Student loans are one of the first debts we take on in adulthood. With Canada’s rising cost of living and crowded job market, many graduates are finding themselves without a job and unable to cover their student loans.
If student loan payments are starting to feel impossible, you’re not alone. Many Canadian graduates struggle to keep up. The good news is that student loan debt relief options are available, including federal programs where the government will partially or fully cover your payments.
This guide walks through what happens if you can’t repay your student loans, how a repayment plan works, and what options are available if your repayment plan is not enough.
What Happens If I Can’t Repay My Student Loans?
Missed student loan payments will negatively impact your credit. The Government of Canada website says that outstanding student loans go into collections after 9 months of missed payments.
Collections debt stays on your credit report for at least 6 years, even if it is paid off before then.
You have a 6-month grace period after graduation before you need to start repaying your student loans.
To prevent the debt going into collections, it’s important to take action as soon as possible. There are student loan debt relief options available through the National Student Loans Service Centre (NSLSC) and 4 Pillars, which we will explore in more detail.
Can I Get My Student Loans Forgiven in Canada?
Yes, student loan forgiveness is possible in Canada, but only for health care professionals in eligible communities.
According to The Government of Canada website, nurses/nurse practitioners are eligible to get $30,000 of their student loan debt forgiven. Family doctors or graduates in family medicine are eligible to get $60,000 of their student loan debt forgiven.
Additionally, you must have worked for 12 months or more to be eligible, and in that time been repaying your student loan balance actively.
In summary, only in specific circumstances can student loan debt be forgiven. If you didn’t study and don’t work in an eligible health care profession, traditional student loan forgiveness is not usually an option.
Options to Repay Student Loans in Canada
There are many other options available to make student loan repayment easier.
Repayment Assistance Plan (RAP)
The Repayment Assistance Plan (RAP) is designed to help Canadians who can’t afford their regular student loan payments.
If you qualify:
- Your payments may be reduced
- You might not have to make payments at all for a period of time
- The government may cover interest or part of the loan
Eligibility is based on income and family size, which is especially important for parents supporting children.
Debt Consolidation
If you are paying other debts, you can get a debt consolidation loan to combine them with your student loans. This turns everything into a single payment, often at a lower interest rate, which makes repayment significantly easier.
Keep in mind, it can be difficult to secure a student loan consolidation loan when you have poor credit.
Government-Regulated Debt Relief and Insolvency Options
If the RAP is not reducing your payments enough, and you’re still struggling to cover the rest, there are other government-regulated student loan debt relief options available, including consumer proposals or bankruptcy.
Please keep in mind that these debt relief options are for people in insolvency and have harsh effects on your credit. If you are unsure whether these options are right for you, please book a confidential consultation with our debt relief specialists. We can teach you more about how they work and whether alternatives are available. We don’t make any choices for you, we’re just here to help educate Canadians about the debt industry.
Please Note: You must wait 7-years after the end of your studies before you can include your student loans in a consumer proposal or bankruptcy.
Consumer Proposal
Consumer proposals are regulated by the government and can be considered less severe than bankruptcy.
In simple terms, a consumer proposal is a formal request to your creditors to change your repayment terms. You declare yourself unable to repay the debts under their original terms, and offer new terms instead. Oftentimes, these new terms will involve a lower overall debt balance and lower interest.
We can connect you with an LIT who will help you draft reasonable repayment terms.
To be accepted, creditors holding at least 50% of your total debt amounts must agree to the new terms. Not every creditor is required to agree in order for the consumer proposal to go through.
We break down how student loans work in a consumer proposal here: Can You Include Student Loans in a Consumer Proposal?
