A post-secondary education is supposed to help you improve your employment opportunities and hopefully your income as well. Right out of school it can take some time to see the benefits of these added opportunities and in the meantime if you have borrowed student loans you will be required to pay these loans shortly after your schooling has ended and a portion of whatever you do earn will be devoted to repayment. Student loan repayment can put you on a long term financial diet and many borrower struggle to create a balanced budget with debt repayment and lower entry-level wages. Debt repayment can last many years and during this time your career may experience ups and downs and sometimes economic conditions can result in periods of job loss. The best way to survive your student loan repayment period is to become familiar with the student loan rules, as well as the options and programs available to help you if you lose your job and cannot make your payments or fall behind for any reason.
When times are lean a borrower may find it very difficult to purchase their first home, plan for a wedding, save for retirement, or even keep balances low on other debts such as credit cards. Statistics Canada, studied the group of students who graduated college/university during the 2009/2010 school year, reporting the following information:
Among the 2009/2010 [group] with student debt to any source, college graduates owed the least at $14,900. Student loans for both bachelor and master’s graduates were just over $26,000, while doctorate graduates owed an average of $41,100 at the time of graduation.
With so much student loan debt to repay after completing school, repayment terms are very flexible and are based in part on what a borrower can afford to repay on a monthly basis – this can result student loans taking a really long time to be repaid and in the meantime interest payments continue to grow. Student loans are different from other types of debt and understanding the basics can really help during the many years a borrower is in repayment.
So what IS different about student loans?
- Student loans generally have a lower interest rate.
- Student loans may come from the federal and/or provincial government but banks can also lend students money without government involvement.
- Student loans borrowed from the government cannot automatically be eliminated by a bankruptcy or a consumer proposal until at least 7 years have passed since your studies ended (this could mean full or part-time studies).
What should I do if I’m having trouble with my payments?
When repayment becomes difficult due to job loss or for any other reason, it is a good idea to contact the provincial or federal Student Loans office right away to discuss repayment assistance options. First, ask about your end of study date so that you know how old your student loan debt(s) are. Once you know the age of your loans as recorded by the government, you can ask about repayment assistance programs and select the option that will help you weather the storm. Your end of study date is where to begin when counting years to determine if your loans would survive a bankruptcy or proposal, which we will discuss in our next article Understanding Student Loan Debt – Part II: Insolvency.
What are Government repayment assistance programs?
Our government recognizes that while maximum payments will help pay down your debt in the fastest time possible, if your budget is too tight you will not be able to afford basic living costs. As a result, Canada Student Loans offers repayment assistance programs that may help you. Interest relief and term revision options are temporary measures that can help while you find ways to increase your income or reduce your expenses and make repayment easier. Debt forgiveness is also possible, though it may not be for the full amount that you owe. Sometimes a repayment assistance program can help during a consumer proposal or a bankruptcy to stop interest from accruing on student loans that will survive the debt relief process. The advantage being that borrowers who have built up additional debts such as credit cards, can clear up as much debt as possible while also getting a break from student loan interest. For borrowers who have been in repayment and applied for repayment assistance in the past, there is also a point where you will have exhausted your assistance options, at which time it may be appropriate to consider a bankruptcy or a consumer proposal.
Stay tuned with more information on Part 2 of 2 on Student Loans.
If your student loan payments are stretching your budget too thin, a solution may be available to move you forward from financial distress to financial success. Let’s chat!
Rebecca Frederick, Licensed Insolvency Trustee
Frederick & Company
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