All information provided in this article is sourced from publicly available materials and is intended for general educational purposes only. It does not constitute legal advice. 4 Pillars is a debt advocacy firm and is not a law firm. For legal advice specific to your situation, please consult a qualified lawyer in your jurisdiction.
Are you one of the millions of Canadians struggling with private student loan debt?
As a debtor advocacy group in Canada, and we have experience helping clients deal with private student loan debt.
Read this article to discover whether private student loan debt can be forgiven, how it works, differences between private and government debt, and how to best protect yourself from creditors and collections.
Understanding Private Student Loans in Canada
Many Canadian students receive financial assistance from the government in the form of a loan and/or grant (grants do not have to be repaid). In Ontario, the government student financial aid program is known as OSAP. These financial aid programs help students across Canada afford to attend post-secondary education.
Some students may end up needing more financial support than what’s provided by government financial aid programs like OSAP. In this case, they have no choice but to rely on private student loans.
Private student loans are loans issued by banks, credit unions, or other financial institutions — not by the federal or provincial government. Common types of private student loans include bank student lines of credit, professional student lines of credit (for medical, dental, or law students), and co-signed personal loans used for tuition.
What Are The Risks Associated with Private Student Loans?
Private student loans are not governed by the same relief rules that apply to government student loans issued under the Government of Canada or provincial programs.
Private student loans usually require a co-signer, accumulate interest before you graduate, and expect repayments to be made before or shortly after graduation. This often puts students and recent graduates in a tough spot financially.
Private student loans involve more risk than government student loans because:
- If you default, your co-signer becomes fully responsible for repayment.
- Unlike government loans, private lenders may not offer income-based repayment programs.
- Interest often begins accruing immediately, even while you are still in school.
- Private lenders can sue for unpaid balances and pursue wage garnishment if they obtain a court judgment.
How Student Loan Forgiveness Works: Government vs. Private Loans
Government student loans and private student loans are treated very differently in Canada.
Government student loans (federal and provincial) offer:
- Repayment Assistance Plans (RAP)
- Disability repayment support
- Limited forgiveness programs in specific professions
- Hardship provisions
Can I Get Private Student Loan Debt Forgiven in Canada?
Generally, no. There is no formal student loan forgiveness program for private student loan debt. You will need to repay the debt according to the loan agreement, or look into legal debt relief options to eliminate the debt.
This is different from government student loans. Canada has a federal student loan forgiveness program which you can apply for if you meet the eligibility criteria.
How to Get Private Student Loan Debt Forgiven in Canada
While there are no government-sponsored forgiveness programs for private student loans, they can potentially be reduced or eliminated through formal debt relief options.
Consumer Proposal for Private Student Loan Debt
If your private student loan is unsecured, it can typically be included in a consumer proposal — regardless of how long ago you stopped being a student.
Unlike with government student loans, which have a strict, no-exceptions waiting period before they can be included in a bankruptcy or consumer proposal, most private student loans can be included in a consumer proposal at any time.
How It Works
If you choose to file a consumer proposal to relieve yourself of your private student loan debts, here’s what you can expect to happen:
- You work with an LIT to draft a consumer proposal, the proposal offers to repay a portion of your total unsecured debt. The amount proposed is based on your income and what you can realistically afford to pay.
- The consumer proposal is sent to all listed creditors, including the lender of your private student loans.
- Each creditor, including your private student loan lender, will vote to either accept or reject the proposal.
- If the majority of your creditors (based on the dollar value of your debt) vote to accept the proposal, it becomes legally binding on all unsecured creditors (even those who voted against it).
- You will make one fixed monthly payment based on the agreed terms, typically over a period of up to five years. No additional interest will accumulate on your private student loan debt or any other included debts.
- As long as you make your agreed payments, your private student loan lender cannot take legal action against you, garnish your wages, or continue collection efforts.
In summary, a consumer proposal for private student loan debt can significantly reduce what you owe while avoiding bankruptcy. That said, it’s important to note that a consumer proposal can have long-lasting effects on your credit (although not as severe as bankruptcy).
There may be more credit-friendly options available to repay your private student loan debt. If you book a free, no-obligation consultation with 4 Pillars, we will be happy to take you through all the available options, including the benefits and risks associated with each debt relief option.
Book a free, no-obligation consultation to discuss your options and understand if a consumer proposal is right for you.
Frequently Asked Questions About Private Student Loan Debt Relief
Can Private Student Loan Lenders Garnish Wages?
Yes, private student loan lenders can garnish wages, but it’s different from government loans.
A private lender has limited power compared to the government. In order to garnish wages, a private student loan lender must first sue you and obtain a court judgment. Once they have a judgment, they may pursue wage garnishment or bank account seizure, depending on provincial laws.
Are There Any Forgiveness Programs for Private Student Loans in Canada?
No. There are no formal forgiveness programs for private student loans. Unlike public student debt, private lenders are not required to offer repayment assistance or forgiveness programs.
To get your debt “forgiven”, you’ll need to discuss refinancing, negotiate an informal debt settlement, or file a consumer proposal or bankruptcy to reduce the total debt amount you’re required to pay.
How Long Do I Have to Wait Before Private Student Loans Can Be Discharged?
Private student loans have no mandatory waiting period like the 7-year rule that applies to government student loans. Private student loans are contractual unsecured debts and can be included in a consumer proposal or bankruptcy at any time.
But keep in mind this is subject to review of the loan structure and whether it is truly private (not government-backed).
Help With Government Student Loan Debt in Canada
If you’re looking for help or more information about government student loan debt, we have an article that covers everything in depth: Can You Include Student Loans in a Consumer Proposal?
