A student loan is an excellent way to finance your education. This particular type of loan is advantageous because everyone involved is supposed to benefit. Essentially, a student loan is the Canadian government’s investment in you. They lend you the money to pursue higher education in the field of your choice. The hope is that you will eventually graduate and find a job, so you can meaningfully contribute to the Canadian economy. You now have a steady income, which means you can repay your student loan. When everything goes according to plan, you are ultimately living the North American dream.

But what happens if for some reason you don’t graduate? Or what if you do graduate, but can’t find a steady job? When this happens, chances are you may not be able to repay that loan. The good news is there are options available for students. So let’s explore what those options are under these circumstances.

Differentiating Private and Government Student Loans

Before we look at your options for repayment, it’s important to first determine what type of loan you’re dealing with.

Government Student Loan

This type of student loan is administered by the federal government. Eligibility and loan amounts are determined under guidelines set out in the Canada Student Loan program. It is designed to help pay for post-secondary education at a designated college or university. The loan amount is largely based on family income, as well as other factors.

Student Line of Credit

This type of loan is granted to students by private banks. It is not the same as a government-administered student loan. If for some reason, you do not qualify for the Canada Student Loan program, a bank may offer you a line of credit to pay for your schooling. Although interest rates may be slightly lower for students, this is essentially like any other banking product such as a business loan or a personal line of credit.

Depending on what type of loan you have, your repayment options will differ. This article will offer solutions in dealing with both government-issued and private loans.

New Student Loan Repayment Rules

Historically, the Ontario government has given post-secondary graduates a grace period of 6 months to begin repaying their loan. This gives recent graduates some time to find a job without having to worry about interest accruing on their loan. However, Ontario’s PC government recently made the decision to remove this grace period, which means that students will need to start repaying their loans as soon as they finish their final semester. What does this mean for students? It means that they’ll need to find employment immediately following graduation if they don’t want to fall behind on their payments, and let the interest on their loan pile up.

Repayment Assistance Plan

The federal government offers the Repayment Assistance Plan for students having difficulty paying back their Canada Student Loan. It’s important to understand this is not a debt forgiveness program, rather, it is the government’s way of helping a student manage their loan.

Here’s how the Repayment Assistance Plan works:

• You formally apply to the program so your financial circumstances can be assessed by the government
• Your loan must be in good standing at the time of application
• How much payment assistance you qualify for is based on many factors, including family size and household income

Should you qualify for repayment assistance, you may be able to obtain one of the following:

• Reduced monthly payments
• Payment deferral, so you don’t have to make any payments for a period of time
• Interest relief or principal reduction

This solution is only feasible for students with a government-issued loan. If your loan was given to you by a bank or other financial institution, you’ll need to negotiate with them directly for a term extension or interest relief.

Filing for Bankruptcy

Even with a federally-administered repayment plan, you may be in a position where you’re still unable to repay your student loans. You may not be earning enough income, you may have fallen ill, or you may be overwhelmed by other debt. So what happens now? Contrary to popular belief, filing for bankruptcy may be your best option for resolving this tricky situation.

By declaring bankruptcy, you’re asking for legal permission to be formally released from your debts. This option works if there is no realistic expectation that the lender will ever get all its money back from you.

The only limitation to filing for bankruptcy as a student, as per the Bankruptcy and Insolvency Act, is this: If you have not been out of school for more than seven years when your bankruptcy is filed, you will still be obligated to repay your student loan.

Even if the above limitation does apply to you, do not give up on the bankruptcy option. You may be eligible to be released from your other debts, even if your student debt does not qualify for bankruptcy.

Hire an Insolvency Trustee

Regardless of your situation, this may be a good time to speak with a licensed insolvency trustee. A reputable trustee will assess your financial circumstances and present you with the various debt relief options available to your unique situation. Whether you’re looking for debt consolidation or bankruptcy services, you can gain peace of mind knowing there is a solution to every financial burden.

For more information on repaying your student loans, please call Charles Advisory Services at 416-486-9660 or contact us here.