Expert Advice: I can't pay my student loan
Do you have a financial question that's keeping you up at night? Ever wished you could get a second, or third, opinion on what to do with your money? Here's your chance: Bankrate.ca hosts a monthly feature whereby you submit [firstname.lastname@example.org] a question, and we ask industry experts to weigh in. The topics are up to you -- you ask the questions, and we'll get the answers.
Here's this month's question: "I'm a university graduate struggling to make ends meet and I can't find a 'real' job: I have line of credit, some credit card debt and now my student loan is coming due. I can't pay it -- what are my options?"
It's a challenging time to be a new grad, especially one with major debt and limited employment prospects. Canada's unemployment rate for young people is an overwhelming 13.9 per cent and Statistics Canada reports the average student-loan debt for undergraduates is about $19,000 -- that doesn't include consumer debt or lines of credit tapped out in order to make ends meet.
It's little wonder you're feeling stressed. The six-month grace period you're allotted before you have to make student loan payments is almost over, interest is accumulating and your monthly payments are about to kick in.
The majority of defaults on Canada Student Loans occur within three years of entering repayment, according to Human Resources Development Canada. Loans are expected to be paid off in 114 months (or less). You're considered to be in delinquency if you fail to make scheduled payments and missing payments for longer than 270 days is defaulting, which can have serious consequences.
But, it doesn't need to come to that, says our experts.
Jeffrey Schwartz, executive director of Toronto-based Consolidated Credit Counseling Services of Canada.
"The first step in improving the situation is getting organized -- understand the issues that face you and get help," says Schwartz, who recommends contacting the National Student Loans Services Centre, or NSLSC. (1-888-815-4514). "There are several hardship programs available through the loan office."
Prior to 2009, students could apply for revision of terms, interest relief, loan forgiveness and the permanent disability benefit. That changed in August 2009 when the Government of Canada implemented the Repayment Assistance Plan (RAP).
RAP consists of two stages.
- Stage 1: Borrowers who qualify make affordable payments towards their loan principal based on their individual situation. The payment may be zero for a limited time, depending on circumstances -- borrowers are not required to make payments exceeding 20 per cent of their income. The idea is that paying the loan principal first reduces total debt. During this stage the Government of Canada covers the interest amount owing. At the end of 60 months, or if a borrower has been in repayment for 10 years or more, the borrower may qualify for Stage 2.