Student loan forgiveness in Ontario

Posted on 14 June 2022

Written by Graeme Hamilton

These days, 49% of students owe some kind of student debt upon graduation in Canada. This is an astonishing figure which is gradually increasing as more and more Canadians look to fund their education, essentially leading to a crisis across the country. With more young people borrowing larger amounts to cover the cost of their student loans, in turn it is leading to further financial problems. Student loan debt is leading to more states of insolvency across Canada, meaning more debt relief solutions are required. On top of this, if you are a student or a graduate in Ontario, you may well be struggling to repay your student loans particularly if you live in an expensive city like Toronto or Ottawa. For this reason, many graduates are looking for student loan forgiveness in Ontario. In this article, we will explain all you need to know about gaining student loan forgiveness and your options when it comes to student loan debt relief.

What is a student loan?

In Canada, a student loan encompasses a number of different methods of borrowing money to cover your education costs. This loan could be funded by the government, a bank or financial institution, or even a private personal loan. Most often, student loans are issued by either the federal government or the provincial government. This loan is to cover your tuition and also any study materials you may require. The amount of student loan you receive will depend on a number of variables. These include your income, and that of your parents; the duration of your studies; the type of educational course; any dependents you may support; relocation costs; and any extenuating circumstances. All of these factors will be considered as part of your application. Any loans issued by the government do not accrue interest while you are a student. Once you have graduated, you will have a period of six months without interest or payments while you seek employment. As soon as this grace period is over, you will need to begin making your monthly student loan payments until your balance is cleared.

What is OSAP (Ontario Student Assistance Program)?

The OSAP is a type of financial support that helps you through your education at college or university. This funding is offered via a student loan which you repay once you have graduated, and via grants which you do not need to repay. You are automatically considered for both in your application. OSAP covers everything from tuition to living expenses and childcare where needed. You are eligible for OSAP if you are an Ontario resident and a Canadian citizen. You may not qualify for OSAP if you do not meet the academic requirements, have defaulted on a student loan, have failed a credit check, or have previously filed for bankruptcy or a consumer proposal. OSAP can be used for any college or university that has been approved – check for your school here. The amount you will receive depends on your education costs, the duration of your course, and your own financial situation.

What are the interest rates on student loans in Canada?

In Canada, most students will have a federal and a provincial part of their government funded student loans. Each portion will have its own student loan interest rate, although it will all be paid together. Typically, when you take out your student loan you can opt from two interest rates – a fixed rate of 2% throughout the period of your student loan repayment, plus prime rate; or a variable rate that is equal to the prime rate. For provincial portions of Canadian government student loans, some provinces will have their own interest rates and funding, while some will sync up with the federal government to make things simpler. In Ontario, for instance, OSAP interest rates are Prime + 1%. Interest rates on private student loans vary much more depending on the financial institution you choose.

How do your repay your student loan in Ontario?

If your student loan has been funded by the government, you will have a grace period of six months from graduation. After this period, you will then need to repay your student loan – you will receive a letter covering the interest rate of your student loan, and how much you will need to pay each month. Typically, you will be on a fixed interest rate, although you can change this and choose to overpay if you wish. It takes time to repay your student loan, although there is student loan forgiveness in Ontario available if you require. This is applicable to some professions in Ontario, including nurses working in rural areas. In this instance, you may qualify to have some of your student loans forgiven. This can help to reduce your overall student loan debt and so you should look into which options may be available to you in Ontario. Another option is to begin making your student loan debt payments in the grace period before it begins to accumulate interest. This is a way of eating into your debt principal, helping you to get a head start on your journey to debt freedom. If you are struggling to repay your student loan in Ontario, there are various forms of student loan forgiveness in Ontario to consider.

Student loan forgiveness in Ontario: the options

Thankfully, no matter how large the amount of student loan debt that you owe, there is always a form of debt relief for you. Below, we cover the key forms of student loan debt relief:

Voluntary Renegotiation

If you are concerned that you are unable to pay your student loan, it could be worth contacting the lender of your student loan. They may be open to negotiating new payment terms on your loan, depending on what you can commit to. It is a good option if you are able to commit to revised payments temporarily and if you think you can pay your student loan in full over time.

Canada Repayment Assistance Plan

If your student loan is a government guaranteed student loan, the Canada Repayment Assistance Program can provide some student loan forgiveness in Ontario. It works by reducing or eliminating your monthly student loan payments altogether, depending on what your income is. You may be eligible if you live in Canada, have been out of school for at least six months, and have not defaulted on your student loan. If your income falls below the income threshold for Ontario, you could qualify for full relief from your student loan payments. Although it will mean you have some relief from making your payments, it does not clear your student loan debt or the consequences that come with it. This includes a potential impact on your credit score and difficulty taking out credit.

File bankruptcy

If you have been out of school for seven years or more, your government funded student loan debt could be cleared through bankruptcy in line with the Bankruptcy and Insolvency Act. Applicable from the day you finished your studies, this period can in some circumstances be shortened to five years if you are evidently struggling with financial hardship. Bankruptcy has a number of advantages, primarily in clearing all of your unsecured debts. It will also generate a stay of proceedings, which offers protection from your creditors and collection calls. In order to file bankruptcy, you will require a reputable Licensed Insolvency Trustee to administer the process. At Spergel, our trustees have over thirty years of experience in helping Canadians gain debt relief.

File a consumer proposal

A consumer proposal is a popular bankruptcy alternative in Canada, and a great way of gaining student loan forgiveness in Ontario. It is the legal process of making a formal debt settlement with your creditors, and can reduce your debt by up to 80%. This includes not only your student loan debt, but also other unsecured debts including tax debt and credit card debt. Once again, you must have finished your studies at least seven years ago. Even if your student loan debt is not seven years old, a consumer proposal could still be a good option by clearing your other debts. This could make it easier for you to continue making your student loan debt payments. Once again, a Licensed Insolvency Trustee is required to file a consumer proposal. At Spergel, unlike other bankruptcy firms, you will be assigned your own trustee to walk you through each step of the process instead of being passed from person to person.

While student loans in Ontario are a wonderful way to fund your education when it is needed, sometimes they can be very difficult to repay. If you are in need of student loan forgiveness in Ontario, thankfully there are plenty of options. Book a free consultation with an experienced Licensed Insolvency Trustee at Spergel for support with the best way for you to reduce or eliminate your student loan debt in Ontario.


Graeme Hamilton

Graeme Hamilton is a Chartered Insolvency and Restructuring Professional with over 10 years’ experience as an LIT (Licensed Insolvency Trustee). He is also Spergel's resident expert on bankruptcy and debt relief in the Ontario region. Prior to establishing his career in the insolvency industry, Graeme lived in Cambodia doing volunteer work with NGO's.

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