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Only 34% of bachelor graduates and 36% of college and doctorate graduates manage to pay off their student debt within three years after their graduation. The average post-secondary student struggles for more than 10 years to repay their student debt.
And unfortunately, one in six cases of insolvency in Canada involves someone who seeks OSAP loan forgiveness. Because after years of struggling with their student debt, many former students are no longer able to keep up with their OSAP payments.
What You Need To Know About Student Loans
Just like any other loan, student loans start accumulating interest as soon as you start them. Most students know that they have a six-month grace period after the academic year ends, but few realize that, while they don’t have to make payments during this period, their loans will start to accumulate interest.
And that’s only the case for federal student loans. The rules for provincial student loans vary from jurisdiction to jurisdiction. In Ontario, students graduating or leaving their full-time studies before the 1st of September are not charged interest for six months, but those who graduate or leave school after that date are.
Nowadays, graduates and former students find it difficult to obtain long-term positions that pay enough to cover their student loan debt obligations. When you add in the fact that most young adults also have to make rent or mortgage payments, want to pay off their credit card debt, or start a family, it’s not surprising that so many of them find it difficult to repay their student debt.
If you’re behind your student loan payments and have accumulated a decent amount of debt, you may be wondering what options could provide you with student loan forgiveness, repayment assistance, debt relief, or any kind of help.
The Ultimate Guide For OSAP Forgiveness
In this ultimate debt relief guide on student loan forgiveness, we will detail what you should know about:
- How to negotiate new payment arrangements.
- How to use government repayment assistance programs to modify the terms of your loan or to apply for repayment assistance.
- The student debt relief options to defer payments, and the options that result in loan forgiveness.
- How you can use the Bankruptcy and Insolvency Act to eliminate student loan debt.
- What the seven-year rule is and how you can use it.
- How to handle your private student loan debt.
Government RAP Program
You can use the repayment programs provided by the Canadian government to deal with your student debt. These programs offer varying benefits, including reductions of your monthly payments, payment deferrals, interest relief, and even outright loan forgiveness in some cases. Ontario students can apply for payment assistance from Canada Student Loan, which handles OSAP loan forgiveness.
Revision Of Terms – How It Works
If you have difficulties making your current student loan debt payments, you can ask to change the terms of your loan if you need more time to pay or if you intend to pay it off more quickly.
The standard repayment period for student loans in Canada is 114 months or 9 and a half years. If you have problems meeting your financial obligations for a while, you can extend the amortization period to a maximum of 174 months or 14 years and a half. You can do this by contacting the National Student Loan Service Centre (NSLSC) and your financial institutions to evaluate your options.
The Revision of Terms plan helps you:
- Decrease Payments For A Defined, Short Period – You can extend the terms of your payment plan by a fixed period of six months to reduce your monthly payment. At the end of this period, your monthly payments will return to their original amount, unless otherwise stated. This is a good short-term solution that may be suitable when you’re changing jobs or when you’re facing temporary financial difficulties.
- Extend Your Loan’s Repayment Time – You can extend your loan’s repayment time to decrease your monthly payment. This is a long-term solution that may be suitable if you seek to lighten your monthly financial burden.
- Make Interest-Only Payments – You can choose to pay only the interest owing to your student loans for a period of up to 12 months. This is a short-term solution that may be suitable if you’re looking to significantly decrease your payments for a limited amount of time.
You can contact the NSLSC and your financial institution to explore the best options for you. You can also customize your repayment online through the NSLSC On-Line Services if you have a Canada Student Loan or an Integrated Student loan.
Once you agree to a repayment plan, you will receive a Consolidated Loan Agreement you have to sign and return to complete the process.
Extending your amortization period will make your monthly payments smaller, but you’ll end up paying more on your loan because your loan will accumulate interest until you pay it off. Extending your loan, even for several months, will result in you adding more interest to your student loan debt.
Repayment Assistance Plan (RAP) – How It Works
If you find it difficult to meet your monthly financial obligations or you are unable to make your student loan debt payments, you can apply to have the federal and your provincial or territorial government help you pay. In Ontario, students needing debt help can apply to Canada Student Loans, the administrator of OSAP debt.
The RAP program may offer interest relief, debt reduction, or debt forgiveness, depending on your financial situation and income status.
You may not need to make payments accounting to more than 20% of your income, or no payment at all, depending on your financial situation. You can apply to RAP as soon as you start making payments to repay your student loans or anytime during repayment. If you are accepted into RAP, the government will pay the interest owing not covered by your revised plan.
Here’s how it works. During the first 10 years of your repayment, the government supports the interest costs of your student debts. If, after 10 years, you still qualify, the government may support some of the principal payments as well.
You’re eligible for RAP if you reside in Canada, have been out of school for at least six months, and you are not already in default on your student loans. If you suffer from a permanent disability, you may be eligible for disability-related expenses.
OSAP Loan Forgiveness Under The Bankruptcy And Insolvency Act
The Bankruptcy And Insolvency Act (BIA) specifies that government-guaranteed student debt is eligible for discharge under certain conditions. Specifically, BIA states that individuals who have been “out of school” for more than seven years (known as the seven-year rule) can have their student loans included in a bankruptcy or consumer proposal.
What Does The Seven Year Rule Mean?
It’s important to know that the period covered by the seven-year rule starts at the “end of study date” or the “date you ceased to become a student”. This is the date the government will use to determine when you started being “out of school” so they can verify your eligibility as stated in the BIA. This date is not the same as the date when you took out your student loan, so you shouldn’t confuse the two. You can verify your “end of study date” by contacting NSLSC or OSAP.
The Five Year Rule – Student Debt During Financial Hardship
If you can demonstrate that paying your student debt loans will cause “undue financial hardship”, you can have your student debt discharged by a court in a bankruptcy or consumer proposal proceeding starting five years after your end of study date.
To be eligible for the hardship provision, you have to demonstrate to the court that you acted “in good faith” and paid your debts, but they are causing and will continue to cause you severe financial difficulties.
Many court cases discuss the various considerations attributed to the “in good faith” expression. Contact a Licensed Insolvency Trustee to see if this is a viable option for you.
Options For New Student Loans
You can still consider bankruptcy and consumer proposals as viable options to your student loan debt problems, even if your student loan doesn’t meet the seven-year rule. If you have other unsecured debts, such as credit card debts, obtaining a discharge from them could make it easier for you to pay your student loan debts.
Debt Forgiveness For Private Student Loans
If you obtained your student loan from a bank or another financial institution, you have to repay it directly to your lender. Your private student loan might include a student credit card, line of credit, or overdraft. If these loans are causing you financial difficulties, you should renegotiate them with your loan provider.
Keep in mind that private student loans are a form of unsecured debt. Unlike governmental student loans, private ones have no special rules or period limitations you have to respect to qualify for loan forgiveness.
Any kind of bank loans, lines of credit, or credit card debt you might have used to pay your tuition fees and other education costs can be discharged when you file for a consumer proposal or for bankruptcy with no limitations or waiting periods.
Get Debt Advice For Your Student Loan From A Toronto Insolvency Trustee
Licensed Insolvency Trustees are the only federally regulated debt advisors operating in Canada. Contact Remolino & Associates and a Licensed Insolvency Trustee will review your financial situation to determine if you can qualify for student debt relief.
Discover the best options to eliminate your student loan debts. Contact a Remolino & Associates trustee and get a free consultation today.