There is no such thing in Canada as Federal student loan consolidation as it is in the USA. Although one can look for sources of private student loan consolidation, students in Canada get loans through both provincial and federal loans.
Prior to 2000, private banks in Canada were the lenders. Since the Canadian government has gotten into the student loan business, the profit it is making off of student debt is nothing short of obscene.
It is estimated that there are now over 510,000 Canadians with student loan debt in repayment, that in 2006 paid $863,000 per day in total.
Many borrowers default in the first three years because interest eats up most of the repayments. Interest on fixed rate student loans in Canada are as high as prime +5%. Something ugly will eventually have to hit the fan as there are major problems with the Canadian student loan program.
For student debtors in Canada there are some options, such as interest relief, revision of terms, debt reduction in repayment and forgiveness for disabilities.
Getting Interest Relief on Canadian Student Loan Debt
Student debt in Canada is a serious problem for a growing number of people. If you are out of school for no more than three years and are unable to repay either your Canada-Ontario Integrated Student Loan or Part-Time Canada Student Loan because of low income, you can qualify for interest relief.
Income contingent, the payments are suspended for 6 month blocks, while the government pays the interest for you.
You need to re-apply every six months approximately one month before your current period expires. When the three year period (maximum of 30 months) of interest relief protection is up, and you are still suffering financial hardship, you can extend it for another two years (additional 24 months) as long as you have not been out of out of school for more than 60 months from your last study period end date.
There are different interest relief programs available depending on which province you live. If you are able to pay, but are having some difficulty, there is also the option to get a "Revision of Terms" where you protract the repayment period from 9.5 years to 15 years.
How To Get Bankruptcy For Canada Student Loans
Bankruptcy is still an option, however the Canadian government in 1997 introduced legislation requiring students to be out of school for at least 10 years before they can seek protection under the Bankruptcy And Insolvency Act. In 2007, Parliament passed changes to the BIA Act which lowered the penalty period from 10 years to 7.
If one has been out of school for a period of 7 years, the student debt is automatically applied to the bankruptcy. If you are a first time bankrupt, then you are automatically discharged in nine months, but with the new ruling, if this is your second bankruptcy, then they will usually not discharge you for 24 months.
The way a bankruptcy works is that you set up an appointment with a trustee. If you decide that bankruptcy is the best option, then there are forms to sign, and you will surrender your credit cards, and perhaps even some of your assets. If you own a home, then the creditors can put a lien on it.
In a case like this, a consumer proposal is a better option for you. Anyone who owes more than $1,000 is eligible for bankruptcy in Canada. The laws do let you keep a great deal of your possessions, which typically varies from province to province, ranging from $5,000 to over $10,000.
The advantages of bankruptcy are that collection agencies are forbidden by law from harassing you. It is vital that you know your rights as a bankrupt in dealing with abusive collection agencies. The only other option might be to seek private student loan consolidation and get a consolidation loan.
If you haven't been out of school for 7 years and have consumer debt and student loans, there might be another angle if your debt load is literally killing you - get as much credit together as possible from lines of credit, credit cards, etc, and use that to pay off the student loans.
Then keep paying the money you borrowed for this off for at least 6 months, and then if you are still really stuck and facing a catastrophe, then go bankrupt on that credit instead, as at that point your student loans will have already been paid off.
This might work well for those with lower debt loads, as it will be hard to get enough credit together to deal with 50, 60, 70K of student loan debt.
Repayment Assistance Plan for Canada Student Loans
The Canadian government has recently (fall 2016) revealed a new program to help recent college and university graduates manage their student debt. Employment and Social Development Canada revealed that, as of Nov. 1, under the Repayment Assistance Plan, Canadian students will be exempt from having to repay their Canada Student Loan until they're able to earn at least $25,000 a year.
Under the new Repayment Assistance Plan, those with student loan debt, can request help to manage their debt. Depending income and other factors (such as family etc), borrowers can apply for reduced monthly payments or no monthly payments at all.
How to Qualify for the Medical Loan Forgiveness Program
According to the government,
if you have a permanent disability that will substantially reduce your earning capacity for your expected lifetime and you are unable to repay your student debts without incurring exceptional financial hardship." The criteria to for medical loan forgiveness so that you can get some or all of your student loans forgiven is strict and many do not qualify: a) you have a permanent disability that is expected to substantially reduce your earning capacity for your lifetime, b) you are experiencing financial hardship, c) you have exhausted the maximum number of months of Interest Relief that you are eligible to receive. In cases of federal loan forgiveness for people with a disability, the rules are: "you have a permanent disability and you are experiencing exceptional financial hardship repaying your Canada Student Loan(s) due to your disability, you may qualify for the Permanent Disability Benefit (PDB) which allows for the reduction of your loans.
One can find many examples of just how difficult it is to qualify student loan disability relief in Canada
Eligibility Criteria for Loan Disability Relief
To qualify for the PDB you must meet two specific primary eligibility criteria, as follows:
- You must have a permanent disability as defined in the Canada Student Financial Assistance Regulations:
"A functional limitation caused by a physical or mental impairment that restricts the ability of a person to perform the daily activities necessary to participate in studies at a post-secondary school level or in the labour force and is expected to remain with the person for the person’s expected life."
- You must be experiencing exceptional financial hardship with your repayment obligations due to your disability. The Canada Student Loans Program will assess your financial ability to repay your Canada Student Loan by taking into account your net family income which includes employment earnings, investments, financial assistance under social programs, and monetary gifts.
Getting Debt Reduction in Repayment for Canadian Student Loans
This is exactly the same thing as the forbearance program in the USA. Essentially, the borrower has to have been out of full-time studies for at least five years and have exhausted all available periods of interest relief.
Borrowers can get reductions of their outstanding student loan principal which could lower your monthly loan payments to something manageable.
There is also no shortage of students simply fleeing and getting jobs abroad, simply because student debt is putting them in the poorhouse.
I've heard from many Canadian students with unpayable debt loads exhausting their so-called "interest relief" periods, where they do not have to repay their loans immediately upon graduation, and when that period ends, they go abroad to live or work and come back to Canada when eligible for bankruptcy, which is technically seven years after their last full-time day of school.
For example, in Ontario, interest relief can last three years. When that ends, one can apply for emergency interest relief for up to another two years, making it a total of five years. One only needs to run out the clock for another two years until eligible for bankruptcy.
Several students contacted me over the years and told me that they had no other choice to do this as their debts where simply too high to repay. They also told me that they made sure not to keep any money in the accounts associated with their student loans, as those would be the first ones the government could technically issue a "request to pay", where the CRA closes the account until the debt is settled. This is particularly problematic if one is living paycheck-to-paycheck as indebted student are.
Ironic when you think of it that investing in an education should actually lead people out of poverty, not deeper into it.
Good luck with getting this monster off of your back.