, filing for personal bankruptcy may be best. Personal circumstances and the amount owed to various lenders all factor into the final decision.
- If you’ve been out of school for more than 5 years but less than 7, you may qualify for financial hardship.
For those who are beyond the seven-year requirement, there are three possible outcomes for student loan discharge through bankruptcy:
- Full discharge – if the courts decide to discharge your debts entirely, you will no longer be required to make payments.
- Partial discharge – the courts may choose to discharge a portion of your debts. You will still be expected to pay for the remaining amount, which is determined by your finances. For instance, a judge may decide to discharge your private student loans. You may still be required to repay federal loans if you can afford a payment plan.
- No discharge – the courts determine that you must repay your loans in full. The courts may choose to lower your interest rate in order to make repayment easier. So there still may be some benefit to applying for bankruptcy.
It can be challenging to get a complete discharge from your student loans, and the process can be challenging, but not impossible. We can help you understand if you’ll qualify for student debt resolution via consumer proposal or bankruptcy. Book a free consultation with one of our licensed trustees to learn more.
Talk to an expert!
We know that not being able to keep up with student loans payments is stressful. Navigating the complicated rules surrounding student loan debt can be confusing. It can be hard to know where to turn for help. Even if you think you know what to do, talk to a Licensed Insolvency Trustee before taking the next step. There may be types of assistance you are not aware of or drawbacks to specific repayment plans. A licensed expert can help you save money. Book a free no obligation consultation today. You decided the option that is right for you. At Spergel, we make sure you have all the information before you get started. Call 1-877-501-4321 today. You owe it to you yourself!