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What if I Need Help With My Student Loan Debt?

9/17/2016

 
What if I Need Help with My Student Loan Debt
September is back-to-school time for most post-secondary students, many of whom will rely on student loans to cover tuition costs and a portion of their living expenses while attending school.  In fact, according to the Canadian Federation of Students, students requiring a Canada Student Loan now graduate with an average debt of over $28,000 (Canadian Federation of Students, 2015). 

When you consider that the average non-mortgage debt for Canadians is just under $21,000 - causing warning bells to ring across the land – students really do appear to be more vulnerable than anyone (as they’ve been saying all along).  But unlike other regular Canadians, who – if they find themselves in trouble – can easily avail themselves of credit counselling, Consumer Proposals and bankruptcy, insolvency regulations that apply to student loans leave students with limited debt relief.

One major pitfall with student loans, compared to regular debt, is that often you don’t realize what you’ve gotten yourself into until you finish your program of studies, which can take years.  This is because the student loan repayment period does not begin until six months after you finish school.

 I remember the despair and sheer panic I felt when I received my first student loan repayment statement in the mail.  The payment itself was equivalent to one half of my rent.  The amortization period was 14 years.  I had never had an obligation so significant.  I actually called my mother and cried because I was scared I would be in debt forever.  I am happy to tell you I wasn’t in debt forever – I got through it and you will too.

Luckily for me then, and for students now, there is some help and relief with student debt; however, there are some catches too.  If you are concerned about your student debt it doesn’t hurt to talk to someone – such as a Licensed Insolvency Trustee – about the options available.  But here is some preliminary information, along with some of my own thoughts on the matter.  

  • Open and read all mail related to your student loans (and any other debt, if applicable). Whatever you do, don't ignore your obligations!  If you ignore your obligations and fall into arrears of your student loans, you may not qualify for repayment assistance and / or other hardship provisions.  If you can't pay the required amount, contact the applicable federal or provincial student financial aid office.   
 
  • Keep in mind repayment assistance is based on need and that need is assessed according to program standards, not your own feelings of need. I have met many student loan debtors over the years who complained that they were turned down for repayment assistance unfairly, without regard to the cost of living.   Managing creditor obligations and the cost of living can be difficult to manoeuver, but unfortunately comes with the territory when you borrow money.   The best thing you can do is accept it, take the time to create a detailed budget to get an idea of where your money is coming and going, find the spots where you can make compromises (those daily coffee runs can really add up), make the necessary adjustments and move forward.  As long as you stay on top of it, I promise you it does get easier.
 
  • If you are considering a Consumer Proposal or bankruptcy (presumably because you have other debts to deal with) and you have been a full- or part-time student at any point within the last seven (7) years, you need to know that your student loans will not be extinguished by the Consumer Proposal or bankruptcy.  That is not to say there won’t be opportunity for some relief, however.  There is a stay of proceedings during a Consumer Proposal or bankruptcy, and you cannot be compelled to repay your student loans during the process.  However, interest will be accruing on your student loans during your Consumer Proposal or bankruptcy, so if you don’t pay the interest at a minimum, you will wind up with an even larger student loan at the end of your Consumer Proposal or bankruptcy, which is not what you want.  This rule does not apply to student lines of credit provided by Canadian banks because technically they are considered regular lines of credit.
 
  • If you filed a Consumer Proposal or bankruptcy and your student loans were not extinguished and it has been at least five (5) years since you were a student, you may apply to Court for an order discharging your student loans under the hardship provisions of the Bankruptcy and Insolvency Act.  In such an application, the Court must be satisfied that the student debtor acted in good faith in connection with the student loans and that the student debtor has and will continue to experience financial difficulty to such an extent that he or she will be unable to pay the debt.  If you are considering this type of application I would recommend you seek legal counsel as to whether you will likely be successful, based on your situation and prevailing case law.  If you cannot afford a lawyer, go through legal aid.
 
  • If you have been out of school for more than seven (7) years your student loans will be extinguished by a Consumer Proposal or bankruptcy.  These processes may be something to consider if you truly cannot manage your student loan debt, along with any other debt obligations you may be struggling with.
 
  • Whether you have been out of school for more than seven (7) years or not, it is my understanding that credit counselling agencies cannot help you with your student loan obligations because the federal and provincial student loan departments (like the Canada Revenue Agency) do not negotiate outside of their own repayment assistance programs or an insolvency proceeding.   If you are a credit counsellor and I am wrong about that, please feel free to correct me.  Negotiation to lower the payment and / or total indebtedness is possible in a Consumer Proposal, which must be filed through a Licensed Insolvency Trustee.

There is no question that post-secondary education comes at a high price.  There can be a personal, emotional and / or physical price associated with getting through your courses and finishing your program of studies.  And, of course, there is the actual price of tuition and living expenses, which can be a significant future burden if any part of that price is financed through student loans, lines of credit and even credit cards.
 
Whatever you do, stay positive!  What may seem like a burden now will get easier in time, as long as you manage your debt in some way – whatever is the right way for you.  Know that you are not alone and there is help available to you along the way in your student debt repayment journey.  And, of course, congratulations on investing in your future and completing a program of studies, wherever that may take you! 

This article was written for MNP Debt.  You can access the original post here.

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