Help With Student Loan Debt
One of the more common types of debt that we see people struggling with is student loans. There are many reasons for this which can range from the large size of the student loans to the inability to secure a sufficiently well paying job. If this has become a problem in your financial life you need to know where you can turn to find help with student loan debt.
Where to Start
We always recommend starting with the facts when you are making a financial decision. For instance, how much is actually owed between your Federal Student Loan and your Provincial Student Loan? Also, what are the effective interest rates on the loans? These can vary depending on prime rate and can be a function of the split between Federal and Provincial loan balances.
However, most important, as we will discuss below, is how long has it been since you were last in school? This is extremely important and you should be absolutely certain. We often recommend contacting the relevant student loan office to confirm what date is being shown on their records as it may not coincide with the last physical day you were in school.
What the Law Says
If you have been in post secondary school more than once there can be confusion as to when you were last in school, as it relates to your student loan. Let’s say that you enrolled in college right out of high school and used a student loan to help you pay the bills. You then graduated and entered the workforce.
You would think that graduation would be your last day in school relating to that student loan. Not so fast. Let’s further say that you returned to a post secondary institution some ten years later to complete a Masters which you paid for with the help of a line of credit. Your last date in school would be when the Masters finished.
This is important because Section 178(1)(g) of the Bankruptcy and Insolvency Act states that in order for a student loan to be completely extinguished by a Bankruptcy or a Consumer Proposal, it must be seven years since the last date of the program you were last enrolled in. This was reaffirmed in 2015 in the BC Court Decision of Re: Mallory (2015 BCSC5)
More recently, this matter of dual school enrollments was brought back before the BC Supreme Court. In a recent decision of Re: Piekut (2021 BCSC 1883) the Court declined to change the law. We understand that this is now under appeal.
This is being referred to as a “single date” vs “multiple date” issue.
Courts across Canada have interpreted this multiple date issue differently and therefore you will have to pay attention to which province you are in before coming to any conclusion. We suspect this will continue to be a confusing issue.
Over the last two years, due to the onset of the Covid 19 pandemic, we have noticed that the Government has reduced its collection activity on student loans and taken the pressure off of collection activity. In addition, they have not been charging interest.
This could change at any time. We think you should get ahead of that potential increased collection activity.
Government help with student loan forgiveness may be available depending on your situation. We think it is important to spend some time on the websites for both the National Student Loan Centre (for Federal Loans) and your Provincial Student Loan website.
By contacting the National Student Loan Centre, they may be able to help you with by
- Reducing your monthly payment or
- Providing you with repayment assistance
The Provincial Government may be able to help with the Provincial part of your student loan depending upon if you are working in an underserved area of the province or if you are working with children.
Other Government Help
What if repayment assistance or forgiveness is not enough to provide relief? This could be the case especially if you have other types of debt like credit cards or payday loans.
Another way that the Government has helped with student loan debt is through the Federal process of getting Bankruptcy protection or by the filing of a Consumer Proposal. Either of these two options will provide immediate relief from collection pressure. Once successfully completed, they may also extinguish the debt altogether provided that it has been longer than 7 years since your last date of studies.
What if I have Been out of School for Less than Seven Years?
If you file for Bankruptcy protection or a Consumer Proposal and you have been out of school for less than seven years, your student loan will survive the process. After your LIT has been discharged, the lender will be able to collect again.
However, there is a clause within the Bankruptcy and Insolvency Act that states if you have been out of school for 5 years you can apply to the Court for total relief from your student debt.
We have not seen many people in this category. In addition, it is not the easiest process to interact with the Court if you are not used to it. If the dollar figures are big enough, and you are in this situation, we would recommend that you consult with a lawyer for assistance to pursue this option.
Student Loan Debt: Next Steps
If you have student loan debt, have been struggling with your overall personal debts, and are thinking about getting protection from your creditors – your student debt can be extinguished by a Bankruptcy or a Consumer Proposal if you have been out of school for seven years.
If it has been less than seven years since you have been out of school then the situation gets murky. You may need to keep an eye on the Court decision mentioned above before making a final choice as to what to do.
This becomes even more relevant if you have been in post-secondary school on multiple occasions.
Free Initial Assessment
Please don’t hesitate to reach out for advice. At our office, we provide a complimentary initial meeting where you can ask questions and get feedback from a CPA as to different options that may help you reorganize your finances. Contact us at one of our convenient locations to set up a time that fits your schedule.