If you have student loans and feel overwhelmed trying to keep up with your payments, a consumer proposal could be your ideal solution.
By working with a Licensed Insolvency Trustee to file a consumer proposal, you can negotiate more manageable payment terms with your creditors. This process can help you reduce your monthly payments and result in an overall reduction of your unsecured debts, which may include your student loans. The reduction can be significant, potentially up to 80% in some cases, depending on your specific situation. The trustee will guide you through each step, ensuring that your proposal is fair and achievable, giving you a clear path toward financial stability.
However, unlike credit cards, payday loans, and other unsecured debts, student loans are subject to special rules in a consumer proposal. In this article, we’ll explore these rules and explain how you can include your student loan debt in a consumer proposal.
Private student loans vs government student loans
Two types of loans enable students to finance their education in Canada: private and government-issued loans, including those offered under the Apprentice Loan Act.
Loans from a private financial institution, like a bank or credit union, automatically qualify for discharge in a consumer proposal.
However, there are special rules that govern how government-issued student loan debt is treated in a consumer proposal. Whether or not you can include it in your proposal depends primarily on how long it’s been since you left school, as you’ll discover in the next section.
Student loans and the seven-year rule
Section 178(1) of Canada’s Bankruptcy and Insolvency Act states that government-guaranteed student loans are eligible for discharge in a consumer proposal only if it’s been at least seven years since you left school. The same rule applies if you’re filing bankruptcy to eliminate student loan debt.
The seven-year rule applies whether you were a full-time or part-time student. And it doesn’t matter whether you have completed your studies or not. As long as seven years have passed prior to the date of filing, you can safely include your student loans in a consumer proposal.
Let’s say you still need to reach the seven-year mark. However, you decide to file a consumer proposal because you wish to deal with your other unsecured debts.
In this scenario, your student loan debt will remain intact, and the balance may or may not survive your proposal. Your student loan lenders will still appear as creditors on your proposal. Like your other unsecured lenders, they’re entitled to receive a share of your monthly payments. After completing your consumer proposal, you’ll be responsible for repaying any remaining balance on your student loans.
The good news is that you have the option to stop servicing your student loan until after you’ve completed your consumer proposal. Keep in mind, however, that your interest will still accrue on your balance. As a result, it’s to your advantage to continue making interest payments to prevent your debt from growing.
How to figure out if you meet the seven-year rule
To determine if a full seven years have passed, you’ll need to verify your “end-of-study date.” This date refers to the beginning of the seven-year waiting period, which is the latter of:
- The last day of the month when you stopped attending school, or
- The last day of the month when you completed your last exams for your final semester
Sometimes, determining your final day of studies can be challenging, especially if multiple loans and study dates are involved. For this reason, it’s wise to contact the federal/provincial agencies that administer your student loans.
You can contact the National Student Loan Service Centre (NSLSC) by calling 1-888-815-4514. They’ll be able to provide you with the exact date. Alternatively, the phone number for the Ontario Student Assistance Program (OSAP) is 1-807-343-7260.
The Hardship Provision
Have you filed a consumer proposal, and five or more years have passed since you left school? In that case, you may apply to the Court and ask for forgiveness, also called a discharge, on the unpaid balance of your student loan.
This court-ordered discharge is known as the Hardship Provision. To apply for it, you typically need assistance from an insolvency lawyer.
However, qualifying for the hardship provision is no easy feat. Aside from meeting the five-year waiting period criteria, you’ll need to prove to the Court that you’re currently experiencing severe financial stress, leaving you incapable of repaying your student loan debt. You must demonstrate that this undue hardship will likely continue and that you have worked diligently to repay your debt without success.
A consumer proposal can help you repay your student loans faster – even if they’re less than seven years old
A consumer proposal is still worth considering as a debt relief solution, even if your student loans are less than seven years old.
First, the consumer proposal process will allow you to eliminate other unsecured debts, such as credit cards, lines of credit, and payday loans. With less strain on your budget, you’ll now be able to afford your monthly student loan payments. You can even increase your payment size to settle your balance faster.
Second, your student loan lender may agree to discharge your remaining student loan balance. If you’re approaching the crucial seven-year mark and your proposal’s terms are appealing, they may accept the deal to recover a portion of what you owe. Otherwise, they bear the risk of you filing for bankruptcy, where they may receive nothing.
A consumer proposal is a debt relief solution that has worked incredibly well for many individuals we work with who are struggling with debt. Learn how much you can save using our consumer proposal calculator.
Can I get a student loan after a consumer proposal?
It’s still possible to obtain an OSAP loan after completing a consumer proposal. That said, you’ll need to provide additional information with your application. You have a higher chance of getting approved for an OSAP loan if it’s your first time applying.
Other options for dealing with your student loan debt
One way to better manage your student debt is to revamp your payment terms to better suit your financial situation.
The NSLSC allows you to extend your payment schedule, temporarily make interest-only payments, reduce your monthly payment amount, and more. You can apply most of these customizations yourself through the NSLSC’s website.
If you require more financial aid, consider applying for the Repayment Assistance Plan (RAP), a debt relief program for borrowers struggling to repay their student loans. RAP is offered through the federal and Ontario governments.
By enrolling in the program, you’ll have the opportunity to eliminate your interest charges and lower your monthly payments. The amount of financial relief you qualify for will depend on factors such as how much you owe, your household income, and whether or not you have other debts.
Here are some helpful links to these resources:
Resolve your student loans with help from David Sklar & Associates
If your student loans are giving your grief, it’s crucial to deal with them as soon as possible. You want to avoid falling behind on your payments for too long, as your creditors may eventually resort to legal action to collect what you owe them.
Your first step should be to speak with a Licensed Insolvency Trustee who can review your finances to see where you currently stand and recommend a debt relief plan to get your finances in order.
At David Sklar & Associates, our experienced team of trustees is always ready to answer your questions and concerns about debt problems and guide you toward a practical solution. If you’d like to chat about your debt relief options, contact us online to book your free, no-obligation consultation. You can also call us at 1-844-962-9200.
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