Student Loan Debt 101

2014-09-02   minute read

Dean Prentice

With the school year just starting up and thousands of Canadian students beginning a new semester of post-secondary studies, all of those hard-earned dollars from summer gigs are now being applied to tuition, books, transportation, housing and supplies. Unfortunately for many students, the cost of obtaining higher education quickly outpaces what they’re able to earn through part-time or seasonal jobs. As a result, many students will take out student loans to help cover their expenses. By the time they hit graduation, the relatively high interest rates on these loans coupled with low, entry-level salaries can make those loans seem insurmountable. Here’s what you need to know about student loans, paying them off and whether student loans survive a bankruptcy or Consumer Proposal.

Two people working out a budget on a laptop with bills on the table and coffee mugs placed in front of each person, ready for sipping.

What are my options if I can’t pay back my student loans?

If you are struggling with paying back your student loans during or upon completion of your education, a good first step is to speak with your student loan provider to see if you can qualify for interest relief or defer payments. If however, you’re still unable to pay them back, you may want to consider filing a Consumer Proposal or declaring bankruptcy to get your financial life on track. Both of these are options can eliminate more debts than just your student loans to give you that fresh financial start you need. However, they will both also have an impact on your credit. 

When can I file a bankruptcy or a Consumer Proposal? During my studies or after? Do I have to drop out?

You can file for bankruptcy or a Consumer Proposal even if you have not completed your studies – and you can carry on with them. If you are currently enrolled in a post-secondary program you are eligible to continue to receive funding – as long as you remain in your current program. If you were to switch your field of studies or your educational institution, you may no longer be eligible for student loans.

After I file, when do I have to start repaying my student loans?

When filing a bankruptcy or Consumer Proposal, your student loans may be extinguished by your bankruptcy or Consumer Proposal and you will never have to repay them.

However, if your student loans survive your discharge, then the student loan payments become payable immediately following your discharge from bankruptcy or your Consumer Proposal. Remember, the interest on your student loans continues to accrue during your bankruptcy or Consumer Proposal. If your student loans aren’t extinguished during either one of these processes, the amount of debt owing will be higher when you are discharged then when you started your bankruptcy or Consumer Proposal.

Can I qualify for student loans if I have filed for bankruptcy or made a proposal?

If you have previously struggled with debt and filed a bankruptcy or Consumer Proposal, be sure to bring it up when speaking with your student loan provider (they will see it on your credit report anyway). There is no definitive guarantee that you will still qualify for student loans – most departments will treat loan applications on a case-by-case basis. Note that if you previously had student loans extinguished as part of a bankruptcy or Consumer Proposal, you may have to wait longer before qualifying for new loans.

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